TRANSPORTATION

Historically, our output has been transported to customers by truck and rail, most of which is provided by common carriers. We use third party transportation companies to help us manage truck and rail carriers who deliver ~~inbound materials to us and deliver~~ our products to our North American customers. As of December 31, ~~2014,~~2016, we leased ~~194~~207 rail cars under operating leases.

RAW MATERIALS AND PACKAGING MATERIALS

Our principal distillery products segment raw materials are corn and other ~~feedstock,~~grains (including rye, barley, wheat, barley malt, and milo), which are processed into food grade alcohol and distillery co-products consisting of distillers feed, fuel grade alcohol, ~~distillers feed~~ and corn oil. Our principal ~~ingredients~~ingredient solutions segment raw material is wheat flour, which is processed into starches and proteins. ~~For the year ending December 31, 2014,~~The cost of grain has at times been subject to substantial fluctuation.

In 2016, we purchased most of our grain requirements from ~~one supplier, Bunge Milling. Our historical practice has been to order corn for a month at a time. We have contracted our grain supply with~~two suppliers, Bunge Milling ~~since 2012.~~and Consolidated Grain and Barge ("CGB"). Our current grain supply ~~contract~~contracts with Bunge Milling ~~expires~~and CGB both expire December 31, 2017. ~~This contract permits~~These contracts permit us to purchase grain for delivery up to 12 months into the future at negotiated ~~prices. The pricing is~~prices, based on a formula using several factors. We ~~expect to~~also order ~~grain~~wheat flour anywhere from one to 1224 months into the future. We provide for our wheat flour requirements through a supply contract with Ardent Mills, ~~(formerly ConAgra Mills) whose~~which has a term ~~as amended,~~that expires ~~in October 2015. The supply contract is automatically renewable~~July 10, 2019. We typically enter contracts for ~~an additional term of five years unless either party gives at least 180 days written notice of termination. Pricing is based~~future delivery only to protect margins on ~~a formula that contains several factors. A less significant raw~~contracted alcohol sales, expected ingredient sales, and general usage.

Our principal packaging material for our distillery products segment is oak ~~barrels, both~~barrels. Both new and used ~~which~~barrels are ~~required~~utilized for the aging of premium bourbon and ~~whiskey.~~rye whiskeys. We purchase oak barrels from ~~five~~multiple suppliers and some customers supply their ~~own.~~own barrels.

The cost of grain has historically been subject to substantial fluctuations, depending upon factors such as crop conditions, weather, disease, plantings, government programs and policies, competition for acquisition of inputs such as agricultural commodities, purchases by foreign governments and changes in demand resulting from population growth and customer preference. Variations in grain prices have had, from time to time, significant adverse effects on the results of our operations in cases where we cannot recoup the cost increase in our selling prices. FuelWe also source food grade alcohol ~~prices, which historically have tracked the cost of gasoline, do not usually adjust~~from Illinois Corn Processing, LLC ("ICP"), our 30 percent owned joint venture. See additional information related to ~~rising grain costs. It generally has been difficult for us to compensate for increases~~ICP in grain costs through adjustments in prices charged for our vital wheat gluten due to subsidized European Union wheat gluten, whose traditionally lower prices are not affected by such costs. We have taken steps to reduce the impact of cost fluctuations on our business, primarily by ceasing and/or significantly reducing our production "Equity Method Investments" below,MD&A,and marketing of lower and negative margin commodity type products such as gluten and fuel grade alcohol, but we will continue to be affected by cost fluctuations to some degree, particularly when they are volatile.Note 3.

ENERGY

~~Because energy constitutes a major cost of operations, we seek to assure the availability of fuels at competitive prices.~~

We use natural gas to operate boilers that we use to make steam heat. We procure natural gas for our facilities in the open market from various suppliers. We ~~can~~have a risk management program whereby we may purchase contracts for the delivery of natural gas in the future at predetermined prices or we can purchase ~~future~~futures contracts on the exchange. Depending on existing market conditions, in Atchison we have the ability to transport gas through a gas pipeline owned by a wholly-owned subsidiary. Historically, prices of natural gas have been higher in the late fall and winter months than during other periods.

We have a risk management program whereby we may purchase at pre-determined prices a portion of our natural gas requirements for future delivery. However, we typically enter contracts for future delivery only to protect margins on contracted alcohol sales and expected ingredients sales and general usage.

EMPLOYEES

As of December 31, ~~2014,~~2016, we had a total of ~~268~~311 employees. A collective bargaining agreement covering 95105 employees at the Atchison facility ~~that was due to expire~~expires on ~~August 31, 2014 was renewed until~~ August 31, 2019. Another collective bargaining agreement covering 4860 employees at the ~~Indiana~~Lawrenceburg facility expires on December 31, 2017. ~~As of December 31, 2013, we had a total of 268 employees.~~ We consider our relations with our personnel generally to be good.

REGULATION

We are subject to a broad range of federal, state, local and foreign laws and regulations intended to protect public health and the environment. Our operations are also subject to regulation by various federal agencies, including the Alcohol and Tobacco Tax Trade Bureau ("TTB"), the Occupational Safety and Health Administration ("OSHA"), the Food and Drug Administration ("FDA") and the ~~United States~~U.S. Environmental Protection Agency ("~~USEPA"~~EPA"), and by various state and local authorities. Such regulations cover virtually every aspect of our operations, including production and storage facilities, marketing, pricing, labeling, packaging, advertising, water usage, waste water discharge, disposal of hazardous wastes and emissions and other matters.

Our alcohol business is subject to regulation by the Alcohol and Tobacco Tax and Trade Bureau ("TTB") and the alcoholic beverage agencies in the States of Kansas, Illinois and Indiana. Food products are also subject to regulation by the Food and Drug Administration. TTB regulation includes periodic TTB audits of all production reports, shipping documents, and licenses to assure that proper records are maintained. We are also required to file and maintain monthly reports with the TTB of alcohol inventories and shipments. ~~We are currently being audited by the TTB for the period from December 27, 2011 to November 30, 2014. The outcome of this audit is unknown at this time.~~

We are subject to extensive environmental regulations at the federal, state and local levels. All of our principal facilities are regulated at the federal level by the USEPA. The USEPA has adopted regulations requiring the owners of certain facilities to measure and report their greenhouse gas emissions, and has also begun a process to regulate these emissions under the Clean Air Act. At the state level, we are regulated in Kansas by the Division of Environment of the Kansas Department of Health and Environment ("KDHE") and in Indiana by the Indiana Department of Environmental Management. In Illinois, our joint venture entity, ICP, is regulated by the Illinois Environmental Protection Agency. We are required to obtain operating permits and to submit periodic reports to regulating agencies.

Our current National Pollutant Discharge Elimination System permit is valid through September 30, 2015. We submitted a draft research study to the KDHE on July 31, 2014 regarding the improvements needed to reduce phosphorus

~~concentrations in the wastewater discharges at the Atchison facility. The final study report is due by May 24, 2015.~~

In June and July 2014, we exceeded the limit for facility-wide individual hazardous air pollutants. The KDHE issued an order on January 29, 2015 to resolve this issue. All provisions of the order have been completed. We paid a $6 fine to the KDHE and have requested termination of the order.

~~INVESTMENT IN~~ EQUITY METHOD INVESTMENTS

Illinois Corn Processing, LLC ("ICP"). On November 20, 2009, we completed a series of related transactions pursuant to which we contributed our Pekin facility and certain maintenance and repair materials to a newly-formed company, ICP, and then sold 50 percent of the membership interest in ICP to ICP Holdings, an affiliate of SEACOR. ICP reactivated distillery operations at the Pekin facility during the quarter ended March 31, ~~2010.~~2010, and now produces high quality food grade alcohol, chemical intermediates, and fuel.

~~On February 1, 2012, ICP Holdings exercised its option and purchased an additional 20 percent from us for $9,103, reducing our ownership from 50 percent to 30 percent.~~

In connection with these transactions, we entered into various agreements with ICP and ICP Holdings, including a Contribution Agreement, an LLC Interest Purchase Agreement and a Limited Liability Company Agreement. Under the LLC Interest Purchase Agreement, we sold ICP Holdings 50 percent of the membership interest in ICP. This agreement gave ICP Holdings the option to purchase up to an additional 20 percent of the membership interest in ICP at any time between the second and fifth anniversary based on an agreed to criteria. ~~As described above, this option was exercised on~~On February 1, ~~2012.~~2012, ICP Holdings exercised its option and purchased an additional 20 percent from us for $9,103, reducing our ownership from 50 percent to 30 percent.

Pursuant to the Limited Liability Company Agreement, control of day to day operations generally is retained by the members, acting by a majority in interest. Following ICP Holdings' exercise of its option referred to above, ICP Holdings owns 70 percent of ICP and generally is entitled to control its day to day operations. The Limited Liability Company Agreement also provides for the creation of an advisory board which consists of two ~~advisors~~advisers appointed by us and four ~~advisors~~advisers appointed by ICP Holdings. All actions of the advisory board require majority approval of the entire board, except that any transaction between ICP and ICP Holdings or its affiliates must be approved by the ~~advisors~~advisers appointed by us. The Limited Liability Company Agreement gives either member certain rights to shut down the facility if it operates at a loss. Such rights are conditional in certain instances but absolute if EBITDA (as defined in the agreement) losses are an aggregate $1,500 over any three consecutive quarters or if ICP's net working capital is less than $2,500. ICP Holdings also has the right to shut down the facility if ICP is in default under its loan agreement for failure to pay principal or interest for two months.

~~ICP’s~~On April 9, 2015, ICP obtained a $30,000 revolving credit ~~agreement~~facility with JPMorgan Chase Bank, N.A., which may be increased in the future by an additional $20,000, subject to lender approval. The revolver matures on April 9, 2018. Simultaneous with the execution of the April 2015 revolving credit facility, ICP terminated its $15,000 amended and restated revolving credit facility with an affiliate of SEACOR, ~~has been amended and restated~~which would have matured January 31, 2016. We have no obligation to ~~extend the maturity to January 1, 2016. The Company has no further~~provide additional funding ~~requirement~~ to ICP.

D.M. Ingredients GmbH ("DMI"). In 2007, we acquired a 50 percent interest in DMI, a German joint venture company that produces certain of our specialty ingredients products through a toller for distribution in the European Union ("E.U.") and elsewhere. ~~As of December 31, 2014 our total capital commitment to the joint venture was $750, of which we had contributed $571.~~

On December 29, 2014, we gave notice to ~~DMI~~D.M. Ingredients, GmbH, ("DMI") and to our partner in DMI, Crespel and Dieters GmbH & Co. KG ("C&D"), to terminate ~~the~~our joint venture effective June 30, 2015. C&D also provided notice to terminate DMI effective June 30, 2015. On June 22, 2015, a termination agreement was executed by and between us, DMI, and C&D to dissolve DMI effective June 30, 2015. On June 22, 2015 a termination agreement was executed by and between us and DMI to terminate our distribution agreement effective June 29, 2015. Under German law, ~~beginning~~commencing on June 30, 2015, normal operations for DMI ~~will cease~~ceased and a ~~one-year~~one year winding updown process ~~will begin. Any distribution~~began once the registration of resolutions, appointment of liquidators, inventory count, and publication of the notice to potential creditors was complete, which occurred on October 29, 2015. On December 23, 2016, we received our portion of the remaining DMI liquidation proceeds, ~~is expected to occur in the third quarter~~which totaled $351, as a return of ~~2016.~~our investment.

EXECUTIVE OFFICERS OF THE REGISTRANT

~~The Company’s~~Our officers as of December 31, ~~2014~~2016 and their ages as of March ~~12, 2015~~8, 2017 are listed below.



~~Name~~	~~Age~~	~~Position~~
~~Augustus C. Griffin~~	55	~~President and Chief Executive Officer~~
~~Donald P. Tracy~~	57	~~Vice President, Finance and Chief Financial Officer~~
~~Randall M. Schrick~~	64	~~Vice President, Production and Engineering~~
~~David E. Dykstra~~	51	~~Vice President, Alcohol Sales and Marketing~~
~~Michael R. Buttshaw~~	52	~~Vice President, Ingredient Sales and Marketing~~
~~David E. Rindom~~	59	~~Vice President, Human Resources~~



Name	Age	Position	First elected to officer position
Augustus C. Griffin	57	President and Chief Executive Officer	2014
Thomas K. Pigott	52	Vice President, Finance and Chief Financial Officer	2015
Stephen J. Glaser	56	Vice President, Production and Engineering	2015
David E. Dykstra	53	Vice President, Alcohol Sales and Marketing	2009
Michael R. Buttshaw	54	Vice President, Ingredient Sales and Marketing	2014
David E. Rindom	61	Vice President and Chief Administrative Officer	2000
Andrew P. Mansinne	57	Vice President, Brands	2016

Mr. Griffin has served as President and Chief Executive Officer of MGP since July 2014 and as a member of the Board of Directors since August 2014. ~~Immediately prior~~Prior to joining MGP, Mr. Griffin ~~spent a year~~served from April 2013 to January 2014 as Executive Vice President of Marketing for Next Level Spirits, a northern ~~California-based~~California based producer, importer and distributor of premium wine and spirits brands. Between November 2011 and March 2013, he served as Brand and Business Consultant for Nelson’s Green Brier ~~Distillery, Nashville, Tennessee.~~Distillery. From January 2008 to April 2011, Mr. Griffin was Senior Vice President, Global Managing Director of Brown Forman Corporation's flagship Jack Daniels business. Prior to ~~2011,~~2008, he served for 24over 20 years ~~with Brown-Forman Corporation~~ in increasingly important brand management and general management leadership roles ~~where he ultimately became Senior Vice President and Global Managing Director in charge of the company's flagship Jack Daniel’s business in 2008.~~at Brown Forman.

Mr. ~~Tracy~~Pigott has ~~held the position of~~served as Vice President of Finance and Chief Financial Officer ~~of MGP~~ since ~~November 2009. From December 2013~~September 2015. Prior to ~~July 2014, he also served as Interim Co-Chief Executive Officer. From 2006 until~~ joining MGP, Mr. ~~Tracy~~Pigott served asin various Vice President roles with Kraft Foods Group. He was Vice President of Finance for the Meal Solutions Division from March 2015 to August 2015, Vice President of Finance for the Meals and Desserts Business Unit from May 2014 to March 2015, and Vice President of Finance and Chief ~~Financial Officer~~Audit Executive from October 2012 to April 2014. From April 2010 to October 2012, Mr. Pigott was Vice President of Finance for the Pizza Division at ~~Emery Oleochemicals, a global chemical manufacturer,~~Nestle, U.S.A., and from March 2010 to May 2010, he was based in Cincinnati. He previously served as Chief Financial Officer at Briggs Industries at the company’s United States headquarters in Charleston, South Carolina. Before that, Mr. Tracy spent four years with Tenaris Corp., a global producer of steel pipe, asSenior Director of ~~Financial Projects~~Finance for the Pizza Division at Nestle, U.S.A. Prior to joining Nestle, between 1994 and ~~subsequently as Chief Financial Officer~~2010, Mr. Pigott held a succession of ~~Tenaris North America.~~chief financial officer and other financial leadership positions across a wide number of operating divisions at Kraft Foods. His ~~previous~~ experience ~~included 10 years with the Procter & Gamble Company.~~spans financial planning, analysis, audit and investor relations functions.

Mr. ~~Schrick~~Glaser has served as Vice President of Production and Engineering at MGP since ~~September 2014. Prior to this role,~~October 2015. Previously, he was Vice President of Engineering from June 2009 to September 2014. Mr. Schrick additionally held the role of Interim Co-Chief Executive Officer from December 2013 to July 2014. He served as President of the Company’s joint venture operation in Pekin, Illinois, ICP, from November 2009 to December 2011. Previously, Mr. Schrick was Corporate Director of ~~Distillery Products Manufacturing~~Operations since January 2014 and Plant Manager of the Company’s Atchison, Kansas, facility from ~~June~~May 2011 to December 2013. Prior to joining the Company, Mr. Glaser served for three years, from March 2008 to ~~June 2009~~April 2011, as President and ~~was~~Chief Executive Officer of Briggs Industries, a leading, multi-site international kitchen and bath products business, following three years as Vice President ~~Manufacturing~~of Operations for the company. Preceding his employment at Briggs, he held supply chain related positions with increased responsibility at Sony Electronics, Ingersoll Rand’s Schlage Lock Company, and Engineering from July 2002 to June 2008. Mr. Schrick joined MGP in 1973 and served in various increasingly important production positions, including Vice President - Operations from 1992 until July 2002. He was a Director of the Company from 1987 to 2008.Electrolux Home Products.

Mr. Dykstra has served as Vice President of Alcohol Sales and Marketing at MGP since 2009. He previously ~~has~~had been ~~industrial alcohol sales~~Industrial Alcohol Sales manager since 2006. He first joined the Company in 1988 eventually serving as ~~director~~Director of ~~sales~~Sales for both beverage and fuel grade alcohol. In 1999, he left the ~~company~~Company to assume the role of ~~vice president~~Vice President of ~~sales~~Sales and ~~marketing~~Marketing for Abengoa Bio ~~Energy, Wichita, Kansas.~~Energy. He remained in that position until 2003, when he joined United Bio Energy Fuels, L.L.C.~~, in Wichita~~ as ~~vice president~~Vice President of ~~that company’s~~the alcohol marketing division. He returned to ~~the Company~~MGP in 2006.

Mr. Buttshaw has served as Vice President of Ingredients Sales and Marketing at MGP since December 2014. He previously ~~spent four years~~served from October 2010 to November 2014 as Vice President of Sales for the ingredient group at Southeastern Mills, Inc.~~, Rome, Georgia.~~ Just prior to that, Mr. Buttshaw was Vice President of Sales and Marketing for Penford Food ~~Ingredients, Centennial, Colorado.~~Ingredients. This followed two years as Vice President of Sales and Business Development-specialty enzymes for DSM Food ~~Specialties, Parsippany, New Jersey.~~Specialties. From 1985 to 2008, Mr. Buttshaw was employed with Hormel Foods ~~Corporation, Austin, Minnesota.~~Corporation.

Mr. Rindom ~~joined the Company in 1980. He~~ has served as Vice President and Chief Administrative Officer at MGP since December 2015. He previously served as the Company's Vice President, Human Resources since June 2000. HeMr. Rindom was Corporate Director of Human Relations from 1992 to June 2000, Personnel Director from 1988 to 1992, and Assistant Personnel Director from 1984 to ~~1988.~~1988 after his employment with the Company began in 1980.

Mr. Mansinne has served as Vice President of Brands since November 2016. Prior to joining the Company, Mr. Mansinne served as a managing director at Intercontinental Beverage Capital, as well as President of Tattico Strategies, in Bethesda, Maryland, from March 2015 through October 2016. Between May 2010 and April 2014, Mr. Mansinne was President of Aveniu Brands in Baltimore. He also served as Chief Executive Officer of DOmedia, Columbus, Ohio, from 2008 to 2010 following a year as Vice President of Marketing for Fosters Wine Estates, Napa, California. Mr. Mansinne served as a Senior Vice President at Brown-Forman Corporation, Louisville, Kentucky, where he began as Brand Director in 1995. Prior to 1995, Mr. Mansinne served in marketing and product management roles with other major consumer products companies, including The Quaker Oats Company, G. Heileman Brewing Company, and Ralston Purina Company.

ITEM 1A. RISK FACTORS

Our business is subject to certain risks and uncertainties. The following discussion identifies those which we consider to be most ~~important:~~important. The following discussion of risks is not all inclusive. Additional risks not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, or results of operations.

RISKS THAT AFFECT OUR BUSINESS AS A WHOLE

An interruption of operations, a catastrophic event at ~~either~~ our ~~Atchison facility, our Indiana facility, at the ICP facility,~~facilities, or a disruption of transportation services could negatively affect our business.

~~The bulk of our ingredient solutions production takes place at our facility in Atchison, while food grade alcohol is produced at both our Atchison~~Although we maintain insurance coverage for various property damage and ~~Indiana facilities. An~~loss events, an interruption in or loss of operations at either of our facilities, or the facilities of ICP, could reduce or postpone production of our products, which could have a material adverse effect on our business, results of operations and/or financial condition. To the extent that our ~~value-added~~value added products rely on unique or proprietary processes or techniques, replacing lost production by purchasing from outside suppliers becomes more difficult.

~~We hold~~Our customers store a substantial amount of barreled inventory of aged ~~whiskeys~~premium bourbon and ~~bourbons~~rye whiskeys at our ~~Indiana~~Lawrenceburg facility. If there ~~were~~was a catastrophic event at our ~~Indiana~~Lawrenceburg facility, our customers' business could be adversely affected. The loss of a significant amount of aged inventory - through fire, natural disaster, or otherwise - could result in a significant reduction in supply of the affected product or products and, if we are negligent in the custodial care of our customers' inventory, this could result in customer claims against us.

We ~~source industrial alcohol products from ICP. We participate in ICP's operating results through~~also store a substantial amount of our ~~equity investment in ICP. An interruption in or~~own inventory of aged premium bourbon and rye whiskeys at our Lawrenceburg facility. If there was a catastrophic event at our Lawrenceburg facility, our business could be adversely affected. The loss of ~~operations at ICP’s Pekin, Illinois facility~~a significant amount of our aged inventory through fire, natural disaster, or otherwise could ~~have~~result in a ~~material adverse effect on~~reduction in supply of the affected product or products and could affect our ~~business, results of operations and/or financial condition.~~long-term growth.

A disruption in transportation services could result in difficulties supplying materials to our facilities and impact our ability to deliver products to our customers in a timely manner.

Our profitability is affected by the costs of energy, grain, and wheat flour that we use in our business, the availability and cost of which are subject to weather and other factors beyond our control. We may not be able to ~~recoup in our selling prices changes in~~recover the ~~prices~~costs of commodities and ~~natural gas.~~energy by increasing our selling prices.

Grain and wheat flour costs are a significant portion of our costs of goods sold. Historically, the cost of such raw materials has been subject to substantial fluctuation, depending upon a number of factors which affect commodity prices in general and over which we have no control. These include crop conditions, weather, disease, plantings, government programs and policies, competition for acquisition of inputs such as agricultural commodities, purchases by foreign governments, and changes in demand resulting from population growth and customer preferences. The price of natural gas also fluctuates based on anticipated changes in supply and demand, weather and the prices of alternative fuels. Fluctuations in the price of commodities and natural gas can be sudden and volatile at times and have had, from time to time, significant adverse effects on the results of our operations. Higher energy costs could result in higher transportation costs and other operating costs.

We ~~have eliminated~~do not enter into futures and options contracts because we can purchase ~~corn~~grain and wheat flour for delivery up to 12 months into the future under our grain supply agreements. We intend to contract for the future delivery of grain and wheat flour, only to protect margins on expected ~~ingredients~~ sales. On the portion of volume not hedged, ~~Management~~we will attempt to recover higher commodity costs through higher ~~sales~~selling prices, but market considerations may not always permit this. Even where prices can be adjusted, there would likely be a lag between when we experience higher commodity or natural gas costs and when we might be able to increase prices. To the extent we are unable to timely pass increases in the cost of raw materials to our customers under sales contracts, market fluctuations in the cost of grain, natural gas and ethanol may have a material adverse effect on our results of operations and financial condition.

We source our grain and wheat flour from a limited number of suppliers.

We have a signed supply agreements with Bunge Milling and CGB for our grain supply (primarily corn) and Ardent Mills ~~(formerly ConAgra Mills)~~ for our wheat flour. If ~~either~~any of these companies encounters an operational or financial issue, or otherwise ~~can not~~cannot meet our supply demands, it could lead to an interruption in supply to us and/or higher prices than those we have negotiated or than are available in the market at the time.

~~There may be risks with the effectiveness or execution of~~Risks related to our ~~new five-year strategic plan.~~30 percent equity method investment in ICP:

If our business strategy is unsuccessful, or if we otherwise fail to develop or implement effective strategies, our growth, stock price, or financial results could suffer. More broadly, consumers may shift away from spirits (particularly brown spirits) or high fiber, high protein, or non-GMO products. Many of these risks are beyond our control. Failure to effectively execute or implement our strategic plan could have a material adverse effect on our results of operations, cash flows and financial condition.

~~Any business interruptions and the timing of the associated insurance recovery, if any, may cause volatility in our operating results.~~

In January 2014, we experienced a fire at our Indiana facility. In December 2014, we negotiated a final settlement with our insurance carrier to close this claim. As part of the settlement, MGP agreed to assume the risk of any future downtime of the repaired equipment until the permanent replacement is installed, which is expected by the end of 2015. The cost of the replacement is likely to exceed the cost of settlement funds received from the insurance carrier. Because the potential exists for business interruption until completion of permanent repairs, and because the installation is complex, we may experience volatility in our future operating results.

During October 2014, we experienced a fire at our Atchison facility. We are currently working with our insurance carrier to determine the coverage for equipment repairs and business interruption losses. Because the timing and amount of the business interruption and the insurance recovery may differ, we may experience volatility in our future operating results.

ICP, like many others in the ethanol industry, ~~has recently~~in 2014 experienced high levels of profitability, resulting in a disproportionate share toof our ~~improvements~~improvement in net income for the year ended December 31, 2014, and ~~these~~those levels may not ~~be sustained.~~recur. Because of ICP's ~~recent~~ strong financial performance, ICP was able to distribute cash to us, but this may not recur.

Our proportionate share of the profits of ICP has ~~recently~~in the recent past had a significant positive impact on our net income. The ~~significant~~ earnings ~~improvement from 2013 to~~performance in 2014 was due to ~~much improved~~strong margins in the production of chemical intermediates and high quality alcohol. The ~~improved~~ margins were driven primarily by a low current supply and strong demand for these products and for fuel grade alcohol, which ~~affects~~affected their pricing. From 2014 to 2015, while ICP experienced lower sales volumes and a lower average per unit selling price, our proportionate share of the earnings of ICP results continued to have a positive impact on our earnings. From 2015 to 2016, while ICP has experienced higher sales volumes, per unit average selling prices were lower, reflective of less favorable market conditions than recent years and resulting in a lower positive impact to our earnings. We currently expect that ICP's recent levels of profitability may not be sustained and, as a consequence, that ICP's contributions to our future net income may be reduced.

On December 4, 2014, we received a $4,835 cash dividend distribution from ICP. ~~This is the first~~On February 26, 2016, we received a second cash dividend distribution ~~we have received~~ from ICP in the amount of $3,300, which was our 30 percent ownership share of the total distribution (see Notes 3 and ~~there~~14). There is no assurance ~~such~~cash dividend distributions will be received from ICP in the future.

If ICP incurs losses, it could result in closure of its Pekin facility. ICP’s access to capital may limit needed financing. Either of these events could result in reduced sales and impairment losses in the future for us.

ICP's Limited Liability Company Agreement grants the right to either member to elect to shut down the Pekin facility if ICP operates at an EBITDA loss of $500 in any quarter, subject to the right of the other member to override that election. If the Objecting Member overrides the election, then EBITDA loss and EBITDA profit for each subsequent quarter are allocated 80 percent to the Objecting Member and 20 percent to the Electing Member until the end of the applicable quarter in which the Electing Member withdraws its Shutdown Election and thereafter allocations revert to the general 70 percent/30 percent split (subject to a catch-up allocation of 80 percent of EBITDA profits to the Objecting Member until it equals the amount of EBITDA loss allocated to such member on an 80 percent/20 percent basis).

Either we or ICP Holdings has the absolute right to cause the shutdown of the Pekin facility if ICP losses aggregate $1,500 over any three consecutive quarters or if ICP’s net working capital is less than $2,500.

ICP experienced an EBITDA loss in excess of $500 for the quarter ended March 31, 2013, which was one factor that prompted the Company to provide notice to shut down the facility on April 18, 2013 (withdrawn on March 31, 2014), but ICP experienced positive EBITDA for the remainder of 2013 and has sustained this performance in 2014. There can be no assurance that ICP will continue to experience positive EBITDA. While ICP had a significant amount of cash on hand in late 2014 and a line of credit with SEACOR through January 1, 2016, its ability to secure financing could limit its operations in the future.

~~The Company has~~We have a minority interest in ICP, ~~and that could limit~~which limits our ability to influence ICP's operations and profitability.

We have a minority interest in ICP of 30 percent, and have only two representatives on the ~~six-member~~six member Advisory Board of ICP. Our minority ownership position and limited advisory role mean that our ability to influence operating decisions and affect profitability of the joint venture is limited. We do not control ICP's operations, strategies, or financial decisions. The majority equity owner may have economic, business or legal interests that are inconsistent with our goals or the goals we would set for ICP. We are dependent on the management of ICP and the other members of the Advisory Board to operate the joint venture profitably and take our interests into account. We must rely on others to implement beneficial management strategies, including appropriate risk management, internal controls over financial reporting, and compliance monitoring. The ICP Limited Liability Company Agreement generally allocates the profits, losses and distributions of cash of ICP based on our percentage membership interest in ICP, which is derived from our capital contributions to ICP relative to the total contributions to ICP from all members. Our proportionate share of the earnings and losses are reflected in our financial statements. Any cash distributions from ICP (other than certain mandatory distributions for tax liabilities) must be approved by the Advisory Board, which we do not control.

Our ability to supply our ~~basic~~ industrial alcohol business is highly dependent on sourcing the product from ICP or unaffiliated third parties.

~~Pursuant to a Marketing Agreement between us and~~ ICP ~~ICP manufactured and supplied high quality products, including~~has been an important source of industrial alcohol ~~for us~~in the past and we ~~purchased, marketed and sold such products for a marketing fee until January 1, 2013, when the Marketing Agreement expired.~~

~~Our Atchison and Lawrenceburg facilities are constrained in their ability~~expect this to ~~produce additional volumes of industrial alcohol. For 2014 and~~continue into the foreseeable future ~~we expect that ICP or~~along with other third party ~~sources will be important sources of product for us.~~sources. While we plan to continue to source ~~product~~industrial alcohol from ICP in ~~2015,~~2017, ICP is under no obligation to sell ~~us these products.~~to us. If we are unsuccessful in sourcing product from ICP or other sources, our ability to supply our ~~basic~~ industrial alcohol business at current levels ~~will~~could be ~~limited.~~impacted.

We have incurred impairment and restructuring ~~losses~~charges in the past and may suffer such ~~losses~~charges in the future.

We review long-lived assets and goodwill for impairment at year end or if events or circumstances indicate that usage may be limited and carrying values may not be recoverable. Should events indicate ~~the~~that assets cannot be used as planned, the realization from alternative uses or disposal is compared to their carrying value. If an impairment loss is measured, this estimate is ~~recognized.~~recognized and affects our profitability. Considerable judgment is used in these measurements, and a change in the assumptions could result in a different determination of impairment loss and/or the amount of any impairment.

The markets for our products are very competitive, and our results could be adversely affected if we do not compete effectively.

The markets for products in which we participate are very competitive. Our principal competitors in these markets have substantial financial, marketing and other resources, and several are much larger enterprises than us.

We are dependent on being able to generate net sales and other operating income in excess of cost of products sold in order to obtain margins, profits and cash flows to meet or exceed ~~its~~our targeted financial performance measures. Competition is based on such factors as product innovation, product characteristics, product quality, pricing, color and name. Pricing of our products is partly dependent upon industry processing capacity, which is impacted by competitor actions to bring ~~on-line~~online idled capacity or to build new production capacity. If market conditions make our ~~specialty ingredients~~products too expensive for use in consumer goods, our revenues could be affected. If our ~~large~~principal competitors were to decrease their pricing, we could choose to do the same, which could adversely affect our margins and profitability. If we did not do the same, our revenues could be adversely affected due to the potential loss of sales or market share. Our revenue growth could also be adversely affected if we are not successful in developing new ~~ingredients~~ products for our customers or ~~through~~as a result of new product introductions by our competitors. In addition, more stringent new customer demands may require us to make internal investments to achieve or sustain competitive advantage and meet customer expectations.

~~Our~~Unsuccessful research activities or product launches could affect our profitability.

Research activities and product launch activities are inherently uncertain. The failure to launch a new product successfully can give rise to inventory write offs and other costs and can affect consumer perception of an existing brand. Any significant changes in consumer preferences and failure to anticipate and react to such changes could result in reduced demand for our products. If we were to have unsuccessful research activities or product launches, our profitability could be affected.

Work disruptions or stoppages by our unionized workforce could cause interruptions in ~~the Company’s~~our operations.

As of December 31, ~~2014,~~2016, approximately ~~143~~165 of our ~~268~~311 employees were members of a union. Although our relations with our two unions are stable and our labor contracts do not expire until December 2017 and August 2019, there is no assurance that we will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and results of operations and could adversely affect our relationships with our customers.

If we were to lose any of our key management personnel, we may not be able to fully implement our ~~business strategies.~~strategic plan, our system of internal controls could be impacted, and our operating results could be adversely affected.

We rely on the continued services of key personnel involved in management, finance, product development, sales, manufacturing and distribution, and, in particular, upon the efforts and abilities of our executive management team. The loss of service of any of our key personnel could have a material adverse effect on our business, financial condition, ~~and~~ results of ~~operations.~~ operations, and on our system of internal controls.

If we cannot attract and retain key management personnel, or if our search for qualified personnel is prolonged, our system of internal controls may be affected, which could lead to an adverse effect on our operating ~~results could be adversely affected.~~results. In addition, it could be difficult, time consuming and expensive to replace any key management member or other critical personnel, and no guarantee exists that we will be able to recruit suitable replacements or assimilate new key management personnel into our organization.

Covenants and other provisions in our credit facility could hinder our ability to operate. Our failure to comply with covenants in our credit facility could result in the acceleration of the debt extended under such facility, limit our liquidity, and trigger other ~~rights.~~rights of our lenders.

Our credit agreement contains a number of financial and other covenants ~~including~~that include provisions ~~that~~which require us, in certain circumstances, to meet certain financial tests. ~~These covenants may limit or restrict our ability to:~~

~~incur additional indebtedness;~~

~~pay cash dividends or make distributions;~~

~~dispose of assets;~~

~~create liens on our assets;~~

~~pledge the fixed and real property assets; or~~

~~merge or consolidate.~~

These covenants could hinder our ability to operate and could reduce our profitability. For all periods in which the Excess Availability (which is the total availability for loans, less the Company’s and its subsidiaries’ trade payables aged in excess of historical levels and book overdrafts) is less than $10,000, the Borrowers are required to have a Fixed Charge Coverage Ratio ("FCCR"), as defined in ~~Note 4: Corporate Borrowings and Capital Lease Obligations,~~ ~~measured on a month end trailing basis, of at least 1.10:1.00 as of each month-end using a trailing twelve-month measure. See~~ ~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Financial Covenants.~~

In addition, our credit agreement permits the lender to modify borrowing base and advance rates, the effect of which may limit our available credit under the ~~amount of loans that we may have outstanding at any given time.~~agreement. The lender may also terminate or accelerate our obligations under the credit agreement upon the occurrence of various events in addition to payment defaults and other ~~breaches, including such matters as a change~~breaches. Any acceleration of ~~control of the Company, defaults under other material contracts with third parties, and ERISA violations. Any~~our debt, modification to reduce our borrowing base, or termination of our credit agreement would negatively impact our overall liquidity and may require us to take other actions to preserve any remaining liquidity. Although we anticipate that we will be able to meet the covenants in our credit agreement, there can be no assurance that we will do so, as there are a number of external factors that affect our operations ~~such as commodity prices,~~ over which we have little or no control. If

Product recalls or other product liability claims could materially and adversely affect us.

Selling products for human consumption involves inherent legal and other risks, including product contamination, spoilage, product tampering, allergens, or other adulteration. We could decide to, or be required to, recall products due to suspected or confirmed product contamination, adulteration, misbranding, tampering, or other deficiencies. Although we ~~default on any of our covenants, and if such default is not cured~~maintain product recall insurance, product recalls or waived, our lenders could, among other remedies, terminate its commitment to lend and/or accelerate any outstanding debt and declare that such debt is immediately due and payable. If our lenders were to terminate our credit, or materially change our borrowing base, we may not have sufficient funds available for us to operate. If our lenders were to accelerate our debt, we might be unable to repay such debt immediately and might not be able to borrow sufficient funds to refinance. Even if new financing were available, it may not be on terms that are acceptable to us. Accelerationmarket withdrawals could result in ~~foreclosure on assets that we have pledged~~significant losses due to their costs, the destruction of product inventory, and lost sales due to the unavailability of the product for a period of time. We could be adversely affected if our ~~lenders. Further,~~customers lose confidence in the safety and quality of certain of our other secured debt instruments contain cross default provisions, such that an event of default under our credit agreement with our lenders may result in an event of default under these other debt instruments. If our lenders

~~were to terminate our credit or accelerate our debt,~~products, or if consumers lose confidence in the food and beverage safety system generally. Adverse attention about these types of concerns, whether or not valid, may damage our ~~lenders were to~~reputation, discourage consumers from buying our products, or cause production and delivery disruptions.

We may also suffer losses if our products or operations cause injury, illness, or death. In addition, our marketing could face claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment or a related regulatory enforcement action against us, or a significant product recall, may materially ~~change~~and adversely affect our ~~borrowing base, we might~~reputation and profitability. Moreover, even if a product liability or other legal or regulatory claim is unsuccessful, has no merit, or is not ~~have sufficient funds to operate.~~pursued, the negative publicity surrounding assertions against our products or processes could materially and adversely affect our product sales, financial condition, and operating results.

We are subject to extensive regulation and taxation, and compliance with existing or future laws and regulations, ~~including those relating to greenhouse gases and climate change,~~which may require us to incur substantial ~~expenditures or require us to make product recalls.~~expenditures.

We are subject to a broad range of federal, state, local and foreign laws and regulations relating to the protection of the public health and the environment. Our operations are also subject to regulation by various federal agencies, including the TTB, OSHA, the ~~Occupational Safety and Health Administration, the Food and Drug Administration,~~FDA, and the ~~USEPA,~~EPA, and by various state and local authorities. Such regulations cover virtually every aspect of our operations, including production and storage facilities, importing ingredients, distribution of beverage alcohol products, marketing, pricing, labeling, packaging, advertising, water usage, waste water discharge, disposal of hazardous wastes and emissions and other matters.

Violations of any of these laws and regulations may result in administrative, civil or criminal fines or penalties being levied against us, including temporary or prolonged cessation of production, revocation or modification of permits, performance of environmental investigatory or remedial activities, voluntary or involuntary product recalls, or a cease and desist order against operations that are not in compliance. These laws and regulations may change in the future and we may incur material costs in our efforts to comply with current or future laws and ~~regulations or to effect any product recalls.~~regulations. These matters may have a material adverse effect on our business and financial results.

Our Atchison and joint venture facilities currently produce fuel grade alcohol as a by-product and emit carbon dioxide into the atmosphere as a by-product of the fermentation process. In 2007, the United States Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the USEPA to regulate carbon dioxide in vehicle emissions. On February 3, 2010, the USEPA released its final regulations on the Renewable Fuel Standard program ("RFS2"). We believe these final regulations grandfather both facilities at their current operating capacity for fuel grade alcohol, but facility expansion would need to meet a 20 percent threshold reduction in greenhouse gas emissions from a 2005 baseline measurement to produce fuel grade alcohol eligible for the RFS2 mandate. Additionally, legislation is pending in Congress on a comprehensive carbon dioxide regulatory scheme, such as a carbon tax or cap-and-trade system. We may be required to install carbon dioxide mitigation equipment or take other steps unknown to us at this time in order to comply with other future laws or regulations. Compliance with future laws or regulations relating to emission of carbon dioxide could be costly and may require additional capital, which may not be available, preventing us and our joint venture from operating our facilities as originally designed, which may have a material adverse impact on our respective operations, cash flows and financial position.

We import some of the ingredients used in our production. The import of the ingredients is subject to federal regulation. Difficulty in complying with existing federal rules or any changes in such federal rules could impact how we source our ingredients. This, in turn, could have an impact on our profitability.

Also, the distribution of beverage alcohol products is subject to extensive taxation in the United States and internationally (and, in the United States, at both at the federal and state government levels), and beverage alcohol products themselves are the subject of national import and excise duties in most countries around the world. This taxation has a minor effect on us; however, it has larger effects on our beverage alcohol customers, and accordingly, an increase in taxation or in import or excise duties could significantly harm our sales revenues and margins, both through the reduction of overall consumption and by encouraging consumers to switch to lower-taxed categories of beverage alcohol.

~~We face risk related to changes in the global economic environment.~~

Our business may be impacted by the weak United States and global economic conditions, which are increasingly volatile. General business and economic conditions that could affect us include short-term and long-term interest rates, unemployment, inflation, fluctuations in debt markets and the strength of the United States economy and the local economies in which we operate. While currently these conditions have not impaired our ability to access credit markets and finance our operations and acquisitions, there can be no assurance that there will not be a further deterioration in the financial markets.

There could be a number of other effects from these economic developments on our business, including reduced consumer demand for products; insolvency of our customers, resulting in increased provisions for credit losses; decreased customer demand, including order delays or cancellations and counterparty failures negatively impacting our results of operations, business and financial results.

A failure of one or more of our key information technology systems, networks, processes, associated sites, or service providers could have a material adverse impact on our business.

We rely on information technology ~~(IT)~~("IT") systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which are managed and hosted by ~~third-party~~third party vendors to assist us in the management of our business. The various uses of these IT systems, networks, and services include, but are not limited to: hosting our internal network and communication systems; enterprise resource planning; processing transactions; summarizing and reporting results of operations; business plans, and financial information; complying with regulatory, legal, or tax requirements; providing data security; and handling other processes necessary to manage our business. Although ~~the Company has~~we have an offsite ~~back-up~~backup system and disaster recovery plan, any failure of our information systems could adversely impact ~~the Company’s~~our ability to operate. Routine maintenance or development of new information systems may result in systems failures, which may adversely affect our business, results of operations and financial results.

Increased IT security threats and more sophisticated cyber crime pose a potential risk to the security of our IT systems, networks, and services, as well as the confidentiality, availability, and integrity of our data. This can lead to outside parties having access to our privileged data or strategic information, ~~of the Company, its~~our employees or our customers. Any breach of our data security systems or failure of our information systems may have a material adverse impact on our business operations and financial results. If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information, due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our disaster recovery plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations and reputational, competitive, or business harm, which may adversely affect our business operations or financial condition. In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, our employees, customers, and suppliers. InAlthough we maintain insurance coverage for various cybersecurity risks, in any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and IT systems.

Damage to our reputation, or that of any of our key customers or their brands, could affect our stock price and business performance.

The success of our products depends upon the positive image that consumers have of the third party brands that ~~consume~~use our products. Contamination, whether arising accidentally or through deliberate ~~third-party~~third party action, or other events that harm the integrity or consumer support for our and/or our customers' products and could affect the demand for our and/or our customers' products. Unfavorable media, whether accurate or not, related to our industry or to us or our products, or to the brands that ~~consume~~use our products, marketing, personnel, operations, business performance or prospects could negatively affect our corporate reputation, stock price, ability to attract ~~high-quality~~high quality talent or the performance of our business. Adverse publicity or negative commentary on social media outlets could cause consumers to react rapidly by avoiding our brands or choosing brands offered by our competitors, which could materially negatively affect our financial results, business and financial condition.

~~Unsuccessful research and product launches could affect our profitability.~~

Research activities and products launch activities are inherently uncertain. The failure to launch a new product successfully can give rise to inventory write-offs and other costs and can affect consumer perception of an existing brand. Any significant changes in consumer preferences and failure to anticipate and react to such changes could result in reduced demand for our products. Unsuccessful research and product launches could affect our profitability.

RISKS SPECIFIC TO OUR DISTILLERY PRODUCTS SEGMENT

~~Disruption in the supply or shortage of oak barrels could negatively affect our business.~~

New oak barrels are available from only a few sources and the industry is currently experiencing a shortage of oak barrels compared to the rapidly increasing demand for products aged in these barrels. The shortage could limit our ability to fulfill our existing customer arrangements and our ability to lay out stock for our own use in future years. The effect of our inability to stock for our own use could also limit future growth and results of operations.

The relationship between the price we pay for ~~corn~~grain and the sales prices of our distillery co-products can fluctuate significantly and affect our results of operations.

~~Dried grain, or distillers~~Distillers feed, ~~and~~ fuel grade alcohol, and corn oil are the principal co-products of our alcohol production process and can contribute in varying degrees to the profitability of our distillery products segment. ~~We sell fuel grade alcohol, the prices for which typically, but not always, have tracked price fluctuations in gasoline prices.~~ Distillers feed isand corn oil are sold for prices which historically have tracked the price of corn, but, certain of our co-products compete with similar products made from other plant feedstocks, ~~whose~~the cost of which may not have risen in unison with corn prices. We sell fuel grade alcohol, the prices for which typically, but not always, have tracked price fluctuations in gasoline prices. As a result, the profitability of these products ~~to us~~ could be affected.

Our strategic plan involves significant investment in the aging of barreled distillate. Decisions concerning the quantity of maturing stock of our aged distillate could affect our future profitability.

There is an inherent risk in determining the quantity of maturing stock of aged distillate to lay down in a given year for future ~~sales. This~~sales as a result of changes in consumer demand, pricing, new brand launches, changes in product cycles, and other factors. Demand for products can change significantly between the time of production and the date of sale. It may be more difficult to make accurate prediction regarding new products and brands. Inaccurate decisions and/or estimations could lead to an inability to supply future demand or lead to a future surplus of inventory and consequent ~~write-down~~write down in the value of maturing stocks of aged distillate. As a result, profitability of the distillery products segment could be affected.

If the brands we develop or acquire do not achieve consumer acceptance, our growth may be limited, which could have a material adverse impact on our operating results.

A component of our strategic plan is to develop our own brands, particularly whiskeys. Risks related to this strategy include:

Because our brands, internally developed and acquired, are early in their growth cycle or have not yet been developed, they have not achieved extensive brand recognition. Accordingly, if consumers do not accept our brands, we will not be able to penetrate our markets and our growth may be limited.

We depend, in part, on the marketing initiatives and efforts of our independent distributors in promoting our products and creating consumer demand and we have limited or no control regarding their promotional initiatives or the success of their efforts.

We depend on our independent distributors to distribute our products. The failure or inability of even a few of our independent distributors to adequately distribute our products within their territories could harm our sales and result in a decline in our results of operations.

We compete for shelf space in retail stores and for marketing focus by our independent distributors, most of whom carry extensive product portfolios.

The laws and regulations of several states prohibit changes of independent distributors, except under certain limited circumstances, making it difficult to terminate an independent distributor for poor performance without reasonable cause, as defined by applicable statutes. Any difficulty or inability to replace independent distributors, poor performance of our major independent distributors or our inability to collect accounts receivable from our major independent distributors could harm our business. There can be no assurance that the independent distributors and retailers we use will continue to purchase our products or provide our products with adequate levels of promotional support.

Warehouse expansion issues could affect our operations and/or adversely affect our financial results.

On October 21, 2015, we announced a major expansion in warehousing capacity on a 20-acre campus adjoining the Company's current Lawrenceburg facility. Our Board of Directors has approved additional investments for the project, for a total approved investment of $29,000. The program includes both the refurbishment of existing warehouse buildings and the construction of new warehouses. The first projects included in this program were completed in late 2015, with additional projects completed in 2016. Additional warehouse capacity included in the total approved program is expected to be completed by the end of 2018. There is the potential risk of completion delays, including risk of delay associated with required permits, and cost overruns, which could affect our business, financial condition and results of operations.

Water scarcity or quality could negatively impact our production costs and capacity.

Water is the main ingredient in substantially all of our distillery products. It is also a limited resource, facing unprecedented challenges from climate change, increasing pollution, and poor management. As demand for water continues to increase, water becomes more scarce and the quality of available water deteriorates, we may be affected by increasing production costs or capacity constraints, which could adversely affect our results of operations, business and financial results.

We may be subject to litigation directed at the beverage alcohol industry ~~and other litigation~~.

Companies in the beverage alcohol industry are, from time to time, exposed to class action or other litigation relating to alcohol advertising, product liability, alcohol abuse problems or health consequences from the misuse of alcohol. Such litigation may result in damages, penalties or fines as well as damage to our reputation, which could have a material adverse effect on our cash flows, financial condition and financial results.

Adverse public opinion about alcohol could reduce demand for our products.

In recent years, there has been increased social and political attention directed at the beverage alcohol industry. The recent attention has focused largely on public health concerns related to alcohol abuse, including drunk driving, underage drinking, and the negative health impacts of the abuse and misuse of beverage alcohol.

Anti-alcohol groups have, in the past, advocated successfully for more stringent labeling requirements, higher taxes and other regulations designed to discourage alcohol consumption. More restrictive regulations, higher taxes, negative publicity regarding alcohol consumption and/or changes in consumer perceptions of the relative healthfulness or safety of beverage alcohol could decrease sales and consumption of alcohol and thus the demand for our products. This could, in turn, significantly decrease both our revenues and our revenue growth and have a material adverse effect on our results of operations, business and financial results.

RISKS SPECIFIC TO OUR INGREDIENT SOLUTIONS SEGMENT

Our focus on higher margin specialty ingredients may make us more reliant on fewer, more profitable customer relationships.

Our ~~business strategy~~strategic plan for our ingredient solutions segment includes focusing our efforts on the sale of specialty proteins and starches to targeted domestic consumer packaged goods customers. Our major focus is directed at food ingredients, which are primarily used in foods that are developed to address consumers’ desire for healthier and more convenient products; these consist of dietary fiber, wheat protein isolates and concentrates and textured wheat proteins. The bulk of our applications technology and research and development efforts are dedicated to providing customers with specialty ingredient solutions that deliver nutritional benefits, as well as desired functional and sensory qualities to their products. Our business and financial results could be materially adversely affected if our customers were to ~~determine to~~ reduce their new product development ("NPD") activities or cease using our unique dietary fibers, starches and proteins in their NPD efforts. In addition, our sales growth opportunities could be at risk in these areas if consumers abandon or significantly limit their interest in healthier foods, limit their interest in convenience foods and/or adopt a widespread aversion to foods containing wheat gluten.

Products competing with our Fibersym® resistant starch could lead to a decrease in sales volume or pricing, a decrease in margins and lower profitability.

Our patent rights to Fibersym® expire in 2017. We face competition with our Fibersym® resistant starch. The competition could lead to diminished returns and lower our margins. This factor could result in significant costs and could have a material adverse effect on our business, cash flows and financial results.

In November 2016, we announced that we filed a citizen petition with the FDA asking the agency to further confirm the status of our patented Fibersym® RW and FiberRite® RW resistant wheat starches as dietary fiber. A list of dietary fibers is currently being developed by the FDA under new food labeling rules, which were published on May 27, 2016 and have a scheduled compliance date of July 26, 2018. While our citizen petition is undergoing review, the current status of Fibersym® RW, along with FiberRite® RW, as accepted dietary fiber and a recognized fiber fortifying ingredient remains in place. A delay in confirmation by the FDA of our patented Fibersym® RW and FiberRite® RW resistant wheat starches as dietary fiber under the new food labeling rules in a timely manner could have a material adverse impact on ingredient solutions segment operating results.

Adverse public opinion about any of our specialty ingredients could reduce demand for our products.

Consumer preferences with respect to our specialty ingredients might change. In fact, in recent years, we have noticed shifting consumer preferences ~~with respect to gluten~~ and ~~increased~~ media attention directed atto gluten, ~~intolerance.~~gluten intolerance, and "clean label" products. Shifting consumer preferences could decrease demand for our specialty ingredients. This could, in turn, significantly decrease our revenues and revenue growth, which could have a material adverse affect on our cash flows, financial condition and financial results.

~~New products competing with our Fibersym® resistant starch could lead to decreasing margins and lower profitability.~~

Our patent rights to Fibersym® will expire in 2017. We are already facing competition with our Fibersym® resistant starch. This competition could lead to diminished returns and lower our margins. Over the next two to three years, we could face increased costs from intellectual property defense. Each of these events could result in significant costs and could have a material adverse effect on our business, cash flows and financial results.

~~We may experience a supply disruption of certain textured wheat proteins.~~

On December 29, 2014 we gave notice to our 50 percent-owned joint venture subsidiary, DMI, and our business partner in DMI, C&D, to terminate the joint venture effective June 30, 2015. C&D also provided notice to us to terminate DMI on June 30, 2015. Pursuant to German law, commencing on June 30, 2015, normal operations for DMI will cease and a one-year winding up process will begin. DMI’s primary operation is the production and tolling of the Trutex®/Wheatex® series of textured wheat proteins made from vital wheat gluten and DMI has been the sole source of our supply of Trutex®/Wheatex® for the past two years. The ability to find another source to supply the product will be critical to our continued ability to market Trutex®/Wheatex®. We are in the early stages of finding alternative sources for production for our Trutex®/Wheatex® product within the United States. Any difficulties we have in finding these alternative sources, qualifying one or more as a supplier, and successfully starting up production may result in shortages of product to meet customer demand, which could impact our operating results, cash flows and financial results.

RISKS RELATED TO OUR COMMON STOCK

Common ~~stockholders~~Stockholders have limited rights under our Articles of Incorporation.

Under our Articles of Incorporation, holders of our Preferred Stock are entitled to elect five of our nine directors and only holders of our Preferred Stock are entitled to vote with respect to a merger, dissolution, lease, exchange or sale of substantially all of ~~the Company’s~~our 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 or Preferred Stock, or change the powers, preferences or special rights of the Common or Preferred Stock so as to affect the holders of Common Stock adversely. Generally, the Common Stock and Preferred Stock vote as separate classes on all other matters requiring stockholder approval.

The majority of the outstanding shares of our Preferred Stock is beneficially owned by one individual, who is effectively in control of the election of five of our nine directors under ~~the limited rights of the common stockholders under~~ our Articles of Incorporation.

The trading volume in our ~~common stock~~Common Stock fluctuates depending on market conditions. The sale of a substantial number of shares in the public market could depress the price of our stock and make it difficult for stockholders to sell their shares.

Our ~~common stock~~Common Stock is listed on the NASDAQ Stock Market. Our public float at December 31, ~~2014 (including non-vested restricted stock awards held by non-affiliates)~~2016 was approximately ~~11,645,491~~12,712,845 shares, as approximately ~~6,307,968~~3,945,920 shares are held by affiliates. Over the year ended December 31, ~~2014,~~2016, our daily trading volume as reported to us by NASDAQ has fluctuated from ~~700~~31,600 to ~~391,400~~3,103,500 shares (excluding block trades). When trading volumes are relatively light, significant price changes can occur even when a relatively small number of shares are being traded and an investor’s ability to quickly sell quantities of stock may be affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

~~We own or lease~~MGP has two primary locations: Atchison, Kansas and Lawrenceburg and Greendale, Indiana. Grain processing, distillery, warehousing, research and quality control laboratories, principal executive office building and the ~~following principal production, warehouse~~technical innovation center are located in Atchison, Kansas on a 28.5 acre campus. A distillery, warehousing, tank farm, quality control, and ~~office facilities:~~

Location Purpose Owned or Leased Area (in sq. ft.)
Tract Area
(in acres)
Atchison, Kansas Grain processing, distillery, warehousing, and research and quality control laboratories (Distillery Products and Ingredient Solutions) Owned 494,640 26

Principal executive office building (Corporate) Leased 18,000 1

Technical Innovation Center (Ingredient Solutions and Distillery Products) Leased 19,600 1

Lawrenceburg and
Greendale, Indiana
Distillery, warehousing, tank farm and quality control facilities Owned 1,458,143 43

Lenexa, Kansas Administrative office space Leased 3,222 1

~~Our joint venture subsidiary, ICP, of which we own 30 percent, owns the following facility:~~

Pekin, Illinois
Distillery, warehousing and quality control
laboratories (Distillery Products)
Owned 462,926 49
research and development facilities are located in Lawrenceburg and Greendale, Indiana on a 78 acre campus.

~~The foregoing~~These facilities are generally in good operating condition, and are generally suitable for the business activity conducted therein. We ~~operated both our Atchison and Indiana facilities at or near full capacity during much of 2014, with the exception of two disruptions due to fires as further described in~~ ~~"Item 7. Management's Discussion and Analysis - 2014 Activities and Recent Initiatives."~~ We have existing manufacturing capacity to grow our ingredient solutions business at our Atchison facility, ~~if the market for~~as needed. All of our ~~ingredient solutions products improves.~~

~~Except for our process water cooling system project, which is leased under a capital lease, all of the other~~ production facilities, ~~that we utilize~~executive office building, and technical innovation center are owned and all of our owned properties are subject to mortgages in favor of one or more of our lenders. The executive offices and technical innovation center in Atchison are leased from the City of Atchison pursuant to an industrial revenue bond financing. Our leasehold interest in these properties is subject to a leasehold mortgage. We also own or lease transportation equipment and facilities and a gas pipeline as described underItem 1. Business –- Transportation and Item 1.Business ~~– Energy. Our loan agreements contain covenants that limit our ability to pledge our facilities to others.~~- Energy.

ITEM 3. LEGAL PROCEEDINGS

~~There are various legal proceedings involving~~On December 21, 2016, the U.S. Environmental Protection Agency (“EPA”) issued a Notice of Violation to the Company alleging the Company commenced construction of new aging warehouses for whiskey at its facility in Lawrenceburg, Indiana, without first applying for or obtaining a Clean Air Act permit and ~~its subsidiaries. Management considers~~without adequately demonstrating to the EPA that emissions control equipment did not need to be installed to meet applicable air quality standards. The Company notes that neither EPA nor the State of Indiana have required emission control equipment for aging whiskey warehouses and, to our knowledge, no other distillers in the U.S. have been required to install emissions control equipment in their aging whiskey warehouses. No demand for a penalty has been made in connection with the Notice of Violation, but the Company believes it is probable that a penalty will be assessed. Although it is not possible to reasonably estimate a loss or range of loss at the date of this filing, the Company currently does not expect that the ~~aggregate liabilities, if~~amount of any ~~arising from~~ such ~~actions~~penalty or related remedies would ~~not~~ have a material adverse effect on the ~~consolidated~~Company’s business, financial ~~position~~condition or ~~overall trends in~~ results of ~~operations of the Company.~~operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~TRADING MARKET~~

Equity compensation plans’ information is incorporated by reference from Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this document, should be considered an integral part of Item 5. Our Common Stock is traded on the NASDAQ Global Select Market. ~~Our~~At March 3, 2017, there were approximately 533 holders of record of our Common Stock. According to reports received from NASDAQ, the average daily trading ~~symbol is MGPI.~~volume of our Common Stock (excluding block trades) ranged from 31,600 to 3,103,500 shares during the year ended December 31, 2016.

HISTORICAL STOCK PRICES AND DIVIDENDS

The table below reflects the high and low ~~closing~~sales prices of our Common Stock and the details of dividends and dividend equivalents per share for each quarter of ~~the years ended December 31, 2014~~2016 and ~~2013:~~2015:


	Sales Price				Dividend Per Share		Stock Sales Price				Dividend and Dividend Equivalent Information (per Share and Unit)
	High		Low		Dividend Per Share		High		Low		Declared		Paid
2014
2016
First Quarter	$	6.75	$	5.16	$	0.05	$	26.52	$	19.91	$	0.08	$	—
Second Quarter	8.05		5.16		—		39.50		22.11		—		0.08
Third Quarter	13.64		7.20		—		44.25		33.38		0.02		0.02
Fourth Quarter	17.04		11.16		—		53.22		31.93		0.02		0.02
					$	0.05					$	0.12	$	0.12
2013
2015
First Quarter	$	5.62	$	3.26	$	0.05	$	16.71	$	13.06	$	0.06	$	—
Second Quarter	5.96		4.24		—		19.22		12.32		—		0.06
Third Quarter	6.18		4.77		—		17.31		12.85		—		—
Fourth Quarter	5.32		4.60		—		27.56		15.56		—		—
					$	0.05					$	0.06	$	0.06

Our ~~Credit Agreement~~credit agreement (the "Credit Agreement") with Wells Fargo Bank allows for the payment of cash dividends (as defined in Restricted Payments of the Credit Agreement), which are limited to $2,000. Restricted Payments are allowed to exceed $2,000 provided we maintain ~~excess availability~~Excess Availability of ~~$9,625~~17.5 percent of the Total Facility Amount and a Fixed Charge Coverage Ratio for the most recently completed ~~twelve~~12 months of at least ~~1.20:1.00.~~1.10:1.00, or if Excess Availability exceeds 25 percent of the Total Facility Amount (with the terms "Restricted Payments," "Excess Availability," "Total Facility Amount," and "Fixed Charge Coverage Ratio" as defined in the Credit Agreement).

On February ~~27, 2015,~~15, 2017, the Board of Directors declared a quarterly dividend payable to stockholders of record as of March ~~26, 2015,~~1, 2017, of ~~the Company's common stock, no par value ("~~our Common ~~Stock")~~Stock and a dividend equivalent payable to holders of ~~restricted stock units ("RSUs")~~RSUs as of March ~~26, 2015,~~1, 2017, of ~~$0.06~~$0.04 per share and per unit. The dividend payment and dividend equivalent payment will ~~be paid~~occur on ~~April 21, 2015.~~March 24, 2017.

We expect to continue our policy of paying ~~periodic~~quarterly cash dividends, although there is no assurance as to the declaration or amount of any future dividends because they are dependent on future earnings, capital requirements, and debt service obligations.

~~RECORD HOLDERS~~

~~At March 2, 2015, there were approximately 621 holders of record of our Common Stock.~~

~~TRADING VOLUMES~~STOCK PERFORMANCE GRAPH

~~According to reports received from NASDAQ,~~The following graph compares the ~~average daily trading volume~~cumulative total return of our Common Stock ~~(excluding block trades) ranged from 700 to 391,400 shares during~~for the five year period ended December 31, ~~2014.~~2016, against the cumulative total return of the S&P 500 Stock Index (broad market comparison), Russell 3000 - Beverage and Distillers (line of business comparison), and Russell 2000 - Consumer Staples (line of business comparison). The graph assumes $100 (one hundred dollars) was invested on December 31, 2011, and that all dividends were reinvested.

PURCHASES OF EQUITY SECURITIES BY ISSUER

We did not sell equity securities during the quarter ended December 31, ~~2014.~~2016.

~~ISSUER PURCHASES OF EQUITY SECURITIES~~

Issuer Purchases of Equity Securities

(a) Total
Number of
Shares (or
Units)
Purchased

(b) Average
Price Paid
per Share (or
Unit)

(c) Total
Number of
Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs

(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
October 1, 2014 through October 31, 2014 —
—
$ —
November 1, 2014 through November 30, 2014 4,734
^(a)
$ 14.88
^(a)
—

December 1, 2014 through December 31, 2014 4,240
^(b)
$ 13.51
^(b)
—

Total 8,974
—

(a) Total

Number of

Shares (or

Units)

Purchased

(b) Average

Price Paid

per Share (or

Unit)

Number of

Shares (or

Units)

Purchased as

Part of

Publicly

Announced

Plans or

Programs

(d) Maximum

Number (or

Approximate

Dollar Value) of

Shares (or Units)

that May Yet Be

Purchased Under

the Plans or

Programs

October 1, 2016 through October 31, 2016

—

November 1, 2016 through November 30, 2016

—

December 1, 2016 through December 31, 2016

—

Total

—

ITEM 6. SELECTED FINANCIAL DATA AND SUPPLEMENTARY FINANCIAL INFORMATION



	Year Ended December 31,
	2016^(a)(h)(i)		2015^(a)		2014^(a),(b)		2013^(c)			2012^(d)
Consolidated Statements of Income Data:
Net sales	$	318,263	$	327,604	$	313,403	$	323,264		$	334,335
Income before income taxes^(e)	$	44,717	$	38,418	$	25,940	$	(6,521	)	$	1,942
Net income (loss)	$	31,184	$	26,191	$	23,675	$	(4,929	)	$	1,624

Basic and Diluted Earnings (Loss) Per Share ("EPS")
Income (loss) from continuing operations	$	1.82	$	1.48	$	1.32	$	(0.34	)	$	0.09
Income from discontinued operations	—		—		—		0.05			—
Net income (loss)	$	1.82	$	1.48	$	1.32	$	(0.29	)	$	0.09

Cash dividends per common share	$	0.12	$	0.06	$	0.05	$	0.05		$	0.05
Consolidated Balance Sheet Data:
Total assets^(f)	$	225,336	$	194,310	$	160,215	$	151,329		$	163,171
Long-term debt, less current maturities^(f)(g)	31,642		$	30,115	$	7,286	$	21,611		$	31,061

^(a)

~~Aggregate number~~During 2016, 2015 and 2014, we determined that we would more likely than not realize a portion of ~~shares repurchased~~our deferred tax asset and reduced the valuation allowance by $718, $2,385, and $7,446, respectively. The 2014 reduction amount included an adjustment to ~~satisfy withholding tax obligations under restricted stock that vested during the month.~~other comprehensive loss of $172.


^(b)	~~Aggregate number~~In January 2014 and October 2014, we experienced a fire at one of our facilities. Insurance recoveries totaled $8,290 for 2014.


^(c)	In connection with the proxy contest related to our 2013 Annual Meeting of stockholders, we were involved in various proceedings with respect to MGP Ingredients, Inc. Voting Trust, the 2013 Annual Meeting and the Special Committee of the Board of Directors and incurred $5,465 of expenses in 2013.


^(d)	Net income for 2012 includes a $4,055 gain related to the sale of a 20 percent interest in our joint venture, ICP.


^(e)	For 2013, we reported discontinued operations. Accordingly, the caption for 2013 was Loss from continuing operations before income taxes.

^(f)

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The ASU was effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2016. The intent of the new standard was to simplify reporting of deferred taxes. As such, the standard allows netting of current and non-current deferred taxes within a reporting jurisdiction and the resulting deferred tax assets and liabilities are presented as non-current in our Consolidated Balance Sheets at December 31, 2016 and 2015 since we elected to early adopt the ASU on a prospective basis. The balance sheet classifications for years ended December 31, 2014, 2013, and 2012 were not adjusted to be consistent with 2016 and 2015 reporting.

^(g)

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Our consolidated balance sheets have been adjusted and retrospectively adjusted at December 31, 2015 and 2014, respectively, for the presentation of debt issuance costs as required by ASU 2015-03. As of December 31, 2016, 2015, and 2014, we had $576, $636, and $384, respectively, of unamortized loan fees related to our debt that was reclassified as a direct deduction from the carrying amount of the related debt liability in the consolidated balance sheets. Years ended December 31, 2013 and 2012 were not adjusted to be consistent with 2016, 2015, and 2014 reporting.

^(h)

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. We elected to early adopt the accounting update in the quarter ended September 30, 2016 and, due to a required change in accounting principle required by the ASU adoption and the vesting of 128,500 shares ~~repurchased~~of restricted stock during the quarter of adoption, we received a combined federal and state tax effected excess tax benefit of $1,571 from windfalls related to employee share-based compensation that was recognized as ~~part~~a reduction to income tax expense. Years ended December 31, 2015, 2014, 2013, and 2012 were not adjusted to be consistent with 2016 reporting.


⁽ⁱ⁾	Net income for 2016 included a legal settlement agreement and a gain on sale of ~~net exercises of stock options during November 2014.~~long-lived assets totaling $3,385.

~~ITEM 6. SELECTED FINANCIAL DATA~~

Selected Financial Information

~~Not applicable.~~

Selected quarterly financial information is detailed in Note 15.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~(Dollars in thousands except per-share amounts)~~

~~GENERAL~~

CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

This Report on Form 10-K contains forward looking statements as well as historical information. All statements, other than statements of historical facts, regarding the prospects of our industry and our prospects, plans, financial position, and strategic plan may constitute forward looking statements. In addition, forward looking statements are usually identified by or are associated with such words as "intend," "plan," "believe," "estimate," "expect," "anticipate," "hopeful," "should," "may," "will," "could," "encouraged," "opportunities," "potential," and/or the negatives or variations of these terms or similar terminology. Forward looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied in the forward looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward looking statements is included in the section titled "Risk Factors" (Item 1A of this Form 10-K). Forward looking statements are made as of the date of this report, and we undertake no obligation to update or revise publicly any forward looking statements, whether because of new information, future events or otherwise.

Management’s Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations is designed to provide a reader of MGP’s consolidated financial statements with a narrative from the perspective of management. MGP’s MD&A is presented in eight sections:

Overview

Results of Operations

Distillery Products Segment

Ingredient Solutions Segment

Cash Flow, Financial Condition and Liquidity

Off Balance Sheet Obligations

Critical Accounting Policies and Estimates

New Accounting Pronouncements

OVERVIEW

MGP is a leading producer and supplier of premium distilled spirits and specialty wheat proteins and starches. Distilled spirits include premium bourbon and rye whiskeys, and grain neutral spirits, including vodka and gin. We ~~produce certain distillery~~are also a top producer of high quality industrial alcohol for use in both food and non-food applications. Our proteins and starches provide a host of functional, nutritional and sensory benefits for a wide range of food products ~~and ingredients and historically we had three~~to serve the packaged goods industry. We have two reportable segments: aour distillery products segment anand our ingredient solutions segment.

Our Mission

Secure our future by consistently delivering superior financial results by more fully participating in all levels of the alcohol and food ingredients segments for the betterment of our shareholders, employees, partners, consumers, and communities.

Our Strategic Plan

Our strategic plan is designed to leverage our history and strengths. We have a long history in the distilling industry. Our Lawrenceburg facility, which we purchased in 2011, was founded in 1847 and our Atchison facility was opened in 1941. Through these two distilleries, we are involved in producing some of the finest whiskeys, vodkas, and gins in the world. Likewise, our history in the food ingredient business stretches back more than 60 years.

Our strategic plan seeks to leverage the positive macro trends we see in the industries where we compete while providing better insulation from outside factors, including swings in commodity pricing. We believe the successful execution of our strategy will deliver strong operating income growth. Specifically, our strategic plan is built on five key growth strategies: Maximize Value, Capture Value Share, Invest for Growth,Risk Management, and Build the MGP Brand. Each of these strategies, along with related 2016 accomplishments, is discussed below.

Maximize Value- We focus on maximizing the value of our current production volumes, particularly taking advantage of favorable macro trends in our distillery products segment, such as the growth of the American whiskey category that has continued to expand over the past five years. This includes shifting sales mix to higher margin products, such as premium bourbon and rye whiskeys, as well as extending the product range of our grain neutral spirits, including vodkas and gins. In our ingredient solutions segment, the macro trend includes growth in high fiber, high protein, plant based proteins, and ~~an other segment. All assets used~~non-genetically modified organisms ("non-GMO") products. We intend to focus on the opportunities that will allow us to achieve the highest value from our current production facilities.

Accomplishments

Our shift in sales mix to higher margin products has contributed to a 12.2 percent increase in gross profit within the distillery products segment in 2016 over the prior year.

Our shift in sales mix to higher margin products has contributed to a 7.3 percent increase in gross profit within the ingredient solutions segment in 2016 over the prior year.

See the "--Distillery Products Segment" and "--Ingredient Solutions Segment" discussions.

Capture Value Share - We will work to develop partnerships to support brand creation and long-term growth, and to combine our innovation capabilities and industry expertise to provide unique solutions and offerings to the marketplace. In that way, we believe we will be able to realize full value for our operational capacity, quality and commitment.

Accomplishments

In March 2016, we announced the introduction of Till American Wheat Vodka®, distilled using the finest Kansas wheat, with initial distribution in the ~~other segment were sold effective February 8, 2013. Since~~states of Kansas and Missouri. Within the first seven months following its release, Till American Wheat Vodka® had already received five prestigious awards, including a silver medal at each of the following: Sommelier Challenge™ International Wine and Spirits Competition in San Diego, the San Diego Spirits Festival, San Francisco World Spirits Competition, and the 2016 New York World Wine and Spirits Competition. The San Francisco World Spirits Competition and the New York event are each considered to be one of the most respected and influential spirits competitions of their type on an international scale. In May 2016, Till Vodka earned Beverage World magazine’s BevStar Gold Award in the spirits category. In October 2016, we announced that distribution was expanded to the states of Iowa and Indiana.

In November 2016, we acquired the George Remus® brand from Queen City Whiskey LLC. The prior owner used sourced whiskey from us to launch and successfully build the brand in a small geography. The George Remus® brand portfolio currently consists of three expressions: George Remus® Bourbon Whiskey, George Remus® Rye Whiskey, and George Remus® Limited Edition Rye Whiskey. At the time of the acquisition, distribution was limited to the states of Ohio, Kentucky and Indiana.

Invest for Growth - We are committed to investing to support our growth. Components of this ~~date, two reportable segments remain: distillery products~~growth strategy include:

Capital Expenditures: Capital expenditures focus largely on supporting innovation and ~~ingredient solutions. Substantially~~product development, improving operational reliability, and strengthening our ability to support all aspects of growth in the whiskey category.

Select Inventories: As demand grows for American whiskeys, in both the United States and global markets, we are building our inventories of aged premium whiskeys to fully participate in this growth. This initiative helps us build strong partnerships and open new relationships with potential customers, in addition to supporting the development of our own brands.

Selling, General, and Administrative Expenses ("SG&A"): As needed to support our long-term growth objectives, resources and capabilities are being added, particularly in sales ~~are made directly or through distributors to manufacturers~~ and processors of finished goods. Sales to our customers purchasing food grade alcohol are made primarily on a spot, monthly or quarterly basis, with some annual contracts, depending on the customer’s needs and market conditions. Customers who purchase whiskey or bourbon may also enter into separate warehouse service agreements with us, allowing the product to age. We have certain multi-year contracts to supply distilled productsmarketing, as well as certain contracts to provide barreling warehousing services, which typically are multi-year contracts. Sales of fuel grade alcohol are made on the spot market. Contracts with distributors may be for multi-year terms with periodic review of pricing. Contracts with ingredients customers are generally pricein research and ~~term agreements which are fixed for three- or six-month periods, with very few agreements of twelve months duration or more.~~development.

Accomplishments

Regarding our Capital Expenditures growth strategy:

On October 21, 2015, we announced a $16,400 major expansion in warehousing capacity on a twenty acre campus adjoining our current Lawrenceburg facility. Our ~~business is focused on~~Board of Directors has since approved an additional $12,600 of funding for the ~~production, sales~~project, for a total approved investment of $29,000. The program includes both the refurbishment of existing warehouse buildings and ~~marketing~~the construction of ~~value-added ingredients and distillery products.~~ new warehouses. The first projects included in this program were completed in late 2015, with the remaining projects included in the total approved program expected to be completed in 2018.

Regarding our Select Inventories growth strategy:

Given the available and anticipated barrel inventory capacity at our ~~Indiana~~Lawrenceburg facility, we produce, and will continue to produce, certain volumes of premium bourbon and ~~whiskey~~rye whiskeys that isare in addition to current customer demand. ~~This product~~Product is barreled and included in our inventory. Our goal is to maintain inventory levels ~~for whiskey~~of premium bourbon and ~~bourbon~~rye whiskeys sufficient to ~~satisfy anticipated future purchase orders~~support our own brands, engage in strategic partnerships, and sell on the wholesale market. We increased our premium bourbon and rye whiskey inventory by $22,663, at cost, during 2016.

Regarding our SG&A growth strategy:

We made the below changes in certain of our key management and Board of Directors positions.


1.	In May 2016, James L. Bareuther was elected to serve as a director to fill a vacancy. Mr. Bareuther served as chief operating officer of Brown-Forman Corporation from 2003 until his retirement in 2010. He has served as a director of First Beverage Group since 2012 and as chairman of its board of directors since April 2014.

Effective November 2016, we appointed wine and spirits industry leader Andrew Mansinne to the newly created position of Vice President of Brands. Mr. Mansinne served for the past year as a managing director at Intercontinental Beverage Capital, as well as President of Tattico Strategies, which he founded, in Bethesda, Maryland. Mr. Mansinne served from 1995 to 2007 at Brown-Forman Corporation, Louisville, Kentucky, where he held increasingly important positions during his tenure from Brand Director to Senior Vice President.

Risk Management- We will continue a strong disciplined approach to risk management, including robust analysis and prudent decision making to minimize the impact of commodity pricing, and adherence to established procedures, controls and authority levels.

Accomplishments

In 2016, we completed a British Retail Consortium ("BRC") audit with outstanding results, achieving a Grade AA rating for both our Atchison and Lawrenceburg facilities. The Atchison facility earned the BRC’s highest food and beverage safety rating and the Lawrenceburg facility earned the BRC's highest beverage safety rating, which were previously measured on a scale with a maximum score of Grade A.

In September 2016, we completed the initial implementation of our Enterprise Risk Management program. The ongoing program will include identifying additional risk mitigation opportunities, re-prioritizing risks, as needed, and the continuing monitoring and reporting of results to management and the Board of Directors.

Build the MGP Brand- We will continue to build our brand across all stakeholders, including shareholders, employees, partners, consumers, and communities. We will achieve this by producing consistent growth through an understandable business model, proactively engaging with the investment community, creating a desirable organization for our employees, strengthening our relationship with our customers and vendors, increasing awareness and understanding of MGP with our consumers, and supporting the communities in which we operate.

Accomplishments

2016 marked the 75th anniversary of our founding in 1941 by the late Cloud L. Cray, Sr. Observances tied to the theme "75 Years Strong" occurred throughout the year. One observance was on March 29, 2016, when Company leaders rang the closing bell for the Nasdaq stock exchange in New York City's Time Square.

In August 2016, we announced that MGP was honored by The Kansas Department of Commerce as one of 21 Regional Business Award winners across the state in recognition of our business achievements and high level of community support and involvement. This was the second time in just four years that MGP received the award.

Other 2016 Activities

Other activities in 2016 that contributed to our overall growth and strategic implementation are described below:

In August 2016, our Board of Directors announced the initiation of quarterly dividend declarations and payments, which recognizes our strong foundation and the progress we have made in delivering shareholder value. Going forward, we expect to be able to support our growth programs and maintain our capital base while returning capital to shareholders on a quarterly basis.

RESULTS OF OPERATIONS

Consolidated results

The table below details the year-versus-year consolidated results:



	Year Ended December 31,									%
	2016			2015			2014			2016 v. 2015			2015 v. 2014
Net sales	$	318,263		$	327,604		$	313,403		(2.9	)%		4.5	%
Cost of sales	252,980			269,071			284,972			(6.0	)		(5.6	)
Gross profit	65,283			58,533			28,431			11.5			105.9
Gross margin %	20.5		%	17.9		%	9.1		%	2.6		pp^(a)	8.8		pp^(a)
SG&A expenses	26,693			25,683			20,101			3.9			27.8
Insurance recoveries	—			—			(8,290		)	N/A			N/A
Other operating (income) costs, net	(3,385		)	—			1			N/A			N/A
Operating income	41,975			32,850			16,619			27.8			97.7
Operating margin %	13.2		%	10.0		%	5.3		%	3.2		pp	4.7		pp
Equity method investment earnings	4,036			6,102			10,137			(33.9	)		(39.8	)
Interest expense, net	(1,294		)	(534		)	(816		)	142.3			(34.6	)
Income before income taxes	44,717			38,418			25,940			16.4			48.1
Income tax expense	13,533			12,227			2,265			10.7			439.8
Effective tax expense rate %	30.3		%	31.8		%	8.7		%	(1.5	)	pp	23.1		pp
Net income	$	31,184		$	26,191		$	23,675		19.1	%		10.6	%
Net income margin %	9.8		%	8.0		%	7.6		%	1.8		pp	0.4		pp

Basic and diluted EPS	$	1.82		$	1.48		$	1.32		23.0	%		12.1	%

^(a)Percentage points ("pp").

Discussion of consolidated results (order follows above table):

Net sales

Net Sales 2016 to 2015 - Net sales for 2016 were $318,263, a decrease of 2.9% compared to 2015. Within the distillery segment, net sales were down 1.8 percent. Food grade alcohol net sales were down 1.1 percent, as industrial alcohol net sales declined, while net sales of higher margin premium beverage alcohol products increased. Warehouse services revenue related to the storage of barreled whiskey also increased, while lower margin distillers feed and related co-products net sales declined. In the ingredient solutions segment, a net sales decline of 7.6% was driven by reductions across all product lines (see Segment Results below).

Net Sales 2015 to 2014 - Net sales for 2015 were $327,604, an increase of 4.5 percent compared to 2014. This growth was primarily driven by a 5.3 percent increase in net sales in the distillery products segment. Distillery products net sales increased primarily as a result of an increase in food grade alcohol, which includes beverage alcohol. Net sales in the ingredient solutions segment as a whole increased 0.9 percent due to strong net sales of specialty wheat starches, partially offset by declines in other segment products.

Gross profit

Gross profit 2016 to 2015 - Gross profit for 2016 was $65,283, an increase of 11.5 percent compared to 2015. The increase was driven by a 2.6 percentage point increase in gross margin, partially offset by a decrease in net sales. The expansion in total Company gross margin was primarily driven by a continuing shift in overall product sales mix favoring higher value products, a decline in input costs, improved plant efficiencies, partially offset by a lower average selling price.

Gross profit 2015 to 2014 - Gross profit for 2015 was $58,533, an increase of 105.9 percent compared to 2014. The increase was primarily driven by an 8.8 percentage point increase in gross margin, as well as the net sales growth. Gross margin expanded due to a higher average selling price despite lower raw material costs, favorable product sales mix, and improved plant efficiencies.

SG&A expenses

SG&A expenses 2016 to 2015 - SG&A expenses for 2016 were $26,693, an increase of 3.9 percent compared to 2015. The increase in SG&A was primarily due to increased advertising and promotion, increased personnel costs, and increased professional fees, partially offset by a decrease in the accrual for incentive compensation and a decrease in severance costs.

SG&A expenses 2015 to 2014 - SG&A expenses for 2015 were $25,683, an increase of 27.8 percent compared to 2014. The increase in SG&A was primarily due to increases in professional fees, accruals for incentive compensation as a result of the strong performance of the Company, personnel and other costs, and severance costs.

Operating income



		Operating income			Change			Operating income			Change


Operating income for 2015 and 2014		$	32,850					$	16,619
	Increase in gross profit - distillery products segment^(a)	6,174			18.8		pp^(b)	28,330			170.5		pp^(b)
	Increase in gross profit - ingredient solutions segment^(a)	576			1.8		pp	1,772			10.7		pp
	Change in SG&A	(1,010		)	(3.1	)	pp	(5,582		)	(33.6	)	pp
	Change in insurance recoveries	—			—			(8,290		)	(49.9	)	pp
	Change in other operating income, net	3,385			10.3		pp	1			—
Operating income for 2016 and 2015		$	41,975		27.8	%		$	32,850		97.7	%

^(a) See segment discussion.

^(b) Percentage points ("pp").

Operating income 2016 to 2015 - Operating income for 2016 increased to $41,975 from $32,850 for 2015, due to gross profit growth in both our distillery products segment and our ingredient solutions segment and an increase in other operating income, net, partially offset by an increase in SG&A expenses (see segment discussions below). Other operating income, net, increased over 2015, primarily due to income recorded related to a legal settlement agreement and a gain on sale of long-lived assets.

Operating income 2015 to 2014 - Operating income in 2015 increased to $32,850 from $16,619 in 2014, primarily due to growth in our distillery products and ingredient solutions segments, partially offset by a decrease in insurance recoveries and an increase in SG&A during the year. For 2015, we received no insurance recoveries related to property damage, compared to $8,290 received in 2014, which was accounted for as a reduction to our total expenses (see Note 16).

Equity method investment earnings

Equity method investment earnings 2016 to 2015 - Our equity method investment earnings decreased to $4,036 for 2016, from $6,102 for 2015. The decrease in earnings was primarily due to ICP's lower per unit average selling price compared to a year ago and a decrease in business interruption insurance proceeds, partially offset by higher sales volume, year-versus-year (see Note 3). The lower per unit average selling price reflected less favorable market conditions compared to previous recent years.

Equity method investment earnings 2015 to 2014 - Our equity method investment earnings decreased to $6,102 for 2015, from $10,137 for 2014. The decrease in earnings was primarily due to lower ICP sales volume and lower per unit average selling price compared to a year ago, partially offset by our $1,230 portion of ICP's receipt of $4,112 of insurance proceeds for business interruption during 2015 (see Note 3). The decline in sales volume was due to lower demand. The lower per unit average selling price reflected unfavorable market conditions compared to 2014.

Income tax expense

Income tax expense 2016 to 2015 - Income tax expense for 2016 was $13,533, for an effective tax rate for the period of 30.3 percent. Income tax expense for 2015 was $12,227, for an effective tax rate for the period of 31.8 percent. The principal ~~raw materials are corn~~reasons for the 1.5 percentage point reduction in our effective tax expense rate year-versus-year is the impact of our adoption of ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting in the current period, which provided us with a tax benefit related to our accounting for share-based compensation, the federal domestic production activities deduction no longer being limited by our net operating loss carryovers from prior year periods, and ~~flour. Corn~~the effect of state tax planning, including state income tax credits, partially offset by the release of a valuation allowance in the prior period (see Note 6).

Income tax expense 2015 to 2014 - Income tax expense increased to $12,227 for 2015, from $2,265 for 2014, resulting in an effective tax expense rate of 31.8 percent and 8.7 percent, respectively. The majority of the 23.1 percentage point increase in income tax expense year-over-year was due to the release of a portion of our valuation allowance in both years, which resulted in a reduction to income tax expense of $2,385 and $7,618 in 2015 and 2014, respectively.

Basic and diluted EPS



	Basic and Diluted EPS			Change			Basic and Diluted EPS			Change
Basic and diluted EPS for 2015 and 2014	$	1.48					$	1.32
Change in operating income:
Operations^(a)	0.21			14.2		pp^(b)	1.30			98.5		pp^(b)
Insurance recoveries^(a)	—			—			(0.44		)	(33.3	)	pp
Other operating income, net^(a)	0.13			8.8		pp	—			—
Change in equity method investments^(a)	(0.08		)	(5.4	)	pp	(0.21		)	(15.9	)	pp
Change in interest expense^(a)	(0.03		)	(2.0	)	pp	0.01			0.7		pp
Change in weighted average shares outstanding^(c)	0.05			3.4		pp	0.02			1.5		pp
Tax: Change in valuation allowance	(0.10		)	(6.8	)	pp	—			—
Tax: Implementation of ASU No. 2016-09	0.09			6.1		pp	—			—
Tax: Change in effective tax rate (excluding tax items above for 2016)	0.07			4.7		pp	(0.52		)	(39.4	)	pp
Basic and diluted EPS for 2016 and 2015	$	1.82		23.0	%		$	1.48		12.1	%


^(a)	Changes are net of tax based on the effective tax rate for each base year, excluding the change in valuation allowance.


^(b)	Percentage points ("pp").

^(c)Weighted average shares outstanding change primarily due to the vesting of employee restricted stock units, the granting of Common Stock to directors, our purchase of vested stock from employees to pay withholding taxes, and our repurchases of Common Stock. In September, 2015, our Board of Directors authorized the purchase of 950,000 shares of our Common Stock in a privately negotiated transaction with F2 SEA Inc., an affiliate of SEACOR Holdings Inc. pursuant to a Stock Repurchase Agreement. On September 1, 2015, we completed this purchase. SEACOR Holdings, Inc. is ~~processed into~~the 70 percent owner of ICP, our 30 percent equity method investment (see Notes 7 and 9).

Basic and diluted EPS 2016 to 2015 - EPS increased to $1.82 in 2016 from $1.48 in 2015, primarily due to performance from operations, the change in other operating income, net, (favorable legal settlement agreement and a gain on sale of long-lived assets), the decline in weighted average shares outstanding due to a repurchase of Common Stock in 2015, and tax items, net, (the change in valuation allowance, the implementation of ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, and other changes in effective tax rate) (see Note 6), partially offset by lower equity method investment earnings and an increase in interest expense year-versus-year (Note 3).

Basic and diluted EPS 2015 to 2014 - EPS increased to $1.48 in 2015 from $1.32 in 2014, primarily due to performance from operations, partially offset by an increase in effective tax rate (see Note 6), a decrease in insurance recoveries (see Note 16), and lower equity method investment earnings year-versus-year (see Note 3).

DISTILLERY PRODUCTS SEGMENT



	DISTILLERY PRODUCTS NET SALES
	Year Ended December 31,						Year-versus-Year Net Sales Change Increase/ (Decrease)						Year-versus-Year Volume Change
	2016			2015			$ Change				% Change		% Change
	Amount			Amount			$ Change				% Change		% Change
Premium beverage alcohol	$	150,364		$	131,347		$	19,017			14.5	%
Industrial alcohol	77,290			98,917			(21,627		)		(21.9	)
Food grade alcohol^(a)	227,654			230,264			(2,610		)		(1.1	)
Fuel grade alcohol^(a)	7,372			7,366			6				0.1
Distillers feed and related co-products	21,780			26,182			(4,402		)		(16.8	)
Warehouse services	8,437			6,413			2,024				31.6
Total distillery products	$	265,243		$	270,225		$	(4,982	)		(1.8	)%	(7.2	)%

^(a)Volume change for alcohol products
	Other Financial Information
	Year Ended December 31,						Year-versus-Year Increase/(Decrease)
	2016			2015			Change				% Change
Gross profit	$	56,836		$	50,662		$	6,174			12.2	%
Gross margin %	21.4		%	18.7		%	2.7			pp^(b)

^(b)Percentage points ("pp")

2016 compared to 2015

Driven by strong demand for our premium bourbon and rye whiskeys, net sales of higher margin premium beverage alcohol products within food grade alcohol increased 14.5 percent over 2015, while lower margin industrial alcohol product net sales decreased 21.9 percent, resulting in an overall food grade alcohol net sales decrease of $2,610, or 1.1 percent. A decline in net sales of distillers feed and related co-products was partially offset by an increase in warehouse services revenue, generated by increased storage of customer barrels of whiskey.

Gross profit increased year-versus-year by $6,174, or 12.2 percent. Gross margin for 2016 increased to 21.4 percent from 18.7 percent for 2015, which was primarily due to the continuing shift in sales mix within food grade alcohol from lower margin industrial alcohol products to higher margin premium beverage alcohol products, a decline in input costs, an increase in warehouse services revenue, partially offset by a lower average selling price.



	DISTILLERY PRODUCTS NET SALES
	Year Ended December 31,						Year-versus-Year Net Sales Change Increase/ (Decrease)						Year-versus-Year Volume Change
	2015			2014			$ Change				% Change		% Change
	Amount			Amount			$ Change				% Change		% Change
Premium beverage alcohol	$	131,347		$	106,911		$	24,436			22.9	%
Industrial alcohol	98,917			101,464			(2,547		)		(2.5	)
Food grade alcohol^(a)	230,264			208,375			21,889				10.5
Fuel grade alcohol^(a)	7,366			12,987			(5,621		)		(43.3	)
Distillers feed and related co-products	26,182			30,361			(4,179		)		(13.8	)
Warehouse services	6,413			4,838			1,575				32.6
Total distillery products	$	270,225		$	256,561		$	13,664			5.3	%	(1.5	)%	^(a)

(a) Volume change for alcohol products
	Other Financial Information
	Year Ended December 31,						Year-versus-Year Increase/(Decrease)
	2015			2014			Change				% Change
	2015			2014			Change				% Change
Gross profit	$	50,662		$	22,332		$	28,330			126.9	%
Gross margin %	18.7		%	8.7		%	10.0			pp^(b)

^(b)Percentage points ("pp")

2015 compared to 2014

Total distillery products net sales for 2015 increased $13,664, or 5.3 percent driven by demand for the company's premium beverage alcohol products. Customer demand for premium beverage alcohol products, including bourbon and rye whiskeys, was strong. Net sales of food grade alcohol, which includes these beverage alcohol products, increased by $21,889 compared to 2014, or 10.5 percent. Warehouse revenue generated by increased storage of customer inventory of these products also contributed to the growth. Declines in the lower margin co-products of fuel grade alcohol and ~~animal~~distillers feed ~~and flour is processed into all of our~~partially offset this growth.

Gross profit increased year-versus-year by $28,330, or 126.9 percent. Gross margin for 2015 was 18.7 percent compared to 8.7 percent for 2014, which was due to the continuing shift in alcohol product sales mix to premium beverage alcohol products, ~~except whiskey and bourbon. The~~a higher average selling price, a decrease in the cost of raw materials and energy, and lower production costs. Net sales of higher margin food grade alcohol, which includes beverage alcohol, for 2015, was 85.2 percent of total distillery products net sales, compared to 81.2 percent in 2014.

INGREDIENT SOLUTIONS SEGMENT



	INGREDIENT SOLUTIONS NET SALES
	Year Ended December 31,						Year-versus-Year Net Sales Change Increase/ (Decrease)						Year-versus-Year Volume Change
	2016			2015			$ Change				% Change		% Change
	Amount			Amount			$ Change				% Change		% Change
Specialty wheat starches	$	26,803		$	29,989		$	(3,186	)		(10.6	)%
Specialty wheat proteins	18,211			18,422			(211		)		(1.1	)
Commodity wheat starch	7,002			7,079			(77		)		(1.1	)
Commodity wheat proteins	1,004			1,889			(885		)		(46.9	)
Total ingredient solutions	$	53,020		$	57,379		$	(4,359	)		(7.6	)%	(4.0	)%

	Other Financial Information
	Year Ended December 31,						Year-versus-year Increase/Decrease
	2016			2015			Change				% Change
Gross profit	$	8,447		$	7,871		$	576			7.3	%
Gross margin %	15.9		%	13.7		%	2.2			pp^(a)

^(a) Percentage points ("pp")

2016 compared to 2015

Total ingredient solutions net sales for 2016 decreased by $4,359, or 7.6 percent, compared to 2015. This decline was driven by a lower average selling price and decreased product net sales volume, due to a continuing challenging price environment for this segment.

Gross profit increased by $576, or 7.3 percent. Gross margin for 2016 was 15.9 percent compared to 13.7 percent for 2015, primarily due to a decline in input costs and improved plant efficiencies, partially offset by a lower average selling price.



	INGREDIENT SOLUTIONS NET SALES
	Year Ended December 31,						Year-versus-Year Net Sales Change Increase/ (Decrease)						Year-versus-Year Volume Change
	2015			2014			$ Change				% Change		% Change
	Amount			Amount			$ Change				% Change		% Change
Specialty wheat starches	$	29,989		$	28,217		$	1,772			6.3	%
Specialty wheat proteins	18,422			18,618			(196		)		(1.1	)
Commodity wheat starch	7,079			7,884			(805		)		(10.2	)
Commodity wheat proteins	1,889			2,123			(234		)		(11.0	)
Total ingredient solutions	$	57,379		$	56,842		$	537			0.9	%	1.1	%

	Other Financial Information
	Year Ended December 31,						Year-versus-year Increase/Decrease
	2015			2014			Change				% Change
	2015			2014			Change				% Change
Gross profit	$	7,871		$	6,099		$	1,772			29.1	%
Gross margin %	13.7		%	10.7		%	3.0			pp^(a)

^(a) Percentage points ("pp")

2015 compared to 2014

Total ingredient solutions net sales for 2015 increased by $537, or 0.9 percent, compared to 2014. This growth was driven by increased product sales volume of 1.1 percent, partially offset by a decrease in average selling price. Net sales of specialty wheat starches increased $1,772 year-versus-year, while net sales of specialty wheat proteins decreased $196 year-versus-year. Commodity wheat starch net sales decreased $805 year-versus-year and commodity wheat protein net sales decreased $234 year-versus-year.

Gross profit increased year-versus-year by $1,772, or 29.1 percent. Gross margin for 2015 was 13.7 percent compared to 10.7 percent for 2014, primarily due to the shift in product sales mix to higher value specialty products, a decrease in the cost of raw materials and energy, and lower production costs. Net sales of higher margin specialty wheat starches and proteins for 2015 increased to 84.4 percent of total ingredient solutions net sales, compared to 82.4 percent in 2014.

CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY

We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.

Operating cash flow and debt through our Credit Agreement (see Note 5 for Credit Agreement details) provide the primary sources of cash to fund operating needs and capital expenditures. These same sources of cash are used to fund shareholder dividends and other discretionary uses such as share repurchases. Going forward, we expect to use cash to implement our invest to grow strategy, particularly in the distillery products segment. The overall liquidity of the Company reflects our strong business results and an effective cash management strategy that takes into account liquidity management, economic factors, and tax considerations. We expect our sources of cash, including our Credit Agreement, to be adequate to provide for budgeted capital expenditures and anticipated operating requirements.

Operating Cash Flow

2016 compared to 2015

Cash flow from operations increased $1,059 to $19,721 for 2016, from $18,662 for 2015. This increase in operating cash flow was primarily the result of net cash inflows related to increased net income, after giving effect to adjustments to reconcile net income to net cash provided by operating activities (depreciation and amortization, gain on property insurance recoveries, gain on sale of assets, share-based compensation, equity method investment earnings, distribution received from equity method investee, and deferred income taxes, including change in valuation allowance) changes in receivables, net, inventory, and accounts payable to affiliate, net, partially offset by the change in refundable income taxes, accounts payable, and accrued expenses.

Increases to Operating Cash Flow - Net income, after giving effect to adjustments to reconcile net income to net cash provided by operating activities, increased by $7,995, to $43,682 for 2016 from $35,687 for 2015. Improvements in the gross profit of the distillery products and ingredient solutions segments and the other operating income, net, items in 2016, as well as a distribution received from our equity method investee of $3,300, a decrease in equity method investment earnings of $2,066, a decrease in depreciation and amortization of $1,129, an increase in share-based compensation of $988, a gain on sale of assets of $872, and a decrease in deferred income taxes, including change in valuation allowance of $668, were the major factors that generated this net income increase. Inventory increased $20,106 for 2016, compared to an increase of $24,260 for 2015. The resulting $4,154 change was due to inventory decreases in 2016 across all categories, except barreled distillate inventory for aging, which increased. Receivables, net, decreased $4,585 for 2016 compared to an decrease of $2,002 for 2015. The resulting $2,583 change was primarily due to lower net sales in December 2016 compared to December 2015. Accounts payable to affiliate increased $1,058 for 2016 compared to a decrease of $1,042 for 2015. The resulting $2,100 change was primarily due to the timing of invoices.

Decreases to Operating Cash Flow-Accounts payable decreased $3,178 for 2016 compared to an increase of $3,653 for 2015. The $6,831 change was primarily due to the timing of cash disbursements related to operating expenses and capital expenditures. Accrued expenses decreased $1,407 for 2016 compared to an increase of $2,351 for 2015. The $3,758 change was primarily due to decreases in incentive compensation and severance accruals. Refundable income taxes increased $3,390 for 2016 compared to a decrease of $1,073 in 2015. The $4,463 change was primarily due to tax credits that were earned after estimated payments had been made.

2015 compared to 2014

Cash flow from operations increased $2,850 to $18,662 for 2015, from $15,812 for 2014. This increase in operating cash flow was primarily the result of net cash inflows related to increased net income, after giving effect to adjustments to reconcile net income to net cash provided by operating activities (depreciation and amortization, gain on property insurance recoveries, loss on sale of assets, share-based compensation, excess tax benefits, equity method investment earnings, distribution received from equity method investee, and deferred income taxes, including change in valuation allowance), changes in accounts payable, accounts receivable, net, and accrued expenses, partially offset by the change in inventory.

Increases to Operating Cash Flow - Net income increased, after giving effect to adjustments to reconcile net income to net cash provided by operating activities, by $10,278, from $25,409 for 2014 to $35,687 for 2015. Improvements in the gross profit of the distillery products and ingredient solutions segments, a decrease in gain on insurance recoveries of $8,290, and a decrease in equity method investment earnings of $4,035, net of a $4,835 cash dividend distribution from ICP in 2014, were the major factors that generated this net income increase. Accounts payable increased $3,653 for 2015 compared to a decrease of $5,928 for 2014. The $9,581 change was primarily due to the year-ago settlement of expenses related to the proxy contest and the timing of current cash disbursements. Receivables, net, decreased $2,002 for 2015 compared to an increase of $4,851 for 2014. The resulting $6,853 change was primarily due to the timing of collections. Accrued expenses increased $2,351 for 2015 compared to a decrease of $373 for 2014. The $2,724 change was primarily due to increases in incentive compensation and severance.

Decreases to Operating Cash Flow - Inventory increased $24,260 for 2015, compared to a reduction of $476 for 2014, resulting in a $24,736 change. Investment in barreled distillate inventory for aging of $17,164 and increased finished product safety stock of $5,087 accounted for the majority of the inventory increase.

Investing Cash Flow

2016 compared to 2015

Net cash flow used in investing activities for 2016 was $17,683 compared to net investing cash flow used in investing activities of $30,526 for 2015, for a net decrease in cash used in investing activities of $12,843. During 2016, our additions to property, plant and equipment were $12,604 less than the prior year, primarily due to a decrease in capital expenditures related to the new dryer installed at the Lawrenceburg facility and a decrease in capital expenditures related to the Lawrenceburg facility warehouse expansion program. We received proceeds from the sale of property and the return of our DMI joint venture investment in 2016 of $1,560. These receipts of cash from investing activities were partially offset by our acquisition in November 2016 of the George Remus® brand business from Queen City Whiskey LLC for cash consideration of $1,551.

2015 compared to 2014

Net investing cash outflow for 2015 was $30,526 compared to net investing cash inflow of $1,502 for 2014, for a net increase in cash used in investing activities of $32,028. During 2015, we made capital investments of $23,573 more than the prior year period primarily due to capital expenditures related to the dryer damaged at the Lawrenceburg facility in the January 2014 fire and capital expenditures related to the Lawrenceburg facility warehouse expansion program. For 2014, we had net proceeds from property insurance recoveries of $8,450 and zero for 2015.

Capital Spending.

We manage capital spending to support our business growth plans. Investments in plant, property and equipment were $17,922 and $30,526, respectively, for 2016 and 2015. Adjusted for the change in capital expenditures remaining in accounts payable for 2016 and 2015 of $2,580 and $1,210, respectively, total capital expenditures were $20,502 and $31,736, respectively. We expect approximately $22,000 in capital expenditures in 2017 for facility improvement and expansion (including warehouse expansion), facility sustaining projects, and environmental health and safety projects.

In 2015, our Board of Directors approved a $20,200 major expansion in warehousing capacity on a twenty acre campus adjoining our current Lawrenceburg facility as part of the implementation of our five year strategic plan to support the growth of the whiskey category. In September 2016 an additional $8,800 was approved related to the next phases of this project. The total approved warehouse expansion investment at December 31, 2016, is ~~subject~~$29,000. As of December 31, 2016, we had incurred $20,077 of this approved investment amount.

Financing Cash Flow

Dividends and Dividend Equivalents. We made dividend and dividend equivalent payments of $2,066, $1,087, and $907 for 2016, 2015, and 2014, respectively, to ~~substantial fluctuations depending upon~~our holders of Common Stock, Restricted Stock, and RSUs.

Treasury Purchases. We purchased shares of stock during 2016, primarily from employees to cover withholding taxes on the vesting of restricted stock. Total treasury stock purchases added 40,870 shares, or $1,518 to our treasury stock in 2016.

We purchased 1,010,135 treasury shares in 2015 for a total of $15,408. Of the purchased shares, 950,000 were from a privately negotiated transaction with an affiliate of SEACOR Holdings, Inc. on September 1, 2015, for a total settlement of $14,488. SEACOR Holdings, Inc. is the 70 percent owner of ICP, our 30 percent equity method investment. Additional purchases of treasury stock in 2015 were primarily from employees to cover withholding taxes on the vesting of restricted stock and totaled 60,135 shares of stock, or $920.

We also purchased shares of stock during 2014, primarily to cover withholding taxes on the vesting of employee restricted stock. Total treasury stock purchases added 92,465 shares, or $672, to our treasury stock in 2014.

Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, ~~which affect commodity prices~~including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including brand development and share repurchase activities) and the overall cost of capital. Total debt was $36,001 at December 31, 2016 and $33,460 at December 31, 2015. During 2016, 2015, and 2014, we had net borrowings / (payments) of $4,828, $22,754, and $(11,330) on our Credit Agreement. Our payments on long-term debt totaled $2,346, $1,641, and $1,555 for 2016, 2015, and 2014, respectively.

Financial Condition and Liquidity

Our principal uses of cash in ~~general, including crop conditions, weather, disease, plantings, government programs~~the ordinary course of business are for input costs used in our production processes, salaries, capital expenditures, and ~~policies, competition for acquisition of inputs~~investments supporting our strategic plan, such as ~~agricultural~~the aging of barreled distillate. Generally, during periods when commodities ~~purchases~~prices are rising, our operations require increased use of cash to support inventory levels.

Our principal sources of cash are product sales and borrowing on our Credit Agreement. Under our Credit Agreement, we must meet certain financial covenants and include other restrictions as disclosed in Note 5.

At December 31, 2016, our current assets exceeded our current liabilities by foreign governments and changes in demand resulting from population growth and customer preferences. Corn prices have fluctuated significantly over the past several years. We expect corn pricing to remain volatile$73,906, largely due to our inventories of $78,858. At December 31, 2016 our cash balance was $1,569 and we have used our Credit Agreement for liquidity purposes, with $51,588 remaining for additional borrowings at December 31, 2016. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We regularly assesses our cash needs and the available sources to fund these needs. We utilize short-term and long-term debt to fund discretionary items, such as capital investments and share repurchases. In addition, we have strong operating results such that financial institutions, if needed, should provide sufficient credit funding to meet short-term financing requirements.

OFF BALANCE SHEET OBLIGATIONS

Guarantees and Other Off Balance Sheet Arrangements

Arrangement with Cargill. We have entered a ~~number of factors impacting global demand and supply of this commodity. These fluctuating prices create challenges since our customers are interested in stable prices~~business alliance with Cargill, Incorporated for the ~~distillery products they purchase~~production and marketing of a resistant starch derived from ~~us.~~

tapioca (U.S. Patent #5,855,946).Our arrangement with Cargill expires in June 2017. We ~~have separate grain supply contracts~~sold only an insignificant amount of the product in 2016, and the agreement with Cargill does not appear to be significant at this time. If we terminate the arrangement before the expiration of 18 months following certain force majeure events affecting Cargill, or if Cargill terminates the arrangement because of a breach by us of our obligations, we will be required to pay a portion (up to 50 percent) of the book value of capital expenditures, if any, made by Cargill to enable it to produce the product. This amount will not exceed $2,500 without our consent. Upon the occurrence of any such event, we will also be required to give Cargill a non-exclusive sublicense to use the patented process for ~~our Atchison and Indiana facilities that permit us to purchase corn for delivery up to twelve months into~~ the ~~future at negotiated prices. The pricing is based on a formula with several factors. We expect to order corn anywhere from one to 12 months into~~life of the ~~future.~~

~~We have a supply agreement to purchase wheat flour for use~~patent in the production of ~~protein~~high amylose corn based starches for use in food products. The sublicense would be royalty bearing, provided we were not also then making the high amylose corn based starch.

Indemnification Arrangement with ICP and ~~starch ingredients. The supply agreement price we pay for flour is a function~~ICP Holdings. Our Contribution Agreement with ICP and the LLC Interest Purchase Agreement with ICP Holdings require us to indemnify ICP and ICP Holdings until the end of the ~~per-bushel cost~~applicable statute of ~~wheat~~limitations from and ~~accordingly, wheat prices continue~~against any damages or liabilities arising from a breach of certain environmental and tax representations and warranties in the Contribution Agreement and the LLC Interest Purchase Agreement and also with respect to ~~directly impact the cost of raw materials. We believe our focus on value-added products can reduce our risk to such price variations as larger profit margins~~certain environmental damages or liabilities related to ~~such products can absorb higher levels~~the recommencement of ~~raw material volatility and as we may more readily seek adjustable price terms in contracts for such products. However, we will continue~~production at the Pekin facility or to ~~be affected by commodity price fluctuations~~operations at the Pekin facility prior to ~~some degree, which may be significant at times, and may not be able to recoup cost increases in our selling prices, particularly when price fluctuations are volatile.~~November 20, 2009.

~~Energy represents a major cost of operations, and seasonal increases in natural gas~~

Operating Leases. We lease railcars and other ~~utility~~assets under various operating leases. For railcar leases, we are generally required to pay all service costs ~~can affect our profitability. Energy costs have typically increased year to year. We sometimes try to protect ourselves from increased energy costs by entering into natural gas contracts~~associated with the railcars. Rental payments include minimum rentals plus contingent amounts based on mileage. Rental expenses under railcar operating leases with terms longer than one month were $2,561, $2,283, and $2,241 for ~~future delivery.~~2016, 2015, and 2014, respectively. Annual rental commitments under non-cancelable operating leases total $8,707 for the next five years ending December 31, 2021 and an additional $993 thereafter.

Contractual Obligations

The following table provides information on the amounts and payments of our contractual obligations at December 31, 2016:



	Payments due by period
	Total		Less than 1 year			1-3 years		4-5 years		More than 5 years
Long term debt	$	2,324	$	358		$	758	$	816	$	392
Interest on Long term debt	267		80			119		61		7
Operating leases	9,700		3,397			2,936		2,374		993
Post-employment benefit plan obligations	3,948		502			1,024		957		1,465
Purchase commitments	80,274		76,380		^(a)	3,634		260		—
Total	$	96,513	$	80,717		$	8,471	$	4,468	$	2,857

^(a)Includes open purchase order commitments related to raw materials and packaging used in the ordinary course of business of $73,334.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing consolidated financial statements, management must make estimates and judgments that affect the carrying values of our assets and liabilities as well as recognition of revenue and expenses. Management’s estimates and judgments are based on our historical experience and management’s knowledge and understanding of current facts and circumstances. The policies discussed below are considered by management to be critical to an understanding of our consolidated financial statements. The application of certain of these policies places significant demands on management’s judgment, with financial reporting results relying on estimations about the effects of matters that are inherently uncertain. For all of these policies, management cautions that future events rarely develop as forecast and estimates routinely require adjustment and may require material adjustment.

Revenue Recognition. Except as discussed below, revenue from the sale of ~~the~~ our products is recognized as products are delivered to customers according to shipping terms and when title and risk of loss have transferred. Income from various government incentive grant programs is recognized as it is earned. We do not offer a right of return but will accept returns if we shipped the wrong product or wrong quantity.

Our distillery segment routinely produces unaged distillate and this product is frequently barreled and warehoused at a Company location for an extended period of time in accordance with directions received from our customers. This product must meet customer acceptance specifications (if applicable), the risks of ownership and title for these goods must be passed, and requirements for bill and hold revenue recognition must be met prior to us recognizing revenue for this product. Separate warehousing agreements are maintained for customers who store their product with us, and warehouse service revenues are recognized as the service is provided.

Recognition of Insurance Recoveries. Estimated loss contingencies are recognized as charges to income when they are probable and reasonably estimable. Insurance recoveries are not recognized until all contingencies related to the insurance claim have been resolved and settlement has been reached with the insurer. Insurance recoveries, to the extent of costs and losses, are reported as a reduction to Cost of sales on the Consolidated ~~Statement~~Statements of ~~Operations.~~Income. Insurance recoveries, in excess of costs and losses, if any, are included as a reduction to Cost of sales on the Consolidated Statements of Income for business interruption recoveries and in Insurance recoveries on the Consolidated ~~Statement~~Statements of ~~Operations.~~ Income for property damage recoveries. Insurance recoveries, in excess of costs and losses, if any, are included as an operating activity on the Consolidated Statements of Cash Flows for business interruption recoveries and as an investing activity on the Consolidated Statements of Cash Flows for property damage recoveries.For a detail of the activity and related accounting treatment, see Note ~~17: Property and Business Interruption Insurance Claims and Recoveries.~~16.

Inventory.Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process, and certain maintenance and repair items. Whiskey is typically aged in barrels for several years, following industry practice; we classify all barreled whiskey as a current asset. We include insurance, and other carrying charges applicable to barreled whiskey in inventory costs.

Inventories are stated at the lower of cost or market on the first-in, first-out ("FIFO") method. Inventory valuations are impacted by constantly changing prices paid for key materials, primarily corn. We assess the valuation of our inventories and reduce the carrying value of those inventories that are obsolete or in excess of our forecasted usage to their estimated net realizable value. We estimate the net realizable value of such inventories based on analyses and assumptions including, but not limited to, historical usage, future demand, and market requirements. Reductions to the carrying value of inventories are recorded in cost of product sold. If the future demand for ~~the~~ our products is less favorable than ~~the~~ our forecasts, then the value of the inventories may be required to be reduced, which could result in material additional expense to the Company and have a material adverse impact on our consolidated financial statements.

Impairment of Assets.

Impairment of Investments

We review our investments in equity method investments for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investments may not be fully recoverable. Evidence of a loss in value that is other than temporary include, but are not limited to, the absence of an ability to recover the carrying amount of the investment, the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the investment. If the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate ~~write-down~~write down is recorded based on the excess of the carrying value over the best estimate of fair value of the investment. Considerable judgment is used in these measurements, and a change in the assumptions could result in a different determination of impairment loss and/or the amount of any impairment. No other than temporary impairments were recorded ~~during the years ended December 31, 2014~~for 2016 and ~~2013 for the Company's~~2015 related to our equity method investments.

Impairment of Long-Lived Assets

We review long-lived assets, mainly buildings and equipment assets, for impairment when events or circumstances indicate that usage may be limited and carrying values may not be fully recoverable.

In making an assessment to whether the carrying values are fully recoverable, management must make estimates and judgments relating to anticipated revenues and expenses and values of our assets and liabilities. Management’s estimates and judgments are based on our historical experience and management’s knowledge and understanding of current facts and circumstances. Management derives data for ~~its~~ estimates from both outside appraisals and internal sources, and considers such matters as product mix, unit sales, unit prices, input costs, expected target volume levels in supply contracts and expectations about new customers as well as overall market trends. Should events indicate the assets cannot be used as planned, the realization from alternative uses or disposal is compared to the carrying value. Considerable judgment is used in these measurements, and a change in the assumptions could result in a different determination of impairment loss and/or the amount of any impairment.

No events or conditions occurred ~~during the years ended December 31, 2014~~in 2016 and ~~2013~~2015 that required us to record an impairment.

Income Taxes. We account for deferred income tax assets and liabilities resulting from the effects of transactions reported in different periods for financial reporting and income tax under the liability method of accounting for income taxes. This method gives consideration to the future tax consequences of the deferred income tax items and immediately recognizes changes in income tax laws upon enactment as well as applied income tax rates when facts and circumstances warrant such changes. We establish a valuation allowance to reduce deferred tax assets when it is more likely than not that a deferred tax asset may not be realized. Accounting for uncertainty in income tax positions requires management judgment and the use of estimates in determining whether the impact of a tax position is "more likely than not" of being sustained on audit by the relevant taxing authority. We consider many factors when evaluating and estimating ~~its~~our tax positions, which may require periodic adjustment and which may not accurately anticipate actual outcomes.

Income tax expense for the year ended December 31, 2014 was primarily related to our operating results for the year ended December 31, 2014 and a partial release of valuation allowance during the year. We recorded income tax expense of $2,265 for the year ended December 31, 2014. We reduced our valuation allowance by $7,618, which partially offset the income tax expense for the year ended December 31, 2014. We evaluated the potential realization of our deferred income tax assets, considering both positive and negative evidence, including cumulative income or loss for the past three years and forecasted taxable income. As a result of this evaluation, we concluded that a significant portion of the valuation allowance on our net deferred income tax assets as of December 31, 2014 was no longer required. We continue to retain a valuation allowance of $3,829 as of December 31, 2014 associated with certain capital loss carryovers, state net operating loss carryovers and state income tax credit carryovers. We will continue to assess the need for a valuation allowance in future periods. See ~~Note 5: Income Taxes~~ ~~of Notes to Consolidated Financial Statements in~~ ~~Item 8. Financial Statements and Supplementary Data~~ ~~for additional information.~~

~~2014 ACTIVITIES AND RECENT INITIATIVES~~

~~Business Interruption~~

During January 2014, we experienced a fire at our Indiana facility. The fire damaged certain equipment in the feed dryer house and caused a temporary loss of production in late January. The fire did not impact our own or customer-owned warehoused inventory. The Indiana facility was at pre-fire production levels by the end of February 2014. We wrote off $160 of damaged assets, which is included in ~~Insurance recoveries~~ ~~on the Consolidated Statement of Operations for the year ended December 31, 2014, and incurred $447 of out-of-pocket expenses related to interruption of business, which are included as a reduction to~~ ~~Cost of sales~~ ~~on the Consolidated Statement of Operations for the year ended December 31, 2014.~~

In December 2014, we negotiated a settlement with our insurance carrier to close this claim. The claim capped our insurance recoveries at $9,375, all of which was received during the year ended December 31, 2014. As part of the settlement, we assume the risk of all future business interruption until permanent repairs are completed. Permanent repairs are expected to be completed by the end of 2015. Replacement cost of permanent repairs is likely to exceed the cost of funds received from the insurance carrier. The replacement of equipment may result in additional disruption to our business for which we bear the risk.

During October 2014, we experienced a fire at our Atchison facility. Certain equipment in the facility's feed drying operations was damaged, but repairable, and we experienced a seven-day temporary loss of production. We incurred $170 of out-of-pocket expenses to repair this equipment, which are treated as interruption of business and are included as a reduction to ~~Cost of sales~~ on the Consolidated Statement of Operations for the year ended December 31, 2014. We are currently working with our insurance carrier to determine the coverage for equipment damage and business interruption losses.

~~Because the timing and amount of the business interruption and the insurance recovery may differ, we may experience volatility in our future operating results.~~

~~ICP Activities~~

Our proportionate share of the profits of ICP had a significant positive impact on our 2014 financial results, contributing $10,098 to our net income for the year ended December 31, 2014. The significant earnings improvement from 2013 to 2014 was due to much improved margins in the production of chemical intermediates and high quality alcohol. The improved margins were driven primarily by a low current supply and strong demand for these products and for fuel grade alcohol, which affects their pricing. We currently expect that ICP's recent levels of profitability may not be sustained, and as a consequence, that ICP's contributions to our future net income may be reduced.

On December 3, 2014, the ICP advisory board recommended payment of a cash distribution to its members. We received our portion of the distribution, $4,835, on December 4, 2014. This is the first distribution we have received from ICP, and there is no assurance such distributions will be received in the future.

~~Valuation Allowance for Deferred Tax Assets~~

~~We had a net deferred tax asset of $11,275 as of December 31, 2013 that was reduced by a valuation allowance. During the year ended December 31, 2014,~~2015, we evaluated the potential realization of our deferred income tax assets. ~~Our~~We have demonstrated increased and sustained income from operations supporting the execution of our strategic plan and our analysis was significantly influenced by ~~the fact that we reached three years of cumulative positive earnings~~recent improvements in ~~the year ended December 31, 2014. We believe it is appropriate to rely upon expected reversals of taxable temporary differences~~pretax income, as well as projections of future taxable income. As of December 31, 2015, based on our projections of future taxable income and in ~~assessing the realization of our net deferred tax assets. In~~ consideration of all other evidence available (both positive and negative), we determined that it iswas more likely than not that we ~~will~~would realize a ~~substantial~~significant portion of our ~~net~~ deferred tax ~~assets.~~assets related to certain state income tax benefits that had been reduced by a valuation allowance. Therefore, we reduced our valuation allowance for deferred tax assets during 2015 by ~~$7,618 in the year ended December 31, 2014.~~an $2,385. We ~~continue~~continued to ~~retain~~maintain a valuation allowance of ~~$3,829~~$1,444 as of December 31, ~~2014 associated with certain~~2015 related to capital loss ~~carryovers, state net operating loss carryovers and state income tax credit carryovers.~~

~~Change to Post-Employment Benefit Plan~~

~~We made a change to the plan to eliminate retiree insurance benefit eligibility effective April 16, 2014 for certain union employees. The effect of this plan change~~carryforwards that, in our estimate, was a negative plan amendment of $919 and a $52 curtailment gain. The negative plan amendment will be recognized into income over average remaining years to full eligibility. The accounting for the curtailment resulted in immediate recognition of unamortized prior service cost of $52 in the second quarter of 2014.

~~Filing Status with the Securities and Exchange Commission ("SEC")~~

At June 30, 2014, we determined that we no longer qualify for smaller reporting company SEC filing status and will transition to accelerated filing status for the period ended March 31, 2015, per Item 10(f) of Regulation S-K. Also as a result of our change in filing status from smaller reporting company to accelerated, we no longer qualify for our exemption from compliance with Section 404(b) of the Sarbanes-Oxley Act at December 31, 2014.

~~New Officers~~

Effective July 28, 2014, Augustus "Gus" C. Griffin became our new President and Chief Executive Officer. Upon the appointment of Mr. Griffin as President and Chief Executive Officer of the Company, Don Tracy and Randall M. Schrick resigned from their positions as Interim Co-Chief Executive Officers effective July 28, 2014. Following their resignations as Interim Co-Chief Executive Officers, Mr. Tracy continues to serve as Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer), and Mr. Schrick serves as Vice President, Production and Engineering.

~~On December 1, 2014, Michael R. Buttshaw became our Vice President of Ingredients Sales and Marketing.~~

~~New Employment Agreement~~

On July 24, 2014, we entered into an employment agreement (the "Employment Agreement") with our President and Chief Executive Officer, Augustus Griffin. Pursuant to his Employment Agreement, Mr. Griffin receives an initial base salary of $375 per year, subject to upward adjustment. Mr. Griffin received a signing bonus of 12,000 RSUs with a three-year cliff vesting term, as well as a guaranteed award under the 2014 Short-Term Incentive Plan (the "STI Plan")not more likely than not to be prorated from Mr. Griffin's actual date of employment. Mr. Griffin's threshold STI Plan award is 80 percent of target ($220) if Company performance measures are equivalent to not less than 80 percent of target, subject to proration as described above. The maximum STI Plan award that Mr. Griffin may earn is 120 percent of the target award ($330), subject to proration as described above. For 2014, Mr. Griffin will not receive less than the pro-rata targeted award amount of $275, regardless of the Company's performance.

The Employment Agreement provides that in the event Mr. Griffin's employment with the Company is terminated, he will be entitled to: (1) all previously earned and accrued but unpaid base salary up to the date of termination, (2) accrued and unused vacation pay, and (3) any annual bonus earned with respect to a fiscal year endingrealized prior to the date of termination but unpaid as of that date, payable at the same time in the year of termination as payment would be made if he continued to be employed by the Company. Unless Mr. Griffin's employment is terminated for "Cause" as defined in the Employment Agreement or he terminates his employment, he will also be entitled, subject to satisfaction of certain conditions, to (1) a severance payment equal to his then-current annual base salary, and (2) any performance bonus related to the year in which the termination occurs calculated based on actual performance through the end of the applicable performance period and prorated for the number of days of his employment in the year in which the termination occurs, payable in a single lump sum at the same time as payment would be made if he continued to be employed by the Company.

~~Amendment to Credit Agreement~~

On August 5, 2014, we entered into Amendment No. 2 to the Credit Agreement (the "Second Amendment") by and among Wells Fargo Bank, N.A. as administrative agent and sole lender and MGP Ingredients, Inc., MGPI Processing, Inc., MGPI Pipeline, Inc. and MGPI of Indiana, LLC. The Second Amendment amended and restated the definition of the term "Fixed Asset Sub-Line" and added Thunderbird Real Estate Holdings, LLC ("Thunderbird"), a wholly-owned subsidiary of MGPI Processing, Inc. which is a wholly-owned subsidiary of the Company, to the Credit Agreement as a Loan Party, as defined in the Credit Agreement.

On February 27, 2015, we entered into a five year, $80,000 revolving loan pursuant to a Second Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, as Administrative Agent (see their respective carryforward periods~~Note 18: Subsequent Events~~ ~~for additional details)~~.

~~Pending Termination of Pension Benefit Plans~~

We took steps during 2014 to terminate the pension plans for employees covered under collective bargaining agreements. Our projected additional funding cost to terminate the plans is approximately $716, which will be recognized immediately in the period that the pension benefit plan distribution is fully executed, expected to be during 2015.

~~Termination of DMI Joint Venture~~

On December 29, 2014, we gave notice to DMI and to our partner in DMI, C&D, to terminate the joint venture effective June 30, 2015. C&D also provided notice to terminate DMI effective June 30, 2015. Under German law, commencing on June 30, 2015, normal operations for DMI will cease and a one-year winding up process will begin. DMI has been the sole source of our supply of Trutex®/Wheatex® for the past 2 years. The ability to find another source to supply the product will be critical to our continued ability to market Trutex®/Wheatex®. We are in the early stages of finding alternative sources for production for our Trutex®/Wheatex® product within the United States.

~~YEAR ENDED DECEMBER 31, 2014 COMPARED TO DECEMBER 31, 2013~~

~~CONSOLIDATED RESULTS~~

~~Consolidated earnings for the year ended~~ ~~December 31, 2014~~ ~~improved by $28,604 compared to a year ago, with net income of $23,675 on consolidated net sales of $313,403 versus a net loss of $4,929 on consolidated net sales of $323,264 for the year ended~~ ~~December 31, 2013. The table below details the significant year-versus-year increases and decreases in net income/loss:~~

$ (thousands)
Net loss for the year ended December 31, 2013 $ (4,929 )
    Improved by:
        Change in operating profits from distillery products segment 16,714
        Improved earnings from equity method investments 10,341
        Savings from reduced selling general and administrative expenses 6,101

     Reduced by:
          Change in operating profits from ingredients solutions segment (564 )
          Impact of income taxes (2,979 )
          Change in discontinued operations (878 )
          Other (131 )
Net income for the year ended December 31, 2014 $ 23,675

In our distillery products segment, the significant year-versus-year increase in earnings was primarily due to improved volumes in the distillery segment, and a continuing shift in mix toward premium spirits. Total alcohol volume increased 18.5 percent for the year ended December 31, 2014 compared to a year ago, while total food grade alcohol net sales increased as a percentage of total distillery products segment sales to 81.2 percent for the year ended ~~December 31, 2014~~ ~~from 79.0 percent for the year ended~~ ~~December 31, 2013. Our earnings in the distillery products segment were positively impacted by the insurance recovery activities related to two separate fires, which resulted in a net favorable impact of $8,598 (see~~ ~~Note 17: Property and Business Interruption Insurance Claims and Recoveries~~). The result of this transaction was a positive impact to our 2014 earnings; however because the potential exists for additional business interruption until the completion of repairs in 2015, we may experience a negative impact to our future operating results.

~~Our equity method investment earnings increased to $10,137 (net of our change in accounting estimate of $1,882) for the year ended~~ ~~December 31, 2014~~ from a net loss of $204 in the prior year. The significant year-versus-year increase in equity method investment earnings was from ICP, which experienced much improved margins. The improved margins were driven primarily by a low current supply and strong demand for their products and for fuel grade alcohol, which affects their pricing. ICP experienced a 34 percent growth in the volume of alcohol sales compared to a year ago (see ~~Note 3: Equity Method Investments). There can be no assurance that ICP's strong financial results will continue in the future.~~

In 2014, reduced levels of selling, general and administrative costs resulted in a year-versus-year cost decrease of $6,101. This decrease was primarily due to year-versus-year expense decreases related to the proxy contest and severance costs.

~~In our ingredients solutions segment, the year-versus-year decrease in earnings was primarily due to a 3.6 percent decrease in net sales combined with a 4.8 percent decrease in average selling prices.~~

~~In 2013, our earnings included a $878 gain (net of tax) recognized on the sale of our bioplastics manufacturing business.~~

~~In the year ended December 31, 2014,~~During 2016, we evaluated the potential realization of our deferred income tax assets, considering both positive and negative evidence, including cumulative income or loss for the past three years and forecasted taxable income. ~~We determined~~Approximately $689 of capital loss carryovers expired unused at the end of 2016. The related deferred tax asset and associated valuation allowance were eliminated as of December 31, 2016. The remainder of the change in the valuation allowance was $10 for additional state net operating loss carryforwards, and $39 for capital losses that ~~it is~~were utilized in 2016, for a total reduction in the valuation allowance of $718. Our valuation allowance of $726 as of December 31, 2016, largely relates to capital loss carryforwards that, in our estimate, are not more likely than not ~~a substantial portion~~to be realized prior to their respective carryforward periods, due to our past history and forecasted ability of our net deferred tax assets will be realized. As a result, we partially reduced our valuation allowance arising from expected realization of net deferred tax assets in future years. Our total income tax expense recorded for the year ended December 31, 2014, including the effect of the valuation allowance release, was $2,265, as comparednot generating enough capital gains to ~~an income tax benefit of $714 for the year ended December 31, 2013~~use such losses (see Note ~~5: Income Taxes~~)6).

~~NET SALES~~

~~Net sales for the year ended~~ ~~December 31, 2014~~ ~~decreased $9,861, or 3.1 percent, compared to the year ended~~ ~~December 31, 2013~~. Net sales in the distillery products segment as a whole decreased primarily as a result of lower average selling price, as well as decreased volume and pricing of distillers feed and related co-products, year-versus-year. The average selling prices of total high quality food grade alcohol and distillers feed and related co-products were impacted by declines in commodity pricing, primarily corn, as discussed further under ~~"--Cost of Sales"~~ below. Net sales in the ingredient solutions segment as a whole decreased primarily due to declines in volume of wheat proteins, as well as a decrease related to the impact in overall segment average selling price. The average selling price in the ingredients solutions segment was impacted by declines in commodity costing, primarily flour, as discussed further under ~~"--Cost of Sales"~~ ~~below. Net sales in the other segment fell to zero for the year ended~~ ~~December 31, 2014~~ ~~due to the sale of the bioplastics manufacturing business on February 8, 2013.~~

~~COST OF SALES~~

~~For the year ended~~ ~~December 31, 2014, cost of sales decreased $17,053, or 5.6 percent, compared to the year ended~~ ~~December 31, 2014. For the year ended~~ ~~December 31, 2014, cost of sales was 90.9 percent of net sales, which generated a gross profit margin of 9.1 percent. For the year ended~~ ~~December 31, 2013, cost of sales was 93.4 percent of net sales, which generated a gross profit margin of 6.6 percent.~~

~~For the year ended~~ ~~December 31, 2014~~, our lower overall costs were primarily the result of lower costs for corn and flour partially offset by an increase in the cost of natural gas. We saw decreases in the per-bushel cost of corn and the per-pound cost of flour, which averaged 33.5 percent and 11.3 percent lower, respectively, compared to the year ended ~~December 31, 2013. On the other hand, the per-million cubic foot cost of natural gas increased by 8.5 percent compared to the year ended~~ ~~December 31, 2013~~.

~~INSURANCE RECOVERIES~~

During January 2014, we experienced a fire at our Indiana facility. The fire damaged certain equipment in the feed dryer house and caused a temporary loss of production in late January. The fire did not impact our own or customer-owned warehoused inventory. The Indiana facility was at pre-fire production levels by the end of February 2014. We received $8,450 of insurance recovery proceeds during the year ended December 31, 2014 related to the fire at our Indiana facility, which, after the $160 property write-off, resulted in $8,290 of net ~~Insurance recoveries~~.

In December 2014, we negotiated a settlement with our insurance carrier to close this claim. As part of this settlement, we assume the risk of all future business interruption until permanent repairs can be made. For a detail of the activity and related accounting treatment, see ~~Note 17: Property and Business Interruption Insurance Claims and Recoveries~~.

~~SELLING, GENERAL AND ADMINISTRATIVE EXPENSES~~

~~Selling, general and administrative expenses for the year ended~~ ~~December 31, 2014~~ ~~decreased by $6,101, or 23.3 percent, compared to the year ended~~ ~~December 31, 2013. This decrease was primarily due to year-versus-year decreases of $4,894 and $1,303 related to the proxy contest and severance costs, respectively.~~

~~INTEREST EXPENSE~~

~~Interest expense for the year ended~~ ~~December 31, 2014~~ ~~decreased $302, compared to the year ended~~ ~~December 31, 2013. This decrease was primarily the result of a lower average daily loan balance combined with average lower interest rates on our Credit Agreement compared to a year ago.~~

~~EQUITY METHOD INVESTMENT EARNINGS (LOSS)~~

~~ICP~~

ICP's Limited Liability Company Agreement generally allocates profits, losses and distributions of cash of ICP based on the percentage of a member's capital contributions to ICP relative to total capital contributions of all members to ICP, of which we have 30 percent and our joint venture partner, ICP Holdings, has 70 percent. That agreement grants the right to either member to elect to shut down the Pekin facility if ICP operates at an EBITDA loss of greater than or equal to $500 in any quarter, subject to the right of the other member to override that election. If the Objecting Member overrides the election, then EBITDA loss and EBITDA profit for each subsequent quarter are allocated 80 percent to the Objecting Member and 20 percent to the Electing Member until the end of the applicable quarter in which the Electing Member withdraws its Shutdown Election and thereafter allocation revert to a 70 percent/30 percent split (subject to a catch-up allocation of 80 percent of EBITDA profits to the Objection Member until it equals the amount of EBITDA loss allocated to such member on an 80 percent/20 percent basis). ICP experienced an EBITDA loss of $500 for the quarter ended March 31, 2013, which was one factor that prompted us to deliver notice of our Shutdown Election on April 18, 2013. However, we withdrew our Shutdown Election on March 31, 2014 (thereby causing the allocation of profits and losses to revert to 30 percent to us and 70 percent to ICP Holdings as of April 1, 2014) based partially on the strong financial results ICP generated during the period ended March 31, 2014.

~~As of June 30, 2014 and during the year ended~~ ~~December 31, 2014~~, we measured our cumulative equity in the undistributed earnings of ICP using an 80 percent/20 percent allocation for the Shutdown Election period (April 1, 2013 through March 31, 2014) and a 70 percent/30 percent allocation thereafter. The cumulative effect of this change in estimate resulted in a decrease in equity method investment earnings of ICP of $1,882 for the year ended ~~December 31, 2014; a decrease in the earnings per share of $0.10 per share for the year ended~~ ~~December 31, 2014; and a decrease in the related equity method investment in ICP at~~ ~~December 31, 2014, of $1,882.~~

~~For the year ended~~ ~~December 31, 2014, ICP reported total net income of $39,935. Our portion of the earnings for the year ended December 31, 2014 was $10,098~~ ~~net of the change in estimate.~~ For the year ended December 31, 2013, ICP recorded a loss of $837 and our portion of the loss was $251. The significant year-versus-year increase in earnings was due to higher volume and much improved margins in the production of chemical intermediates, fuel grade alcohol, and high quality food grade alcohol, partially offset by our change in accounting estimate which reduced our equity method investment earnings by $1,882. The improved margins were driven primarily by a low current supply and strong demand for these products and for fuel grade alcohol, which affects their pricing.

~~Our proportionate share of the ICP earnings has had a significant positive impact on our net income for the year ended~~ ~~December 31, 2014~~. There can be no assurance that such results will continue in future periods. We presently expect that ICP's recent levels of profitability may not be sustained, and as a consequence that ICP's contributions to our earnings may be reduced in future periods.

On July 23, 2014 ICP's alcohol production was interrupted resulting in inconsequential damage to equipment. Production was restarted on a limited basis on August 1, 2014, and ICP was back to normal production rates on or about August 14, 2014. ICP anticipates finalizing the business interruption and property insurance claims in 2015. Insurance recoveries will be recognized when all contingencies to the insurance claims have been resolved and settlement has been reached with the insurer. Because the timing and amount of ICP's business interruption and the insurance recovery may differ, we may experience volatility in ~~Equity Method Investment Earnings (Loss)~~ ~~in our future periods.~~

On December 3, 2014, the ICP advisory board recommended payment of a cash distribution to its members. We received our portion of the distribution, $4,835, on December 4, 2014. This is the first distribution we have received from ICP, and there can be no assurance such distributions will be received in the future.

~~DMI~~

~~For the year ended~~ ~~December 31, 2014~~ ~~and 2013, DMI had net income of $67 and $94, respectively. As a 50 percent joint venture holder, our equity in earnings was $39 and $47 for the years ended~~ ~~December 31, 2014~~ ~~and 2013, respectively.~~

On December 29, 2014, we gave notice to DMI and to our partner in DMI, C&D, to terminate the joint venture effective June 30, 2015. Under German law, commencing on June 30, 2015, normal operations for DMI will cease and a one-year winding up process will begin. DMI has been the sole source of our supply of Trutex®/Wheatex® for the past 2 years.

~~DISCONTINUED OPERATIONS, NET OF TAX~~

On February 8, 2013, we sold the assets at our bioplastics manufacturing facility in Onaga, Kansas and certain assets of our extruder bio-resin laboratory located in Atchison, Kansas. The sales price totaled $2,797 and resulted in a net of tax gain of $878 that was recognized as discontinued operations in the year ended December 31, 2014.

~~INCOME TAX EXPENSE/(BENEFIT)~~

~~NET INCOME/(LOSS)~~

~~As the result of the factors outlined above, we generated net income of $23,675 for the year ended December 31, 2014, compared to a net loss of $4,929 for the year ended December 31, 2013.~~

~~NON-GAAP FINANCIAL MEASURES~~

We measure our performance using key financial metrics that include values calculated under generally accepted accounting principles ("GAAP"), including operating income (loss) and net income (loss). We also assess our performance using other key financial metrics that are not recognized under GAAP, such as earnings (loss) per share on net income (loss) attributable to all shareholders.

We do not purport these performance measures to be alternatives to net income (loss) as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, they are not intended to be a measure of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements.

Further, we believe it is important to adjust our key financial measures from time-to-time for certain discretionary items as determined by management. When we make those adjustments, we label the resulting value as "adjusted," and refer readers to the appropriate reconciliations below.

We believe that the presentation of GAAP financial measures alone would not provide our shareholders and potential investors with the ability to appropriately analyze our ongoing operational results, and therefore expected future results; we believe that our use of non-GAAP financial measures provides shareholders and potential investors with the same key financial performance indicators that are utilized by management to assess our operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Because not all companies use identical calculations, this presentation may not be comparable to other similarly-titled measures used by other companies.

~~RECONCILIATION OF KEY FINANCIAL METRICS FOR DISCRETIONARY ITEMS~~

The following table sets forth a reconciliation of certain GAAP items, operating income (loss) and net income (loss), as well as a non-GAAP item, earnings (loss) per share on net income (loss) attributable to all shareholders, to their values as "adjusted" for certain discretionary items determined by management for years ended December 31, 2014 and 2013:

Year Ended December 31,
2014 2013
Operating income (loss) $ 16,619
$ (5,199 )
Insurance recoveries (8,290 ) —
Proxy-related expenses —
5,465
Adjusted operating income (loss) $ 8,329
$ 266

Net income (loss)^(a)
$ 23,675
$ (4,929 )
Insurance recoveries, net of tax (4,915 ) —
Proxy-related expenses, net of tax —
4,864
Change in valuation allowance (1,319 ) —
Adjusted net income (loss) $ 17,441
$ (65 )

Earnings (loss) per share on net income (loss) attributable to all shareholders^(b)
$ 1.37
$ (0.29 )
Insurance recoveries, net of tax (0.28 ) —
Proxy-related expenses, net of tax —
0.28
Change in valuation allowance (0.08 ) —
Adjusted earnings (loss) per share on net income (loss) attributable to all shareholders $ 1.01
$ (0.01 )


^(a)	~~Net income (loss) attributable to all shareholders (see~~ ~~Note 6: Equity and Earnings Per Share~~ ~~for additional details).~~

^(b)

Earnings (loss) per share on net income (loss) prior to the allocation for participating securities of 278,900 and 569,296 nonvested restricted stock for the years ended December 31, 2014 and 2013, and 413,288 and 371,502 RSUs for the years ended December 31, 2014 and 2013, respectively. Participating securities do not receive an allocation in periods when a loss is experienced (see ~~Note 6: Equity and Earnings Per Share~~ ~~for additional details).~~

~~SEGMENT RESULTS~~

~~The following is a summary of revenues and pre-tax income (loss) allocated to each reportable operating segment for the years ended December 31, 2014 and 2013. See~~ ~~Note 11:Operating Segments~~ ~~set forth in~~ ~~Item 8. Financial Statements and Supplementary Data~~ ~~for additional information regarding our operating segments.~~

Year Ended December 31,
2014 2013
Distillery Products
Net Sales $ 256,561
$ 264,098

Income from continuing operations before income taxes 28,701
11,987

Ingredient Solutions
Net Sales 56,842
58,967

Income from continuing operations before income taxes 3,939
4,503

Other^(a)

Net Sales —
199

Loss from continuing operations before income taxes —
(90 )


^(a)	~~Assets from this segment were sold February 8, 2013 as further described in~~ ~~Note 11: Operating Segments.~~

The following table is a reconciliation between income (loss) from continuing operations before income taxes by segment and net income (loss). Non-direct selling, general and administrative expense, interest expense, earnings from equity method investments and other general miscellaneous expenses are classified as corporate.

Year Ended December 31,
Income (loss) from continuing operations before income taxes 2014 2013
Distillery products $ 28,701
$ 11,987

Ingredient solutions 3,939
4,503

Other^(a)
—
(90 )
Corporate (6,700 ) (22,921 )
Total income (loss) from continuing operations before income taxes 25,940

(6,521 )
Income tax expense (benefit) 2,265
(714 )
Net income (loss) from continuing operations 23,675
(5,807 )
Discontinued operations, net of tax —
878

Net income (loss) $ 23,675
$ (4,929 )


^(a)	~~Assets from this segment were sold February 8, 2013 as further described in~~ ~~Note 11: Operating Segments.~~

~~DISTILLERY PRODUCTS~~

~~The following table shows selected financial information for our distillery products segment for the years ended December 31, 2014 and 2013.~~

PRODUCT GROUP NET SALES
Year Ended December 31, Year-versus-Year Net Sales Change Increase/ (Decrease) Year-versus-Year Volume Change
2014 2013 $ Change % Change % Change
Amount Amount
Food grade alcohol $ 208,375
$ 208,695
$ (320 ) (0.2)% 15.3 %
Distillers feed and related co-products 30,361
43,513
(13,152 ) (30.2) (5.0 )
Fuel grade alcohol 12,987
8,026
4,961
61.8 65.1
Warehouse revenue 4,838
3,864
974
25.2 n/a
Total distillery products $ 256,561

$ 264,098

$ (7,537 ) (2.9)% n/a

Other Financial Information
Year Ended December 31, Year-versus-Year Increase/Decrease
2014 2013 Change % Change

Gross profit $ 22,332
$ 14,309
$ 8,023
56.1 %
Gross margin % 8.7 %
5.4 % 3.3 % 61.1 %
Income from continuing operations before taxes $ 28,701
$ 11,987
$ 16,714
139.4 %
Return on sales 11.2 %
4.5 % 6.7 % 148.9 %

~~Total distillery products net sales for the year ended~~ ~~December 31, 2014~~ decreased $7,537, or 2.9 percent. Food grade alcohol net sales decreased $320 year-versus-year, primarily due to a 15.3 percent increase in volume offset by a 13.4 percent decrease in average pricing. Distillers feed and related co-products net sales decreased $13,152 year-versus-year primarily due to lower average selling prices of 26.6 percent combined with a 5.0 decrease in volume. Fuel grade alcohol net sales increased $4,961 year-versus-year primarily due to a 65.1 increase in volume partially offset by a 2.0 percent decrease in average pricing. The 65.1 percent increase in fuel grade alcohol volume for the year ended ~~December 31, 2014~~ compared to a year ago was primarily due to the temporary opportunistic production and sale of fuel grade alcohol when related margins were high in 2014, and a production mix of more premium grade alcohol, which generates more fuel grade alcohol as a by-product. Warehouse revenue increased $974 year-versus-year due to increased barrel warehouse storage fees.

Gross profit increased year-versus-year by $8,023, or 56.1 percent. The per-bushel cost of corn decreased 33.5 percent compared to a year ago. Compared to the decrease in the cost of corn, our average selling price declines were relatively small, which was a leading factor in the increases in our gross margin percentage and our return on distillery sales. Partially offsetting these improvements to our margins was the impact of the October 2014 fire at our Atchison distillery, which caused a seven-day shutdown and higher production costs. Gross margin for the year ended December 31, 2014 was 8.7 percent compared to 5.4 for the year ended December 31, 2013; return of sales was 11.2 percent for the year ended December 31, 2014 compared to 4.5 percent for the year ended December 31, 2013. Also contributing to the year-versus-year increase in return on sales was the positive earnings impact from our insurance recovery activities, which resulted in a net favorable impact of $8,598 for the year ended December 31, 2014 (see ~~Note 17: Property and Business Interruption Insurance Claims and Recoveries~~).

~~INGREDIENT SOLUTIONS~~

~~The following table shows selected financial information for our ingredient solutions segment for the years ended December 31, 2014 and 2013.~~

PRODUCT GROUP NET SALES
Year Ended December 31, Year-versus-Year Net Sales Change Increase/ (Decrease) Year-versus-Year Volume Change
2014 2013 $ Change % Change % Change
Amount Amount
Specialty wheat starches $ 28,217
$ 27,820
$ 397
1.4% 7.6 %
Specialty wheat proteins 18,618
20,086
(1,468 ) (7.3) (8.9 )
Commodity wheat starch 7,884
8,509
(625 ) (7.3) (3.2 )
Vital wheat gluten (commodity wheat proteins) 2,123
2,552
(429 ) (16.8) (10.6 )
Total ingredient solutions $ 56,842
$ 58,967
$ (2,125 ) (3.6)% 1.2 %

Other Financial Information
Year Ended December 31, Year-versus-year Increase/Decrease
2014 2013 Change % Change

Gross profit $ 6,099
$ 6,986
$ (887 ) (12.7 )%
Gross margin % 10.7 %
11.8 % (1.1 )% (9.3 )%
Income from continuing operations before taxes $ 3,939
$ 4,503
$ (564 ) (12.5 )%
Return on sales 6.9 %
7.6 % (0.7 )% (9.2 )%

Total ingredient solutions net sales for the year ended December 31, 2014 decreased by $2,125, or 3.6 percent, compared to the year ended December 31, 2013. Net sales of specialty wheat starches increased $397 year-versus-year, primarily due to a 7.6 percent increase in volume partially offset by a 5.7 percent decrease in average selling prices. Net sales of specialty wheat proteins decreased $1,468 year-versus-year primarily due to a 8.9 percent decrease in volume partially offset by a 1.7 percent increase in average selling prices. Commodity wheat starch net sales decreased $625 year-versus-year due to declines in average selling prices and volume of 4.3 percent and 3.2 percent, respectively. Commodity wheat protein net sales decreased $429 year-versus-year primarily due to declines in volume and average selling prices of 10.6 percent and 6.9 percent, respectively. Our focus remains on the production and commercialization of specialty ingredients, which is reflected in the year-versus-year increase in our specialty product net sales as a percentage of total segment net sales of 1.2 percentage points, to 82.4 percent for the year ended December 31, 2014 from 81.2 percent for the year ended December 31, 2013.

Gross profit decreased year-versus-year by $887, or 12.7 percent. Gross margin for the year ended December 31, 2014 was 10.7 percent compared to 11.8 for the year ended December 31, 2013. Compared to the year-versus-year 4.8 percent decrease in average selling prices, our overall product costs experienced a smaller overall percentage decrease. The cost of natural gas and certain production costs increased compared to a year ago, which was partially offset by an 11.3 decrease in the per-pound cost of flour. In October of 2014, the Atchison distillery experienced a fire that also shut down production of ingredient solutions products for seven days, resulting in higher production costs. The per-million cubic foot cost of natural gas averaged 8.5 percent higher for the year ended December 31, 2014 compared to the year ended December 31, 2013. These factors led to a decrease in return on sales from 7.6 percent for the year ended December 31, 2013 to 6.9 percent for the year ended December 31, 2014.

~~LIQUIDITY AND CAPITAL RESOURCES~~

Our principal uses of cash in the ordinary course of business are for the cost of raw materials and energy used in our production processes, salaries, and capital expenditures. Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels. Our principal sources of cash are product sales and borrowing on our revolving credit facility. At December 31, 2014 and 2013, our cash balance was $5,641 and $2,857, respectively, and we have used our revolving credit facility for liquidity purposes, with $42,744 remaining for additional borrowings at December 31, 2014. Historically, we also have used cash for acquisitions and received cash from investment or asset dispositions and tax refunds.

On February 27, 2015, the Board of Directors declared a dividend payable to stockholders of record as of March 26, 2015, of the Company's Common Stock and a dividend equivalent payable to holders of RSUs as of March 26, 2015, of $0.06 per share and per unit. The dividend payment and dividend equivalent payment will be paid on April 21, 2015.

On February 28, 2014, the Board of Directors declared a dividend payable to stockholders of record as of March 17, 2014, of the Company's Common Stock and a dividend equivalent payable to holders of RSUs as of March 17, 2014, of $0.05 per share and per unit. The total payment of $907, comprised of dividend payments of $884 and dividend equivalent payments of $23, was paid on April 9, 2014.

On February 28, 2013, the Board of Directors declared a dividend payable to stockholders of record as of March 18, 2013, of Common Stock and a dividend equivalent payable to holders of RSUs as of March 18, 2013, of $0.05 per share and per unit. The total payment of $916, comprised of dividend payments of $897 and dividend equivalent payments of $19, was paid on April 10, 2013.

~~On February 8, 2013, we sold our bioplastics manufacturing business for $2,797.~~

We expect approximately $13,000 in capital expenditures over the twelve month period ending December 31, 2015 related to other improvements in and replacements of existing facilities, equipment and information technology. As of December 31, 2014, we had contracts to acquire approximately $584 of capital assets. The cost to repair or replace dryers damaged in the January 2014 fire at the Indiana facility will be in addition to this number, which is estimated to be $9,600, including the estimated cost of installation. In January 2015, we made a purchase commitment of $5,439 to replace the dryers damaged at the Indiana facility. In December 2014, we negotiated a settlement with our insurance carrier to close this claim. For the year ended December 31, 2014, we received insurance recoveries of $925 related to business interruption and $8,450 of insurance recoveries related to property damage. The permanent repairs are expected to be completed by the end of 2015. Replacement cost of new dryers is likely to exceed the cost of funds received from the insurance carrier.

~~As previously discussed, we had significant professional fees and severance costs related to the proxy contest accrued at December 31, 2013, of which we made cash disbursements of~~ ~~$2,506~~ ~~in 2014.~~

~~We expect our sources of cash to be adequate to provide for budgeted capital expenditures and anticipated operating requirements.~~

~~The following table is presented as a summary of our liquidity and financial condition as of December 31, 2014 and 2013:~~

December 31,
2014 2013
Cash and cash equivalents $ 5,641
$ 2,857

Working capital 51,497
37,736

Amounts available under lines of credit 42,744
23,920

Credit facility, notes payable and long-term debt 10,283
23,168

Stockholders’ equity 104,365
81,603

~~Certain components of our liquidity and financial results were as follows:~~

Year Ended December 31,
2014 2013
Depreciation and amortization 12,325
12,009
Capital expenditures (6,953 ) (6,208 )
Proceeds from insurance recoveries 9,375
—
Distribution received from equity method investee 4,835
—
Cash flows from operations 15,812
17,300

~~CASH FLOW INFORMATION~~

~~Summary cash flow information follows for:~~

Year Ended December 31,
2014 2013
Cash flows provided by (used in):
Operating activities $ 15,812
$ 17,300
Investing activities 1,502
(3,411 )
Financing activities (14,530 ) (11,032 )
Increase in cash and cash equivalents 2,784

2,857
Cash and cash equivalents at beginning of year 2,857
—
Cash and cash equivalents at end of year $ 5,641
$ 2,857

~~Operating Cash Flows.~~ ~~Summary operating cash flow information for the years ended December 31, 2014 and 2013, is as follows:~~

Year Ended December 31,
2014 2013
Net income (loss) $ 23,675
$ (4,929 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 12,325
12,009

Gain on sale of bioplastics manufacturing business —
(1,453 )
Gain on property insurance recoveries (8,290 ) —

Loss on sale of assets 38
47

Share based compensation 1,393
932

Equity method investment (earnings) loss (10,137 ) 204

Distribution received from equity method investee 4,835
—

Deferred income taxes, including change in valuation allowance 1,570
(152 )
Changes in operating assets and liabilities:

Restricted cash —
12

Receivables, net (4,851 ) 7,511

Inventory 476
1,542

Prepaid expenses (331 ) (129 )
Refundable income taxes 78
(224 )
Accounts payable (5,928 ) 2,571

Accounts payable to affiliate, net 2,129
(2,804 )
Accrued expenses (373 ) 3,264

Deferred credits 174
(208 )
Accrued retirement health and life insurance benefits, pension obligations, and other noncurrent liabilities (699 ) (876 )
Other (272 ) (17 )
Net cash provided by operating activities $ 15,812

$ 17,300

~~Cash flow from operations decreased~~ ~~$1,488~~ to ~~$15,812~~ ~~for the year ended December 31, 2014, from~~ ~~$17,300~~ for the year ended December 31, 2013. This decrease in operating cash flow was primarily the result of net cash outflows related to changes in our receivables, inventory, accounts payable, and accrued expenses partially offset by the impact of increased net cash outflow related to net income, after giving effect to adjustments to reconcile net income (loss) to net cash provided by operating activities, along with the change in our accounts payable to affiliate activities.

~~The following items resulted in decreases to our operating cash flows:~~

~~Receivables increased $4,851~~ ~~for the year ended December 31, 2014 compared to a decrease~~
of ~~$7,511~~ ~~for the year ended December 31, 2013. The resulting change was primarily due to~~
~~increased sales for products to customers with longer payment terms, contributing to an increase of days sales outstanding of seven, and the timing of cash receipts;~~

~~Inventory decreased~~ ~~$476~~ ~~for the year ended December 31, 2014 compared to a decrease of~~ ~~$1,542~~ for the year ended December 31, 2013, with the resulting change primarily due to lower raw material input costs, resulting in lower finished inventory input costs, and decreased volume of ingredient solutions inventories;

~~Accounts payable decreased $5,928 for the year ended December 31, 2014 compared to an increase of $2,571~~ ~~for the year ended December 31, 2013. The resulting change was primarily due~~
~~to the 2014 settlement of 2013 accrued expenses related to the proxy contest and the timing of cash disbursements at year end; and~~

~~Accrued expenses decreased $373~~ ~~for the year ended December 31, 2014 compared to an increase~~
of ~~$3,264~~ ~~for the year ended December 31, 2013. The decrease in accrued liabilities was primarily~~
~~due to the 2014 settlement of accrued severance pay.~~

~~The above factors which served to decrease operating cash flows, were partially offset by the following:~~

Net income increased, after giving effect to adjustments to reconcile net income (loss) to net cash provided by operating activities (depreciation and amortization, gains and losses, release of valuation allowance, share-based compensation and equity method investment earnings, net of distributions), by ~~$18,751~~ ~~from~~ ~~$6,658~~ ~~for the year ended December 31, 2013 to~~ ~~$25,409~~ ~~for the year ended December 31, 2014; and~~

Accounts payable to affiliate, net increased $2,129 for the year ended December 31, 2014 compared to a net decrease of $2,804 for the year ended December 31, 2013, with the resulting change primarily due to timing of payments as well as increased purchases from ICP compared to the same period a year ago.

~~Investing Cash Flows. Net investing cash flow for the year ended December 31, 2014 was~~ ~~$1,502~~ ~~compared to $(3,411) for the year ended December 31, 2013. During the year ended December 31, 2014, we made capital investments of~~ ~~$6,953~~ ~~and received proceeds of~~ ~~$8,450~~ ~~related to property insurance recoveries related to the January 2014 fire at the Indiana facility. During the year ended December 31, 2013, we received proceeds of~~ ~~$2,797~~ ~~from the sale of our bioplastics manufacturing business and we made capital investments of~~ ~~$6,208~~.

~~Financing Cash Flows. Net financing cash flow for the year ended December 31, 2014 was~~ ~~$(14,530)~~ ~~compared to~~ ~~$(11,032)~~ ~~for the year ended December 31, 2013, for a net decrease in financing cash flow of~~ ~~$(3,498). During the year ended December 31, 2014, we had net payments of~~ ~~$(11,330)~~ ~~to our Credit Agreement compared to net payments of~~ ~~$(7,893)~~ ~~for the year ended December 31, 2013. Our payments on long-term debt totaled~~ ~~$1,555~~ ~~and~~ ~~$1,683~~ ~~for the years ended December 31, 2014 and~~2013, respectively. We purchased shares of stock from terminated employees during the years ended December 31, 2014 and 2013, in the amount of the withholding taxes on the partial vesting of their restricted stock at termination. These stock purchases added 92,465 shares, or $672, to our treasury stock for the year ended December 31, 2014 and 94,605 shares, or $540, to our treasury stock for the year ended December 31, 2013. We made dividend and dividend equivalent payments of ~~$907~~ ~~and~~ ~~$916~~ ~~for the years ended December 31, 2014 and 2013, respectively, to our holders of Common Stock, Restricted Stock, and RSUs.~~

~~CAPITAL EXPENDITURES~~

For the year ended December 31, 2014, we made $7,527 of capital investments, of which $6,953 was a use of cash and $574 remained payable at December 31, 2014. The capital investments related primarily to facility improvements and upgrades.

For the year ended December 31, 2013, we made $7,883 of capital investments, of which $6,208 was a use of cash and $1,675 remained payable at December 31, 2013. The capital investments related primarily to facility improvements and upgrades.

~~CREDIT AGREEMENT AND FINANCIAL COVENANTS~~

~~Credit Agreement. This discussion should be read in light of the Second Amended and Restated Credit Agreement disclosure in~~ ~~Note 18: Subsequent Events.~~

On November 2, 2012, we entered into an Amended and Restated Credit Agreement, and ancillary documents with Wells Fargo (the "Credit Agreement"). The Credit Agreement amends our Former Credit Agreement with the lender in all material respects. Reference is made to ~~Note 4:Corporate Borrowings and Capital Lease Obligations~~ and above for information on our Credit Agreement. On February 12, 2014, we entered into an amendment to our Credit Agreement (the "First Amendment"). The First Amendment amended and restated the definition of the term EBITDA as further described under ~~"- Financial Covenants"~~ ~~below.~~

On August 5, 2014, we entered into a second amendment to the Credit Agreement (the "Second Amendment") by and among Wells Fargo Bank, N.A. as administrative agent and sole lender and MGP Ingredients, Inc., MGPI Processing, Inc., MGPI Pipeline, Inc. and MGPI of Indiana, LLC. The Second Amendment amended and restated the definition of the term "Fixed Asset Sub-Line" and added Thunderbird Real Estate Holdings, LLC ("Thunderbird"), a wholly-owned subsidiary of MGPI Processing, Inc. which is a wholly-owned subsidiary of the Company, to the Credit Agreement as a Loan Party, as defined in the Credit Agreement. In connection with execution of the Second Amendment, all the equity of Thunderbird was pledged and a lien was placed on all the assets of Thunderbird to secure the obligations of the Loan Parties (as defined in the Credit Agreement) under the Credit Agreement. With the execution of the Fixed Asset Sub-Line term loan, $7,004 of debt obligations under the Credit Agreement became debt obligations under the sub-line term loan (maturing with the Credit Agreement), resulting in a non-cash transaction during the year ended December 31, 2014. The loan fees incurred by us related to the Second Amendment for the year ended December 31, 2014 were ~~$66~~ ~~and are being amortized over the life of the Credit Agreement. The amortized portion of the loan fees incurred is included in~~ ~~Interest expense, net~~ ~~on the Consolidated Statements of Operations.~~

~~Key terms of the amended agreement are as follows:~~

The Credit Agreement matures on November 2, 2017 and provides for letters of credit and revolving loans with a Maximum Revolver Commitment of $55,000, subject to borrowing base limitations, generally based on the value of eligible inventory, as defined in the Credit Agreement, and accounts receivable owned by the Borrowers. Borrowings under the Credit Agreement may bear interest either on a Base Rate model or a LIBOR Rate model. For LIBOR Rate Loans, the interest rate is equal to the per annum LIBOR Rate (based on 1, 2, 3 or 6 months) plus 2.00 – 2.50 percent (depending upon the average Excess Availability, as described below). For Base Rate Loans, the interest rate shall be the greatest of (a) 1.00 percent, (b) the Federal Funds Rate plus 0.50 percent, (c) one-month LIBOR Rate plus 1.00 percent, and (d) Wells Fargo’s "prime rate" as announced from time to time. The weighted average rate in effect at December 31, 2014 and 2013, was 2.54 percent and 2.52 percent, respectively. The Credit Agreement provides for an unused line fee equal to 0.375 percent per annum multiplied by the difference of the total revolving loan commitment less the average outstanding revolving loans for the given period, as well as customary field examination and appraisal fees, letter of credit fees and other administrative fees.

The amount of borrowings which we may make is subject to borrowing base limitations adjusted for the Fixed Asset Sub-Line collateral. As of December 31, 2014, our total outstanding borrowings under the credit facility were $6,670, comprised of $0 of revolver borrowing and $6,670 of Fixed Asset Sub-Line term loan borrowing, leaving $42,744 available for additional borrowings.

On February 27, 2015, we entered into a five year, $80,000 revolving loan pursuant to a Second Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, as Administrative Agent (see ~~Note 18: Subsequent Events~~ ~~for additional details).~~

~~Financial Covenants. Under the Credit Agreement, we must comply with the following covenants:~~

~~Financial Covenants~~. For all periods in which the Excess Availability (which is the total availability for loans, less the Company’s and its subsidiaries’ trade payables aged in excess of historical levels and book overdrafts) is less than $9,625, we are required to have a Fixed Charge Coverage Ratio ("FCCR")

~~FCCR means, with respect to any fiscal period and with respect to the Company determined on a consolidated basis in accordance with GAAP, the ratio of (i) EBITDA~~⁽¹⁾ ~~for such period~~ ~~minus~~ ~~unfinanced Capital Expenditures made (to the extent not already incurred in a prior period) or incurred during such period, to (ii) Fixed Charges for such period.~~

⁽¹⁾On February 12, 2014, we entered into the First Amendment, which amended and restated the definition of the term EBITDA to add back (to the Company's consolidated net earnings (or loss)) governance expenses relating to shareholder litigation incurred prior to December 31, 2013, in an aggregate amount not in excess of $5,500. For the years ended December 31, 2014 and 2013, we incurred $0 and $5,465 of such expenses. Had the Company not entered into the First Amendment, the Company still would have been in compliance with its FCCR covenant at December 31, 2013.

measured on a month end trailing basis, of at least 1.10:1.00 (a) for each month-end until October 31, 2013, the trailing months from November 1, 2012 through such date, and (b) as of each month-end commencing November 30, 2013 using a trailing twelve-month measure. Moreover, we are required to maintain Excess Availability on a consolidated basis of at least $4,000 at all times prior to the later of (x) November 2, 2013 and (y) the last day of the first twelve month period for which Borrowers have maintained a Fixed Charge Coverage Ratio of at least 1.10:1.00.

~~Other Restrictions.~~ If we do not maintain Excess Availability of at least $9,625 and a Fixed Charge Coverage Ratio for the most recently ended twelve months of at least 1.20:1.00, then certain restrictions and payment limitations apply, including payment of dividends and distributions. We are also generally prohibited from incurring any liabilities, or acquiring any assets, except for certain ordinary holding company activities as further described in the Credit Agreement. Wells Fargo has significant lending discretion under the Credit Agreement, and may modify borrowing base and advance rates, the effect of which may limit the amount of loans that we may have outstanding at any given time. Wells Fargo may also terminate or accelerate our obligations under the Credit Agreement upon the occurrence of various events in addition to payment defaults and other breaches, including such matters as a change of control of the Company, defaults under other material contracts with third parties, and ERISA (Employee Retirement Income Security Act of 1974) violations.

~~We were in compliance with our Credit Agreement’s financial covenants at December 31, 2014 and 2013.~~

~~OFF BALANCE SHEET OBLIGATIONS~~

~~Arrangement with Cargill.~~ ~~We have entered a business alliance with Cargill, Incorporated for the production and marketing of a new resistant starch derived from high amylose corn.~~We sold only an insignificant amount of the product, and the agreement with Cargill does not appear to be significant at this time. If we terminate the arrangement before the expiration of 18 months following certain force majeure events affecting Cargill, or if Cargill terminates the arrangement because of a breach by us of our obligations, we will be required to pay a portion (up to 50 percent) of the book value of capital expenditures, if any, made by Cargill to enable it to produce the product. This amount will not exceed $2,500 without our consent. Upon the occurrence of any such event, we also will be required to give Cargill a non-exclusive sublicense to use the patented process for the life of the patent in the production of high amylose corn-based starches for use in food products. The sublicense would be royalty bearing, provided we were not also then making the high amylose corn-based starch.

~~Industrial Revenue Bond.~~ On December 28, 2006, we engaged in an industrial revenue bond transaction with the City of Atchison, Kansas in order to receive a 10-year real property tax abatement on our newly constructed office building and technical innovation center in Atchison, Kansas. We recorded the office building and technical center assets into property and equipment on the consolidated balance sheets. Pursuant to this transaction, the City issued $7,000 principal amount of its industrial revenue bonds to us and then used the proceeds to purchase the office building and technical innovation center from us. The City then leased the facilities back to us 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. Our obligation to pay rent under the lease is in the same amount and due on the same date as the City’s obligation to pay debt service on the bonds which we hold. The lease permits us to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be canceled. We do not intend to do this until their maturity date in 2016, at which time we may elect to purchase the facilities for $100 (one hundred dollars). Because we own all outstanding bonds, management considers the debt canceled and, accordingly, no amount for our obligations under the capital lease is reflected on our balance sheet. In connection with this transaction, we agreed to pay the city an administrative fee of $50, which is payable over 10 years. If we were to present the bonds for cancellation prior to maturity, the $50 fee would be accelerated.

~~Indemnification Arrangement with ICP and ICP Holdings.~~ Our Contribution Agreement with ICP and the LLC Interest Purchase Agreement with ICP Holdings require us to indemnify ICP and ICP Holdings until the end of the applicable statute of limitations from and against any damages or liabilities arising from a breach of certain environmental and tax representations and warranties in the Contribution Agreement and the LLC Interest Purchase Agreement and also with respect to certain environmental damages or liabilities related to the recommencement of production at the Pekin facility or to operations at the Pekin facility prior to November 20, 2009.

~~Operating Leases.~~ We lease railcars and other assets under various operating leases. For railcar leases, we are generally required to pay all service costs associated with the railcars. Rental payments include minimum rentals plus contingent amounts based on mileage. Rental expenses under railcar operating leases with terms longer than one month were $2,241 and $2,844 for the years ended December 31, 2014 and 2013, respectively. Annual rental commitments under non-cancelable operating leases total $8,119 for the next five years ending December 31, 2019 and an additional $1,304 thereafter. See ~~Note 4: Corporate Borrowing and Capital Lease Obligations~~ ~~for a listing of commitments, by year.~~

NEW ACCOUNTING PRONOUNCEMENTS

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note ~~15:Recently Issued Accounting Pronouncements~~ ~~set forth in~~ ~~Item 8. Financial Statements and Supplementary Data~~.1.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Not applicable.~~Commodity Costs

Certain commodities we use in our production process are exposed to market price risk due to volatility in the prices for those commodities. Our grain supply agreements for our Lawrenceburg and Atchison facilities permit us to purchase grain for delivery up to 12 months into the future at negotiated prices. The pricing for contracts is based on a formula using several factors. We have determined that the firm commitments to purchase grain under the terms of the supply agreements meet the normal purchases and sales exception as defined under Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, and have excluded the fair value of these commitments from recognition within our consolidated financial statements until the actual contracts are physically settled.

Our production process also involves the use of wheat flour and natural gas. The contracts for wheat flour and natural gas range from monthly contracts to multi-year supply arrangements; however, because the quantities involved have always been for amounts to be consumed within the normal expected production process, we have determined that the contracts meet the criteria for the normal purchases and sales exception and have excluded the fair value of these commitments from recognition within our consolidated financial statements until the actual contracts are physically settled. For a discussion of our direct material purchase commitments, see Note 8.

Interest Rate Exposures

Our Credit Agreement with Wells Fargo Bank, as amended March 21, 2016, provides for interest either on a Base Rate model or a LIBOR Rate model. For LIBOR Rate Loans, the interest rate is equal to the per annum LIBOR Rate (based on 1, 2, 3 or 6 months) plus 1.75 - 2.75 percent (depending on the Average Excess Availability). For Base Rate Loans, the interest rate is the greatest of (a) 1 percent per annum, (b) the Federal Funds Rate plus one half percent, (c) the one month LIBOR Rate plus 1 percent, and (d) Wells Fargo’s "prime rate" as announced from time to time, plus 0.75 - 1.75 percent (depending on the Average Excess Availability). The default rate is equal to 2 percentage points above the per annum rate otherwise applicable, in the lender’s discretion.

Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. Based on weighted average outstanding borrowings at December 31, 2016, a 100 basis point increase over the non-default rates actually in effect at such date would increase our interest expense on an annualized basis by $412.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of MGP Ingredients, Inc. (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

In May 2013, the Committee of Sponsoring Organizations ("COSO") issued its Internal Control - Integrated Framework (the "2013 Framework"). While the 2013 Framework's internal control components are the same as those in the framework and criteria established in the "Internal Control - Integrated Framework" issued by COSO in 1992 (the "1992 Framework"), the new framework requires companies to assess whether 17 principles are present and functioning in determining whether their system of internal control is effective. ~~The Company expects to adopt the 2013 Framework during the year ending December 31, 2015.~~

With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the ~~1992 framework.~~2013 Framework. As a result of this assessment, management has concluded that the Company’s internal control over financial reporting as of December 31, ~~2014~~2016 was effective.

KPMG, LLP, the independent registered public accounting firm that audited the Company's financial statements contained herein, has issued an attestation report on the Company's internal control over financial reporting as of December 31, 2016. The combined report on the consolidated financial statements of MGP Ingredients, Inc. and subsidiaries and attestation report as to the effectiveness of internal control over financial reporting is included in Item 8 of this Form 10-K.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

MGP Ingredients, Inc.:

We have audited the accompanying consolidated balance sheets of MGP Ingredients, Inc. and subsidiaries as of December 31, ~~2014~~2016 and ~~2013,~~2015, and the related consolidated statements of ~~operations,~~income, comprehensive income, ~~(loss),~~cash flows, and changes in stockholders’ equity ~~and cash flows~~ for each of the years ~~then ended.~~in the three-year period ended December 31, 2016. We also have audited MGP Ingredients, Inc.’s internal control over financial reporting as of December 31, ~~2014,~~2016, based on ~~criteria established in~~ Internal Control - Integrated Framework ~~(1992)~~ (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). MGP Ingredients, Inc.’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 these consolidated financial statements and an opinion on MGP Ingredients, Inc.’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, ~~as well as~~and evaluating the overall financial statement presentation. 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.

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 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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MGP Ingredients, Inc. and subsidiaries as of December 31, ~~2014~~2016 and ~~2013,~~2015, and the results of their operations and their cash flows for each of the years ~~then~~in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, MGP Ingredients, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2014,~~2016, based on ~~criteria established in~~ Internal Control - Integrated Framework ~~(1992)~~(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG LLP

Kansas City, Missouri

March ~~12, 2015~~8, 2017

MGP INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(Dollars in thousands, except per share amounts)



	Year Ended December 31,
	2016				2015			2014
Sales	$	328,081			$	345,887		$	338,352
Less: excise taxes	9,818				18,283			24,949
Net sales	318,263				327,604			313,403
Cost of sales ^(a)	252,980				269,071			284,972
Gross profit	65,283				58,533			28,431

Selling, general and administrative expenses	26,693				25,683			20,101
Insurance recoveries (Note 16)	—				—			(8,290		)
Other operating (income) costs, net	(3,385		)		—			1
Operating income	41,975			32,850	32,850			16,619

Equity method investment earnings (Note 3)	4,036				6,102			10,137
Interest expense, net	(1,294		)		(534		)	(816		)
Income before income taxes	44,717			38,418	38,418			25,940

Income tax expense (Note 6)	13,533				12,227			2,265
Net income	31,184			26,191	26,191			23,675

Income attributable to participating securities	954				873			832
Net income attributable to common shareholders and used in earnings per share calculation (Note 6)	$	30,230			$	25,318		$	22,843

Share information
Diluted weighted average common shares	16,643,811				17,123,556			17,305,866

Basic and diluted EPS	$	1.82			$	1.48		$	1.32

Dividends and dividend equivalents per common share	$	0.12			$	0.06		$	0.05

Year Ended December 31,
2014
2013
Sales $ 338,352

$ 334,070

Less: excise taxes 24,949

10,806

Net sales 313,403

323,264

Cost of sales ^(a)
284,972

302,025

Gross profit 28,431

21,239

Selling, general and administrative expenses 20,101

26,202

Insurance recoveries (Note 17)
(8,290 ) —

Other operating costs and losses on sale of assets 1

236

Operating income (loss) 16,619

(5,199 )

Equity method investment earnings (loss) (Note 3)
10,137
(204 )
Interest expense (816 )
(1,118 )
Income (loss) from continuing operations before income taxes 25,940

(6,521 )

Income tax expense (benefit) (Note 5)
2,265

(714 )
Net income (loss) from continuing operations 23,675

(5,807 )

Discontinued operations, net of tax (Note 11)
—

878

Net income (loss) $ 23,675

$ (4,929 )

Basic and diluted earnings (loss) per share

Operating income (loss) $ 1.32

$ (0.34 )
Income from discontinued operations —

0.05

Net income (loss) $ 1.32

$ (0.29 )

Dividends per common share $ 0.05

$ 0.05


^(a)	Includes related party purchases of ~~$37,500~~$29,596, and ~~$9,988~~$40,206, $37,007 for the years ended December 31, ~~2014~~2016, 2015, and ~~2013,~~2014, respectively.

See Accompanying Notes to Consolidated Financial Statements

MGP INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Dollars in thousands)

Year Ended December 31,
2014 2013
Net income (loss) $ 23,675
$ (4,929 )
Other comprehensive income (loss), net of tax:

Company sponsored benefit plans:

Change in pension plans, net of tax expense (benefit) of $(155) and $166, respectively 133
250

Change in post-employment benefits, net of tax benefit of $6 and $22, respectively (846 ) (39 )
Change in translation adjustment and post-employment benefits of equity method investments, net of tax benefit of $37 and $8, respectively (15 ) 18

Other comprehensive income (loss) (728 ) 229

Comprehensive income (loss) $ 22,947
$ (4,700 )



	Year Ended December 31,
	2016			2015			2014
Net income	$	31,184		$	26,191		$	23,675
Other comprehensive income (loss), net of tax:
Company sponsored benefit plans:
Change in pension plans, net of tax expense (benefit) of $0, $160, and $(155), respectively	—			244			133
Change in post-employment benefits, net of tax expense (benefit) of $90, ($41), and ($6), respectively	134			(54		)	(846		)
Change in translation adjustment and post-employment benefits of equity method investments, net of tax benefit of $6, $36, and $37, respectively	(7		)	42			(15		)
Other comprehensive income (loss)	127			232			(728		)
Comprehensive income	$	31,311		$	26,423		$	22,947

See Accompanying Notes to Consolidated Financial Statements

MGP INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)


	December 31,						December 31,
	2014			2013			2016			2015
Current Assets
Cash and cash equivalents	$	5,641		$	2,857		$	1,569		$	747
Receivables (less allowance for doubtful accounts: December 31, 2014 - $12; December 31, 2013 - $18)	32,672			27,821
Receivables (less allowance for doubtful accounts: December 31, 2016, and 2015 - $24)							26,085			30,670
Inventory	34,441			34,917			78,858			58,701
Prepaid expenses	1,179			848			1,684			1,062
Deferred income taxes	7,924			4,977
Refundable income taxes	388			466			2,705			—
Total current assets	82,245			71,886			110,901			91,180

Property and equipment, net of accumulated depreciation and amortization	63,881			70,244			92,791			83,554
Equity method investments	12,373			7,123			18,934			18,563
Other assets	2,100			2,076			2,710			1,013
Total assets	$	160,599		$	151,329		$	225,336		$	194,310

Current Liabilities
Current maturities of long-term debt	$	2,613		$	1,557		$	4,359		$	3,345
Accounts payable	16,076			23,107			20,342			20,940
Accounts payable to affiliate, net	3,333			1,204			3,349			2,291
Accrued expenses	8,010			8,282			8,945			10,400
Other current liabilities	716			—
Income taxes payable							—			685
Total current liabilities	30,748			34,150			36,995			37,661

Long-term debt, less current maturities	7,670			3,611			16,218			7,579
Revolving credit facility	—			18,000			15,424			22,536
Deferred credits	4,099			3,925			2,978			3,402
Accrued retirement health and life insurance benefits	4,420			4,423			3,604			4,136
Other non current liabilities	—			640			393			79
Deferred income taxes	9,297			4,977			3,432			2,757
Total liabilities	56,234			69,726			79,044			78,150

Commitments and Contingencies – See Notes 4 and 7
Stockholders’ Equity
Capital stock
Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares	4			4			4			4
Common stock
No par value; authorized 40,000,000 shares; issued 18,115,965 shares at December 31, 2014 and 2013; 17,674,559 and 17,750,421 shares outstanding at December 31, 2014 and 2013, respectively	6,715			6,715
No par value; authorized 40,000,000 shares; issued 18,115,965 shares at December 31, 2016 and 2015; 16,658,765 and 16,681,576 shares outstanding at December 31, 2016 and 2015, respectively							6,715			6,715
Additional paid-in capital	9,904			8,728			14,279			12,383
Retained earnings	89,454			66,686			142,652			113,531
Accumulated other comprehensive loss	(732		)	(4		)	(373		)	(500		)
Treasury stock, at cost 441,406 and 365,544 shares at December 31, 2014 and 2013, respectively	(980		)	(526		)
Treasury stock, at cost, 1,457,200 and 1,434,389 shares at December 31, 2016 and 2015, respectively							(16,985		)	(15,973		)
Total stockholders’ equity	104,365			81,603			146,292			116,160
Total liabilities and stockholders’ equity	$	160,599		$	151,329		$	225,336		$	194,310

See Accompanying Notes to Consolidated Financial Statements

MGP INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Year Ended December 31,
2014 2013
Cash Flows from Operating Activities
Net income (loss) $ 23,675
$ (4,929 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 12,325
12,009

Gain on sale of bioplastics manufacturing business —
(1,453 )
Gain on property insurance recoveries (8,290 ) —

Loss on sale of assets 38
47

Share based compensation 1,393
932

Equity method investment (earnings) loss (10,137 ) 204

Distribution received from equity method investee 4,835
—

Deferred income taxes, including change in valuation allowance 1,570
(152 )
Changes in operating assets and liabilities:

Restricted cash —
12

Receivables, net (4,851 ) 7,511

Inventory 476
1,542

Prepaid expenses (331 ) (129 )
Refundable income taxes 78
(224 )
Accounts payable (5,928 ) 2,571

Accounts payable to affiliate, net 2,129
(2,804 )
Accrued expenses (373 ) 3,264

Deferred credits 174
(208 )
Accrued retirement health and life insurance benefits, pension obligations, and other noncurrent liabilities (699 ) (876 )
Other (272 ) (17 )
Net cash provided by operating activities 15,812
17,300

Cash Flows from Investing Activities

Additions to property and equipment (6,953 ) (6,208 )
Proceeds from sale of bioplastics manufacturing business —
2,797

Proceeds from property insurance recoveries 8,450
—

Proceeds from sale of property and other 5
—

Net cash provided by (used in) investing activities 1,502
(3,411 )

Cash Flows from Financing Activities

Payment of dividends (907 ) (916 )
Purchase of treasury stock (672 ) (540 )
Loan fees incurred with borrowings (66 ) —

Principal payments on long-term debt (1,555 ) (1,683 )
Proceeds from credit facility 62,146
95,512

Principal payments on credit facility (73,476 ) (103,405 )
Net cash used in financing activities (14,530 ) (11,032 )

Increase in cash 2,784
2,857

Cash, beginning of year 2,857
—

Cash, end of year $ 5,641
$ 2,857



	Year Ended December 31,
	2016			2015			2014
Cash Flows from Operating Activities
Net income	$	31,184		$	26,191		$	23,675
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,253			12,382			12,325
Gain on property insurance recoveries	(230		)	—			(8,290		)
Loss (gain) on sale of assets	(872		)	—			38
Share-based compensation	2,402			1,414			930
Excess tax benefits	—			453			463
Equity method investment earnings	(4,036		)	(6,102		)	(10,137		)
Distribution received from equity method investee	3,300			—			4,835
Deferred income taxes, including change in valuation allowance	681			1,349			1,570
Changes in operating assets and liabilities:
Receivables, net	4,585			2,002			(4,851		)
Inventory, net of assets acquired in acquisition	(20,106		)	(24,260		)	476
Prepaid expenses	(622		)	117			(331		)
Refundable income taxes	(3,390		)	1,073			78
Accounts payable	(3,178		)	3,653			(5,928		)
Accounts payable to affiliate, net	1,058			(1,042		)	2,129
Accrued expenses	(1,407		)	2,351			(373		)
Deferred credits	(424		)	(697		)	174
Accrued retirement health and life insurance benefits	(477		)	(703		)	(699		)
Other, net	—			481			(272		)
Net cash provided by operating activities	19,721			18,662			15,812

Cash Flows from Investing Activities
Additions to property and equipment	(17,922		)	(30,526		)	(6,953		)
Proceeds from property insurance recoveries	230			—			8,450
Proceeds from sale of property and other	1,209			—			5
Acquisition of George Remus®	(1,551		)	—			—
Divestiture of DMI	351			—			—
Net cash provided by (used in) investing activities	(17,683		)	(30,526		)	1,502

Cash Flows from Financing Activities
Payment of dividends	(2,066		)	(1,087		)	(907		)
Purchase of treasury stock	(1,518		)	(15,408		)	(672		)
Loan fees incurred with borrowings	(114		)	(348		)	(66		)
Principal payments on long-term debt	(2,346		)	(1,641		)	(1,555		)
Proceeds on long-term debt	—			2,700			—
Proceeds from credit agreement	27,184			26,092			62,146
Principal payments on credit agreement	(22,356		)	(3,338		)	(73,476		)
Net cash provided by (used in) financing activities	(1,216		)	6,970			(14,530		)

Increase (decrease) in cash	822			(4,894		)	2,784
Cash, beginning of year	747			5,641			2,857
Cash, end of year	$	1,569		$	747		$	5,641

See Accompanying Notes to Consolidated Financial Statements

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			Total			Capital Stock Preferred		Issued Common			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, December 31, 2012	$	4	$	6,715	$	7,894	$	72,531		$	(233	)	$	(84	)	$	86,827
Comprehensive loss:
Net loss	—		—		—		(4,929		)	—			—			(4,929		)
Other comprehensive income	—		—		—		—			229			—			229
Dividends paid	—		—		—		(916		)	—			—			(916		)
Share-based compensation	—		—		834		—			—			—			834
Stock shares awarded, forfeited or vested													98			98
Stock shares repurchased for payment of taxes	—		—		—		—			—			(540		)	(540		)
Balance, December 31, 2013	$	4	$	6,715	$	8,728	$	66,686		$	(4	)	$	(526	)	$	81,603
Balance, December 31, 2013^(a)																			$	4	$	6,715		$	9,755	$	65,659		$	(4	)	$	(526	)	$	81,603
Comprehensive income:
Net income	—		—		—		23,675			—			—			23,675			—		—			—		23,675			—			—			23,675
Other comprehensive loss	—		—		—		—			(728		)	—			(728		)	—		—			—		—			(728		)	—			(728		)
Dividends paid	—		—		—		(907		)	—			—			(907		)
Dividends and dividend equivalents, net of estimated forfeitures																			—		—			—		(907		)	—			—			(907		)
Share-based compensation	—		—		1,176		—			—			—			1,176			—		—			713		—			—			—			713
Excess tax benefits																			—		—			463		—			—			—			463
Stock shares awarded, forfeited or vested													218			218			—		—			—		—			—			218			218
Stock shares repurchased for payment of taxes	—		—		—		—			—			(672		)	(672		)	—		—			—		—			—			(672		)	(672		)
Balance, December 2014	$	4	$	6,715	$	9,904	$	89,454		$	(732	)	$	(980	)	$	104,365		$	4	$	6,715		$	10,931	$	88,427		$	(732	)	$	(980	)	$	104,365
Comprehensive income:
Net income																			—		—			—		26,191			—			—			26,191
Other comprehensive income																			—		—			—		—			232			—			232
Dividends and dividend equivalents, net of estimated forfeitures																			—		—			—		(1,087		)	—			—			(1,087		)
Share-based compensation																			—		—			999		—			—			—			999
Excess tax benefits																			—		—			453		—			—			—			453
Stock shares awarded, forfeited or vested																			—		—			—		—			—			415			415
Stock shares repurchased																			—		—			—		—			—			(15,408		)	(15,408		)
Balance, December 2015																			$	4	$	6,715		$	12,383	$	113,531		$	(500	)	$	(15,973	)	$	116,160
Comprehensive income:
Net income																			—		—		—	—		31,184			—			—			31,184
Other comprehensive income																			—		—			—		—			127			—			127
Dividends and dividend equivalents, net of estimated forfeitures																			—		—			—		(2,063		)	—			—			(2,063		)
Share-based compensation																			—		—			1,896		—			—			—			1,896
Excess tax benefits																			—		—			—		—			—			—			—
Stock shares awarded, forfeited or vested																			—		—			—		—			—			506			506
Stock shares repurchased																			—		—			—		—			—			(1,518		)	(1,518		)
Balance, December 2016																			$	4	$	6,715		$	14,279	$	142,652		$	(373	)	$	(16,985	)	$	146,292

^(a)See Note 1. Immaterial Error Corrections.

See Accompanying Notes to Consolidated Financial Statements

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. ("Registrant" or "Company") is a Kansas corporation headquartered in Atchison, Kansas. It was incorporated in 2011 and is a holding company with no operations of its own. Its principal ~~directly-owned~~directly owned operating subsidiaries are MGPI Processing, Inc. ("Processing") and MGPI of Indiana, LLC ("MGPI-I"). Processing was incorporated in Kansas in 1957 and is the successor to a business founded in 1941 by Cloud L. Cray, Sr. Prior to the Reorganization (discussed below), Processing was named MGP Ingredients, Inc. MGPI-I (previously named Firebird Acquisitions, Inc.) acquired substantially all the beverage alcohol distillery assets of Lawrenceburg Distillers Indiana, LLC ("LDI") at its Lawrenceburg and Greendale, Indiana facility ~~("Indiana facility")~~ on December 27, 2011.

On January 3, 2012, MGP Ingredients, Inc. was reorganized into a holding company structure (the "Reorganization"). By engaging in the Reorganization, the Company sought to better isolate risks that might reside in one facility or operating unit from its other facilities or operating units. Management also believes that a holding company structure facilitates ramp-up of new businesses that might be developed, accommodates future growth through acquisitions and joint ventures, creates tighter focus within operating units, and enhances commercial activities and financing possibilities.

In connection with the Reorganization and to further the holding company structure, Processing distributed three of its formerly directly owned subsidiaries, MGPI-I, D.M. Ingredients, GmbH ("DMI"), and Midwest Grain Pipeline, Inc., to the Company. Processing’s other subsidiary, Illinois Corn Processing, LLC ("ICP"), remained a directly owned subsidiary of Processing and is now 30 percent owned. During the second quarter of fiscal 2010, through a series of transactions, the Company formed a joint venture by contributing its former Pekin, Illinois facility to a newly formed company, ICP, and then selling a 50 percent interest in ICP. In 2012, the Company sold an additional 20 percent interest in ICP. The Company purchases food grade alcohol products manufactured by ICP.

Throughout the Notes to Consolidated Financial Statements, when "the Company" is used in reference to activities prior to the Reorganization, the reference is to the combined business, Processing (formerly MGP Ingredients, Inc.) and its consolidated subsidiaries, and when "the Company" is used in reference to activities occurring after the Reorganization, reference is to the combined business of MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.) and its consolidated subsidiaries, except to the extent the context indicates otherwise.

MGP is a leading producer and supplier of premium distilled spirits and specialty wheat proteins and starches. Distilled spirits include premium bourbon and rye whiskeys, and grain neutral spirits, including vodka and gin. The ~~Company processes flour,~~Company’s proteins and starches provide a host of functional, nutritional and sensory benefits for a wide range of food products to serve the packaged goods industry. MGP is also a top producer of high quality industrial alcohol for use in both food and non-food applications. The Company's distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and ~~milo into a variety~~milo), and its ingredient products are derived from wheat flour. The majority of ~~products~~the Company's sales are made directly or through ~~an integrated production process.~~ distributors to manufacturers and processors of finished packaged goods or to bakeries.

The Company ~~is a producer of certain distillery and ingredients products derived from grain and since February 8, 2013, the Company consists of~~has two reportable segments: distillery products and ingredient solutions. Effective February 8, 2013, the Company sold the assets at its bioplastics manufacturing facility in Onaga, Kansas and certain assets at its extruder-bio-resin laboratory located in Atchison, Kansas, which were included in the Company's other segment, as further described in ~~Note 11: Operating Segments.~~ The distillery products segment consists primarily of food grade alcohol, and to a much lesser extent, fuel grade alcohol, distillers feed and corn oil. ~~Fuel~~Distillers feed, fuel grade alcohol, ~~distillers feed~~ and corn oil are co-products of ~~our~~the Company's distillery operations. The ingredient solutions segment products primarily consist of specialty starches, specialty proteins, commodity starches and commodity vital wheat gluten. Included in the other segment were products comprised of plant-based biopolymers and wood-based composite resins manufactured through the further processing of certain of our proteins and starches and wood.gluten (or commodity wheat proteins). The Company ~~produces~~procures textured wheat proteins through a toll manufacturing arrangement at a facility in the ~~Netherlands.~~United States. During December 2011, through its wholly owned subsidiary, MGPI-I, the Company acquired the beverage alcohol distillery assets ~~("Distillery Business")~~ of LDI.

The Company sells its products on normal credit terms to customers in a variety of industries located primarily throughout the United States and Japan. The Company operates facilities in Atchison, Kansas, and in Lawrenceburg and Greendale, Indiana.

Use of Estimates. The financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The application of certain of these policies places significant demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain. For all of these policies, management cautions that future events rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment.

Principles of Consolidation. The ~~Consolidated Financial Statements~~consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents. Short-term liquid investments with an initial maturity of 90 days or less are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value due to the relatively short maturity of these instruments.

Receivables. Receivables are stated at the amounts billed to customers. The Company provides an allowance for estimated doubtful accounts. This allowance is based upon a review of outstanding receivables, historical collection information and an evaluation of existing economic conditions impacting the Company’s customers. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Receivables are considered delinquent after 30 days past the due date. These delinquent receivables are monitored and are charged to the allowance for doubtful accounts based upon an evaluation of individual circumstances of the customer. Account balances are written off after collection efforts have been made and potential recovery is considered remote.

Inventory. Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process and certain maintenance and repair items. ~~Whiskey~~Bourbon and ~~bourbon is~~whiskeys are normally aged in barrels for several years, following industry practice; all barreled ~~whiskey~~bourbon and ~~bourbon~~whiskey is 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 market on the first-in, first-out, ~~("FIFO")~~or FIFO, method. Inventory valuations are impacted by constantly changing prices paid for key materials, primarily corn.

Derivative Instruments. The Company recognizes all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on whether the derivative has been designated as a cash flow hedge and the effectiveness of the hedging relationship. Derivatives qualify for treatment as cash flow hedges for accounting purposes when there is a high correlation between the change in fair value of the hedging instrument ("derivative") and the related change in value of the underlying commitment ("hedged item"). For derivatives that qualify as cash flow hedges for accounting purposes, except for ineffectiveness, the change in fair value has no net impact on earnings, to the extent the derivative is considered effective, until the hedged item or transaction affects earnings. For derivatives that are not designated as hedging instruments for accounting purposes, or for the ineffective portion of a hedging instrument, the change in fair value affects current period net earnings.

Properties, Depreciation and Amortization. Property 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~~straight line method over the following estimated useful lives:



Buildings and improvements	20 – 40 years
Transportation equipment	5 – 6 years
Machinery and equipment	10 – 12 years

Maintenance costs are expensed as incurred. The cost of property and equipment sold, retired or otherwise disposed of, as well as related accumulated depreciation and amortization, is eliminated from the property accounts with related gains and losses reflected in the Consolidated Statements of ~~Operations.~~Income. The Company capitalizes interest costs associated with significant construction projects. Total interest incurred for ~~the years ended December 31,~~2016, 2015, and 2014 ~~and 2013~~ is noted below:


	Year Ended December 31,				Year Ended December 31,
	2014		2013		2016		2015		2014
Interest costs charged to expense	$	816	$	1,118	$	1,294	$	534	$	816
Plus: Interest cost capitalized	107		108		198		297		107
Total	$	923	$	1,226	$	1,492	$	831	$	923

Equity Method Investments. The Company accounts for its investment in non-consolidated subsidiaries under the equity method of accounting when the Company has significant influence, but does not have more than 50 percent voting control, and is not considered the primary beneficiary. Under the equity method of accounting, the Company reflects its investment in non-consolidated subsidiaries within the Company’s Consolidated Balance Sheets as Equity method investments; the Company’s share of the earnings or losses of the non-consolidated subsidiaries are reflected as Equity method investment earnings (loss) in the Consolidated Statements of ~~Operations.~~Income.

The Company reviews its investments in non-consolidated subsidiaries for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investments may not be fully recoverable. Evidence of a loss in value that is other than temporary include, but are not limited to, the absence of an ability to recover the carrying amount of the investment, the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the investment. If the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate ~~write-down~~write down is recorded based on the excess of the carrying value over the best estimate of fair value of the investment.

Earnings (loss) per ~~Share.~~Share ("EPS). Basic and diluted ~~earnings (loss) per share are~~EPS is computed using the ~~two-class~~two class method, which is an earnings allocation formula that determines net income ~~(loss)~~ per share for each class of ~~common stock~~Common Stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income ~~(loss) from continuing operations~~ attributable to common shareholders by the weighted average shares outstanding during each year or period.

Deferred Credits. ~~In 2001, the United States Department of Agriculture developed a grant program for the gluten industry ("USDA grant"). As part of this program,~~Funding received by the Company ~~received nearly~~ ~~$26,000~~in the form of ~~grants. The funds were required to be used for research, marketing, promotional and capital costs~~grants and/or reimbursements related to ~~value-added gluten~~specific assets are allocated to the associated assets and ~~starch products. Funds allocated on the basis of current operating costs were recognized in income as those costs were incurred. Funds allocated based on capital expenditures were~~are included as a deferred ~~credit and~~credits in the Consolidated Balance Sheets. As the related assets are ~~being recognized appropriately as~~depreciated, deferred credits are reduced with a credit to Cost of ~~Sales~~sales ~~and~~or Selling, general and administrative expensesin the Consolidated Statements of ~~Operations as the related assets are depreciated.~~Income.

~~In 2012, the Lawrenceburg Conservancy District ("LCD") in Greendale, IN agreed to reimburse the Company up to~~ ~~$1,250~~ of certain capital maintenance costs of a Company-owned warehouse structure that is integral to the efficacy of the LCD’s flood control system ("LCD reimbursement"). Per the agreement, certain capital maintenance activities were completed prior to December 31, 2012 and the remaining capital maintenance activities were completed during 2014. As of December 31, 2014 the Company had received a total of $1,236 in reimbursements that were included as a deferred credit. The deferred credit balance has been and will be recognized appropriately as a credit to ~~Cost of Sales~~ ~~in the Consolidated Statements of Operations as the related assets are depreciated.~~

In 2014, the city of Lawrenceburg, IN agreed to reimburse the Company for certain system controls. The Company completed these activities in 2014 and the city of Lawrenceburg, IN reimbursed the Company $488 during the year ended December 31, 2014 ("Lawrenceburg reimbursement"). The deferred credit balance will be recognized in income as the related asset is depreciated.

~~Deferred credits consist of the following:~~

Year Ended December 31,
2014 2013
USDA grant $ 2,486
$ 3,043

LCD reimbursement 1,125
882

Lawrenceburg reimbursement 488
—

Total $ 4,099
$ 3,925

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.

Evaluating the need for, and amount of, a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence on a jurisdiction-by-jurisdiction basis. Such judgments require the Company to interpret existing tax law and other published guidance as applied to ~~our~~its circumstances. As part of this assessment, the Company considers both positive and negative evidence about its profitability and tax situation. A valuation allowance is provided if, based on available evidence, it is more likely than not that all or some portion of a deferred tax asset will not be realized. The Company generally considers the following and other positive and negative evidence to determine the likelihood of realization of the deferred tax assets:

Future realization of deferred tax assets is dependent on projected taxable income of the appropriate character from ~~our~~the Company's continuing operations.

Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence.

The long carryback and carryforward periods permitted under the tax law are objectively verified positive evidence.

Tax planning strategies can be, depending on their nature, ~~heavily-weighted~~heavily weighted sources of objectively verifiable positive evidence when the strategies are available and can be reasonably executed. ~~Tax-planning~~Tax planning strategies are actions that are prudent and feasible, considering current operations and strategic plans, which the Company ordinarily might not take, but would take to prevent a tax benefit from expiring unused. Tax planning strategies, if available, may accelerate the recovery of a deferred tax asset so the tax benefit of the deferred tax asset can be carried back.

Projections of future taxable income exclusive of reversing temporary differences are a source of positive evidence when the projections are combined with a history of recent profits and current financial trends and can be reasonably estimated. During 2014, the Company achieved cumulative income for a recent period of the last three years, which was regarded as a significant piece of evidence in management's decision to also rely on projections of future operating income in assessing the need for and amount of the valuation allowance for deferred tax assets.

Accounting for uncertainty in income tax positions requires management judgment and the use of estimates in determining whether the impact of a tax position is "more likely than not" of being sustained. The Company considers many factors when evaluating and estimating its tax positions, which may require periodic adjustment and which may not accurately anticipate actual outcomes. It is reasonably possible that amounts reserved for potential exposure could change significantly as a result of the conclusion of tax examinations and, accordingly, materially affect the Company’s reported net income after tax.

Revenue Recognition. Except as discussed below, revenue from the sale of the Company’s products is recognized as products are delivered to customers according to shipping terms and when title and risk of loss have transferred. Income from various government incentive grant programs is recognized as it is earned.

The Company’s Distillery segment routinely produces unaged distillate, and this product is frequently barreled and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers. This product must meet customer acceptance specifications, the risks of ownership and title for these goods must be passed, and requirements for bill and hold revenue recognition must be met prior to the Company recognizing revenue for this product. Separate warehousing agreements are maintained for customers who store their product with the Company and warehouse ~~revenues are~~services revenue is recognized as the ~~service is~~services are provided.

Sales include customer paid freight costs billed to customers of ~~$14,061~~$13,974, $14,498, and ~~$12,292~~$16,209 for ~~the years ended December 31,~~2016, 2015, and 2014, ~~and 2013,~~ respectively.

Excise Taxes. Certain sales of the Company are subject to excise taxes, which the Company collects from customers and remits to governmental authorities. The Company records the collection of excise taxes on distilled products sold to these customers as accrued expenses. No revenue or expense is recognized in the ~~consolidated statements~~Consolidated Statements of ~~operations~~Income related to excise taxes paid by customers directly to governmental authorities.

During January 2014, the Company experienced a fire at its Indiana facility. The fire damaged certain equipment in the feed dryer house and caused a temporary loss of production in late January. Prior to the insurance recovery related to the property claim, the write-off of damaged assets was included in ~~Other operating costs and losses on sale of assets~~ ~~on the Consolidated Statement of Operations.~~

Research and Development. During 2016, 2015, and 2014, the ~~years ended December 31, 2014~~Company incurred $916, and ~~2013, we spent~~$748, $1,622 ~~and $2,472,~~ respectively, on research and development activities. These activities were expensed and are included in Selling, general and administrative expenses on the Consolidated Statements of ~~Operations.~~Income.

Long-Lived Assets and Loss on Impairment of Assets. Management reviews long-lived ~~assets, mainly property and equipment~~ assets whenever events or circumstances indicate that usage may be limited and carrying values may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are determined to be impaired, the impairment is measured by the amount by which the asset carrying value exceeds the estimated fair value of the ~~assets.~~asset. Assets to be disposed are reported at the lower of the carrying amount or fair value less costs to sell. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and ~~third-party~~third party independent appraisals, as considered necessary.

Goodwill and Other Intangible Assets. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Indefinite-lived intangible assets are assets that are not amortized as there is no foreseeable limit to cash flows generated from them. Management reviews goodwill and other intangible assets whenever events or circumstances indicate that usage may be limited and carrying values may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are determined to be impaired, the impairment is measured by the amount by which the asset carrying value exceeds the estimated fair value of the asset. Assets to be disposed are reported at the lower of the carrying amount or fair value less costs to sell. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary.

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. The fair value of the Company’s debt was ~~$10,297~~$37,412 and ~~$23,300~~$34,603 at December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. The financial statement carrying value (including unamortized loan fees) was ~~$10,283~~$36,001 and ~~$23,168~~$33,460 at December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. These fair values are considered Level 2 under the fair value hierarchy.

Pension Benefits. ~~The~~In April 2015, the Company ~~accounts~~received approval from the Pension Benefit Guaranty Corporation to terminate its pension plans for employees covered under collective bargaining agreements. Benefit obligations at December 31, 2015 were zero, as $741 in termination liabilities was distributed to plan participants or transferred to an insurer during the quarter ended June 30, 2015, and was followed by the closing of the pension trust account in 2015. Prior to termination, the Company accounted for its pension benefit plan's funded status as a liability included in Other non current liabilities on the Consolidated Balance Sheets.

The Company ~~measures~~measured the funded status of its pension benefit plans using actuarial techniques that ~~reflect~~reflected management’s assumptions for discount rate, expected long-term investment returns on plan assets, salary increases, expected retirement, mortality, and employee turnover. Assumptions regarding employee and retiree life expectancy ~~are~~were based upon the RP 2000 Combined Mortality Table ("2000 tables"). Although the Society of Actuaries released new mortality tables on October 27, 2014, the Internal Revenue Service ~~has stated that it will continue~~continued to use the 2000 tables through ~~calendar~~ 2015. Because the pension benefit plan ~~is in process of termination,~~was being terminated, the actuarial valuation of the pension benefit plan ~~assumes that~~assumed all remaining assets of the plan ~~will~~would be distributed to plan participants or transferred to an insurer during 2015, so the new mortality tables were not adopted.

The ~~discount rate is determined based on~~funding by the ~~rates of return on long-term, high-quality fixed income investments using~~Company to terminate the ~~Citigroup Pension Liability Index as of year end. The expected long-term rate of return on plan assets assumption for~~plans was $741 and was recognized when the pension ~~plans is determined with~~plan settlement was fully executed, during the assistance of actuaries, who calculate a yield considering the current asset allocation strategy, historical investment performance, and the expected future returns of each asset class and the expected future reinvestment of earnings and maturing investments. Benefit obligations at December 31, 2014 are the estimated termination liabilities expected to be distributed to plan participants or transferred to an insurer during 2015, followed by the closing of the pension trust account.quarter ended June 30, 2015.

Post-Employment Benefits. The Company accounts for its ~~post–employment~~post-employment benefit plan's funded status as a liability included in Accrued Retirement Health and Life Insurance Benefits on the Consolidated Balance Sheets.

The Company measures the obligation for other post-employment benefits using actuarial techniques that reflect management’s assumptions for discount rate, expected retirement, mortality, employee turnover, health care costs for retirees and future increases in health care costs, which are based upon actual claims experience and other environmental and market factors impacting the costs of health care in the short and long-term. Assumptions regarding employee and retiree life expectancy are based upon the ~~SOA RPH-2014 Total Dataset~~Society of Actuaries RP-2014 Mortality ~~Table~~Tables using Scale ~~MP-2014 - Full Generational Improvement.~~MP-2015. The discount rate is determined based on the rates of return on ~~high-quality~~high quality fixed income investments using the Citigroup Pension Liability Index as of the measurement date (long-term rates of return are not considered because the plan has no assets).

Stock Options and Restricted Stock Awards. The Company has share-based employee compensation plans primarily in the form of restricted common stock ("restricted stock"), restricted stock units ("RSUs") and stock options, which are described more fully in Note ~~8: Employee Benefit Plans~~.9. The Company recognizes the cost of share-based payments over the ~~service~~vesting period based on the grant date fair value of the award. The grant date fair value for stock options is estimated using the Black-Scholes ~~option-pricing~~option pricing model adjusted for the unique characteristics of the awards.

Immaterial Error Correction. During the fourth quarter of 2016, the Company identified errors in in the recording of its long term incentive compensation. The errors were due to an understatement of expense associated with share-based compensation awards for which the related expense was recorded prior to January 1, 2014. An immaterial error correction was made to the opening balances of the Company's Consolidated Statement of Changes in Stockholders' Equity as of December 31, 2013, whereby retained earnings was reduced by $1,027 with a corresponding increase to Additional paid-in capital of $1,027. This immaterial correction had no impact on the Company's Consolidated Statements of Income, the computations of Basic and diluted EPS, the Consolidated Statements of Comprehensive Income, or the Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014.

Recent Accounting Pronouncements. In December 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-19, Technical Corrections and Improvements, which amends a number of Topics in the FASB ASC. The ASU is part of an ongoing FASB project to facilitate Codification updates for non-substantive technical corrections, clarifications, and improvements that are not expected to have a significant effect on accounting practice or create a significant administrative cost to most entities. The ASU will apply to all reporting entities within the scope of the affected accounting guidance. Most amendments are effective upon issuance (December 2016). Certain amendments that require transition guidance are effective for: Public business entities, for annual and interim periods in fiscal years beginning after December 15, 2016 (for cloud computing arrangements); All other entities, for annual periods in fiscal years beginning after December 15, 2017, and interim periods in fiscal years beginning after December 15, 2018 (for cloud computing arrangements); and All entities, for annual and interim periods in fiscal years beginning after December 15, 2016 (for certain others, including the change to fair value measurement disclosures). Early adoption is permitted for the amendments that require transition guidance. The Company is evaluating the effect that ASU 2016-19 will have on its consolidated financial statements and related disclosures and is not planning to early adopt the new standard.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, adjustments should be reflected at the beginning of the fiscal year that includes that interim period. The Company is evaluating the effect that ASU 2016-18 will have on its consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Entities may early adopt the ASU, but only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. The Company is evaluating the effect that ASU 2016-16 will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight classification issues related to the statement of cash flows: Debt prepayment or debt extinguishment costs; Settlement of zero coupon bonds; Contingent consideration payments made after a business combination; Proceeds from the settlement of insurance claims; Proceeds from the settlement of corporate owned life insurance policies, including bank owned life insurance policies; Distributions received from equity method investees; Beneficial interests in securitization transactions; and Separately identifiable cash flows and application of the predominance principle.

This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the ASU in an interim period, adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Entities should apply this ASU using a retrospective transition method to each period presented. If it is impracticable for an entity to apply the ASU retrospectively for some of the issues, it may apply the amendments for those issues prospectively as of the earliest date practicable. The Company is currently evaluating the impact that the adoption of ASU 2016-15 will have on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This ASU is effective for public business entities that are SEC filers for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. This ASU is effective for all interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements and related disclosures. At December 31, 2016, the Company had various machinery and equipment operating leases, as well as operating leases for 207 rail cars and one office space.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which will significantly change the income statement impact of equity investments, and the recognition of changes in fair value of financial liabilities when the fair value option is elected. The ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The Company is evaluating the effect that ASU 2016-01 will have on its consolidated financial statements and related disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330), which simplifies its current requirement that an entity measure inventory at lower of cost or market, when market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. Inventory within the scope of ASU 2015-11 should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company is evaluating the effect that ASU 2015-11 will have on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace numerous requirements in U.S. GAAP, including industry specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. In July 2015, the FASB approved the deferral of the new standard's effective date by one year. The new standard is effective for annual reporting periods beginning after December 15, 2017. The FASB will permit companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016, but the Company is not planning to early adopt the new standard.

In 2016, the Company established an implementation team consisting of internal and external representatives. The implementation team is in the process of assessing the impact the new standard will have on the consolidated financial statements and assessing the impact on individual contracts in the Company's revenue streams. In addition, the implementation team is in the process of identifying, and will then implement, appropriate changes to business processes, systems and controls to support recognition and disclosure under the new standard. The implementation team will report findings and progress of the project to management and the Audit Committee on a frequent basis through the effective date. The Company will adopt the requirements of the new standard in the first quarter of 2018 and anticipates using the modified retrospective transition method. The Company has not yet determined the quantitative impact on its financial statements.



NOTE 2:	OTHER BALANCE SHEET CAPTIONS

Inventory. Inventory consists of the following:


	December 31,				December 31,
	2014		2013		2016		2015
Finished goods	$	10,039	$	11,355	$	14,002	$	15,126
Barreled distillate	11,114		10,310
Barreled distillate (bourbon and whiskey)					50,941		28,278
Raw materials	5,440		5,183		4,274		6,675
Work in process	2,023		2,737		1,933		2,364
Maintenance materials	4,913		4,766		6,231		5,371
Other	912		566		1,477		887
Total	$	34,441	$	34,917	$	78,858	$	58,701

Property and equipment. Property and equipment consist of the following:


	December 31,						December 31,
	2014			2013			2016			2015
Land, buildings and improvements	$	43,443		$	40,681		$	67,487		$	56,143
Transportation equipment	2,717			2,793			3,253			5,417
Machinery and equipment	149,218			146,410			164,871			152,742
Construction in progress	2,798			4,803			10,608			15,612
Property and equipment, at cost	198,176			194,687			246,219			229,914
Less accumulated depreciation and amortization	(134,295		)	(124,443		)	(153,428		)	(146,360		)
Property and equipment, net	$	63,881		$	70,244		$	92,791		$	83,554

Property and equipment includes machinery and equipment assets under capital leases totaling $0 and $8,376 at December 31, ~~2014~~2016 and ~~2013.~~2015, respectively. Accumulated depreciation for these leased assets ~~totaled $4,708 and $3,660~~was $5,756 at December 31, ~~2014 and 2013, respectively.~~2015.

Accrued expenses. Accrued expenses consist of the following:


	December 31,				December 31,
	2014		2013		2016		2015
Employee benefit plans	$	973	$	821	$	820	$	1,027
Salaries and wages	4,633		4,354		5,641		6,790
Restructuring and severance charges (Note 9)	208		1,277
Restructuring and severance charges					124		517
Property taxes	764		654		824		784
Other accrued expenses	1,432		1,176		1,536		1,282
Total	$	8,010	$	8,282	$	8,945	$	10,400

Deferred credits. Deferred credits consist of the following:



	Year Ended December 31,
	2016		2015
USDA grant^(a)	$	1,434	$	1,949
LCD reimbursement^(b)	959		1,042
Other reimbursement	313		411
Deferred incentive	272		—
Total	$	2,978	$	3,402


^(a)	In 2001, the United States Department of Agriculture developed a grant program for the gluten industry ("USDA grant") and the Company received nearly $26,000 of grants required to be used for research, marketing, promotional and capital costs related to value added gluten and starch products.

^(b)

In 2012, the Lawrenceburg Conservancy District ("LCD") in Greendale, IN agreed to reimburse the Company up to $1,250 of certain capital maintenance costs of a Company owned warehouse structure that is integral to the efficacy of the LCD’s flood control system ("LCD reimbursement"). Certain capital maintenance activities were completed prior to December 31, 2012 and the remaining capital maintenance activities were completed during 2014. As of December 31, 2014 the Company had received a total of $1,236 in reimbursements.



NOTE 3:	EQUITY METHOD INVESTMENTS

As of December 31, ~~2014,~~2016, the Company’s ~~investments~~investment accounted for on the equity method of accounting ~~consist of the following:~~ ~~(1)~~was a 30 percent interest in ICP, which manufactures alcohol for fuel, industrial and beverage ~~applications, and~~ ~~(2)50 percent~~ ~~interest in DMI, which produces certain specialty starch and protein ingredients.~~ applications.

ICP Investment

The Limited Liability Company Agreement grants the right to either member to elect (the "Electing Member") to shut down the Pekin facility ("Shutdown Election") if ICP operates at an EBITDA (as defined in the agreement) loss greater than or equal to $500 in any quarter, subject to the right of the other member (the "Objecting Member") to override that election. If the Objecting Member overrides the election, then EBITDA loss and EBITDA profit for each subsequent quarter are allocated 80 percent to the Objecting Member and 20 percent to the Electing Member until the end of the applicable quarter in which the Electing Member withdraws its Shutdown Election and thereafter allocations revert to a 70 percent/30 percent split (subject to a ~~catch-up~~catch up allocation of 80 percent of EBITDA profits to the Objecting Member until it equals the amount of EBITDA loss allocated to such member on an 80 percent/20 percent basis). ICP experienced an EBITDA loss in excess of $500 for the quarter ended March 31, 2013, which was one factor that prompted the Company to deliver notice of its Shutdown Election on April 18, 2013. However, the Company withdrew its Shutdown Election on March 31, 2014 (thereby causing the allocation of profits and losses to revert to 30 percent to the Company and 70 percent to ICP Holdings as of April 1, 2014) based partially on the strong financial results ICP generated during the period ended March 31, 2014.

During ~~the quarter ended June 30,~~ 2014, ICP's financial results and liquidity were significantly improved and the Company learned that ICP may consider making a cash distribution from earnings, or payment, to its members and that ICP Holdings advocated such a distribution of cash. Based on these changes in facts and circumstances, management reassessed the most likely events that would result in a recovery of its investment in ICP and, ~~determined that such~~as a ~~recovery would likely occur through cash distributions from ICP rather than through a sale or liquidation of ICP. As a~~ result, ~~of this reassessment, during the quarter ended June 30, 2014,~~ the Company remeasured its cumulative equity in the undistributed earnings of ~~ICP using the allocation that applies to a cash distribution to members (as further disclosed in the Company's report on Form 10-Q for the quarter ended June 30, 2014).~~ICP. The cumulative effect of this change in estimate resulted in a decrease in equity method investment earnings of ICP of $1,882 for the ~~year ended December~~period beginning April 1, 2013 and ending March 31, 2014; a decrease in the earnings per share ("EPS") of $0.10 per share for the year ended December 31, 2014; and a decrease in the related equity method investment in ICP at December 31, 2014, of $1,882.

On December 3, 2014, the ICP advisory board recommended payment of a cash dividend distribution to its members. The Company received its portion of the distribution, $4,835, on December 4, 2014. In addition, on February 26, 2016, the Company received a cash dividend distribution from ICP of $3,300, which was its 30 percent ownership share of the total distribution (see Note 14). The cash dividend distributions received were a return on investment and, therefore, reduced the Company's equity method investment in ICP on its consolidated balance sheets by the distribution amounts in 2014 and 2016, respectively, and was a source of cash flow from operating activities in the amounts of the distributions in 2014 and 2016, respectively.

On ~~July 23, 2014 ICP's alcohol production was interrupted resulting in inconsequential damage to equipment. Production was restarted on~~April 9, 2015, ICP obtained a limited basis on August 1, 2014, and ICP was back to normal production rates on or about August 14, 2014. Insurance recoveries will be recognized in ICP's results in a future period and when all contingencies to the insurance claims have been resolved and settlement has been reached with the insurer.

~~ICP’s~~$30,000 revolving credit ~~agreement~~facility with JPMorgan Chase Bank, N.A., which could be increased in the future by an ~~affiliate of SEACOR has been amended and restated extending the maturity~~additional $20,000, subject to ~~January 1, 2016.~~lender approval. The revolver matures on April 9, 2018. The Company has no ~~further~~ funding requirement to ICP.

DMI Investment

On December 29, 2014, the Company gave notice to DMI and to ~~its~~the Company's partner in DMI, Crespel and Dieters GmbH & Co. KG ("C&D"), to terminate the joint venture effective June 30, 2015. C&D also provided notice to terminate DMI effective June 30, 2015. On June 22, 2015, a termination agreement was executed by and between the Company, DMI, and C&D to dissolve DMI effective June 30, 2015. Additionally, on June 22, 2015 a termination agreement was executed by and between the Company and DMI to terminate their distribution agreement effective June 29, 2015. Under German law, commencing on June 30, 2015, normal operations for DMI ~~will cease~~ceased and a ~~one-year~~one year winding updown process ~~will begin.~~began once the registration of resolutions, appointment of liquidators, inventory count, and publication of the notice to potential creditors was complete, which occurred on October 29, 2015. On December 23, 2016, the Company received its portion of the remaining DMI liquidation proceeds, which totaled $351, as a return of its investment.

Related Party Transactions

See Note ~~14: Related Party Transactions~~14 for discussion of related party transactions.

Realizability of investments

No other than temporary impairments were recorded during ~~the year ended December 31,~~2016, 2015, and 2014 ~~and 2013~~ for the Company's equity method investments.

Summary Financial Information

Condensed financial information of the Company’s equity method investment in ICP ~~as of December 31, 2014~~ is shown below:


	Year Ended December 31,						Year Ended December 31,
ICP’s Operating results:	2014			2013			2016			2015				2014
Net sales^(a)	$	236,486		$	193,682		$	177,401		$	166,905			$	236,486
Cost of sales and expenses^(b)	(196,551		)	(194,519		)	(163,837		)	(146,098		)		(196,551		)
Net income (loss)	$	39,935		$	(837	)
Net income							$	13,564		$	20,807		^(c)	$	39,935

As of December 31, 2013, Randall M. Schrick served as the Interim Co-Chief Executive Officer and Vice President of Engineering of the Company and served as President of ICP from November 2009 to December 2011. As of December 31, 2014, Mr. Schrick served as Vice President, Production and Engineering of the Company.

~~Proxy contest and related matters~~

On May 23, 2013, the Company was unable to hold its annual meeting of stockholders ("Annual Meeting") due to a lack of quorum of outstanding shares of preferred stock. On July 10, 2013 certain common and preferred stockholders (referred to as the "Cray Group") launched a proxy contest to elect two alternative directors to the board and to seek approval of several corporate governance matters.

In June 2013, the Company filed suit against the co-trustees of the MGP Ingredients Inc. Voting Trust (the "Voting Trust") and the Cray Family Trust (the "Family Trust"), which owned a majority of the Company’s outstanding preferred stock, seeking judicial clarification as to the proper trustees of the Voting Trust. The former Chief Executive Officer of the Company, Timothy W. Newkirk, who was a trustee of the Family Trust, sued the trustees of the Voting Trust for the same purposes. The Voting Trust and Family Trust were each dissolved in September 2013.

During the course of the proxy contest, certain members of the Cray Group sued the Company (a) in order to force the Annual Meeting to be reconvened prior to resolution of the Trust litigation, (b) for access to the Company’s list of stockholders, and (c) to challenge the formation and actions of a Special Committee of the Board of Directors charged to review Strategic Alternatives.

On December 3, 2013, the Company and each of the directors at that time entered into a Settlement Agreement and Mutual Release Agreement ("Settlement Agreement") with the Cray Group, which provided for the dismissal with prejudice of all claims brought by any party and the termination without cause of Mr. Newkirk’s employment as Chief Executive Officer, and established a date to reconvene the Annual Meeting, among other matters described therein. The Company incurred $3,701 of expenses related to these related matters. The Cray Group was also entitled to reimbursement of reasonable out-of-pocket expenses up to a cap of $1,775. The Cray Group submitted reimbursement requests for $1,764, which the Company fully accrued at December 31, 2013 and fully paid in 2014. Such costs are included in the caption ~~Selling, General and Administrative Expenses~~ on the Consolidated Statement of Operations. Pursuant to the terms of Mr. Newkirk’s Employment Agreement and a Transition Services Agreement, $915 of severance and fees are due to the Company's terminated Chief Executive Officer, Mr. Newkirk, as further described in ~~Note 9: Restructuring and Severance Costs.~~

~~Long term debt~~

On July 20, 2009, Union State Bank - Bank of Atchison ("Bank of Atchison"), which previously loaned the Company $1,500, agreed to lend the Company an additional $2,000. The Company’s former President and Chief Executive Officer, Mr. Newkirk, is a director of the Bank of Atchison. At ~~December 31, 2014~~ ~~and~~ ~~2013, the Company had $404 and $746 outstanding, respectively, on a~~ ~~6.76% Secured Promissory Note, due monthly to July 2016.~~



NOTE 15:	~~RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

~~In August 2014, the FASB issued ASU 2014-15,~~ ~~Presentation of Financial Statements-Going Concern (Subtopic 205-40).~~ The ASU provides guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.



~~NOTE 16:~~	QUARTERLY FINANCIAL DATA (UNAUDITED)

Year Ended December 31, 2014^{(a) (b) (c)}

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter
Sales $ 83,901
$ 83,966
$ 85,903
$ 84,582
Less: excise tax 7,576
6,451
5,336
5,586
Net sales 76,325
77,515
80,567
78,996
Cost of sales 70,314
70,204
72,259
72,195
    Gross profit 6,011
7,311
8,308
6,801

Selling, general and administrative 4,897
4,966
5,166
5,072
Insurance recoveries (Note 17)
(7,067 ) (1,293 ) 70
—
Other operating costs and loss on sale of assets, net —
1
—
—
    Operating income 8,181
3,637
3,072
1,729

Interest expense (201 ) (199 ) (218 ) (198 )
Equity in earnings (Note 3)
2,850
1,621
2,331
3,335
Income from continuing operations before income taxes 10,830
5,059
5,185
4,866

Provision (benefit) for income taxes (Note 5)
3,267
(1,169 ) 86
81
Net income from continuing operations 7,563
6,228
5,099
4,785

Discontinued Operations, net of tax (Note 11)
—
—
—
—
    Net income $ 7,563
$ 6,228
$ 5,099
$ 4,785

Basic and diluted earnings per share data

Income from continuing operations $ 0.42
$ 0.34
$ 0.28
$ 0.26
Income from discontinued operations —
—
—
—
Net income $ 0.42
$ 0.34
$ 0.28
$ 0.26

Dividends per Common Share $ —
$ —
$ —
$ 0.05



	Year Ended December 31, 2016^{(a) (b)}
	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Sales	$	85,005		$	83,711		$	82,174		$	77,191
Less: excise tax	3,860			3,820			1,782			356
Net sales	81,145			79,891			80,392			76,835
Cost of sales	63,560			64,770			64,861			59,789
Gross profit	17,585			15,121			15,531			17,046
Selling, general and administrative expenses	6,987			6,981			6,404			6,321
Other operating income, net	—			(3,385		)	—			—
Operating income	10,598			11,525			9,127			10,725
Equity in earnings (Note 3)	1,776			664			1,079			517
Interest expense	(314		)	(341		)	(328		)	(311		)
Income before income taxes	12,060			11,848			9,878			10,931
Income tax expense (Note 6)	3,775			2,316			3,570			3,872
Net income	$	8,285		$	9,532		$	6,308		$	7,059

Basic and diluted EPS data	$	0.48		$	0.55		$	0.37		$	0.41

Dividends per common share and per unit	$	0.02		$	0.02		$	—		$	0.08

^(a)

Net income was ~~positively/(negatively)~~positively impacted during the ~~second,~~ third quarter of 2016 by other operating income, net, of $3,385 related to a legal settlement agreement and ~~fourth quarters~~a gain on sale of ~~the year ended December 31, 2014~~long-lived assets and by ~~$(120), $1,940, and $6,778, respectively as result of insurance recoveries. Certain immaterial amounts~~a lower effective income tax rate related to the accounting for insurance recoveries recorded during the second quarter were reclassified during the third quarter. The results above for the second quarter reflect these immaterial reclassifications. See discussion on this matter atimplementation of ASU No. 2016-09, ~~Note 17: Property and Business Interruption Insurance Claims and Recoveries.~~Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting.


^(b)	Quarterly EPS amounts may not add to amounts for the year because quarterly and annual EPS calculations are performed separately.



	Year Ended December 31, 2015^{(a) (b)}
	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Sales	$	85,072		$	83,880		$	92,071		$	84,864
Less: excise tax	3,563			3,552			6,717			4,451
Net sales	81,509			80,328			85,354			80,413
Cost of sales	65,754			68,466			67,826			67,025
Gross profit	15,755			11,862			17,528			13,388
Selling, general and administrative expenses	5,681			5,497			8,025			6,480
Operating income	10,074			6,365			9,503			6,908
Equity in earnings (Note 3)	92			1,562			3,096			1,352
Interest expense	(160		)	(114		)	(129		)	(131		)
Income before income taxes	10,006			7,813			12,470			8,129
Income tax expense (Note 6)	3,527			1,042			4,599			3,059
Net income	$	6,479		$	6,771		$	7,871		$	5,070

Basic and diluted EPS data	$	0.38		$	0.38		$	0.44		$	0.28

Dividends per common share and per unit	$	—		$	—		$	—		$	0.06


^(a)	Net income was positively impacted during the second quarter of 2015 by $460 as result of an insurance recovery.


^(b)	Net income was positively impacted during the third and fourth quarters of ~~the year ended December 31, 2014~~2015 by ~~$1,215,~~$1,908 and ~~$104,~~$477, respectively, as result of a release of the valuation allowance related to deferred tax ~~assets. See discussion on this matter at~~ ~~Note 5: Income Taxes.~~


^(c)	~~Total basic and diluted earnings per share for the quarters, when aggregated, do not equal the annual amounts of $1.32 and $1.32, respectively, due to rounding.~~assets,

Year Ended December 31, 2013^{(a) (b) (c) (d)}
Fourth
Quarter Third
Quarter Second
Quarter First
Quarter
Sales $ 80,936
$ 80,709
$ 83,707
$ 88,718
Less: excise taxes 3,642
538
4,312
2,314
Net sales 77,294
80,171
79,395
86,404
Cost of sales 69,380
79,356
74,114
79,175
Gross profit 7,914
815
5,281
7,229

Selling, general and administrative expenses 8,797
6,760
4,770
5,875
Other operating costs and (gains) losses on sale of assets 177
1
—
58
Operating income (loss) (1,060 ) (5,946 ) 511
1,296

Interest income (expense), net (289 ) (269 ) (277 ) (283 )
Equity in earnings (loss) (Note 3)
758
(91 ) 71
(942 )
Income (loss) from continuing operations before income taxes (591 )
(6,306 )
305

71

Provision (benefit) for income taxes (Note 5)
(758 ) 19
25
—
Net income (loss) from continuing operations 167
(6,325 ) 280
71

Discontinued operations, net of tax (Note 11)
(528 ) —
—
1,406
Net income (loss) $ (361 ) $ (6,325 ) $ 280
$ 1,477

Basic and diluted earnings (loss) per share^(e)

Income (loss) from continuing operations $ 0.01
$ (0.37 ) $ 0.02
$ —
Income from discontinued operations (0.03 ) —
—
0.08
Net income (loss) $ (0.02 )
$ (0.37 )
$ 0.02
$ 0.08

Dividends per common share $ —
$ —
$ —
$ 0.05


^(a)	~~Net loss for the fourth quarter includes $528 of income tax expense related to the gain on sale of discontinued operations.~~


^(b)	~~Net income for the first quarter includes a $1,406 gain, net of tax, on sale of discontinued operations. See discussion on this matter at~~ ~~Note 11: Operating Segments.~~


^(c)	Net income (loss) for the second, third and fourth quarters include $259, $1,802, and $3,404, respectively of expense related to the governance, proxy dispute and related matters. See discussion on this matter at ~~Note 14: Related Party Transactions~~.


^(d)	~~Net income (loss) for the fourth quarter includes $1,525 of expense related to the severance costs. See discussion on this matter at~~ ~~Note 9: Restructuring and Severance Costs.~~


^(e)	~~For the third and fourth quarters, under the two class method, the losses were fully allocated common stock.~~



NOTE ~~17:~~16:	PROPERTY AND BUSINESS INTERRUPTION INSURANCE CLAIMS AND RECOVERIES

During October 2016, the Company experienced a chemical release at its Atchison facility. The reaction resulted in emissions venting into the air. The appropriate regulatory agencies were notified and investigations continue. Injuries were reported and treated at area hospitals. The Company continues to work with its environmental insurance carrier on this claim (see Note 8).

During October 2014, the Company experienced a fire at its Atchison facility. Certain equipment in the facility's feed drying operations was damaged, but repairable, and the Company experienced a seven day temporary loss of production. The Company reached final settlement with its insurance carrier to close this claim during the quarter ended March 31, 2015.

During January 2014, the Company experienced a fire at its ~~Indiana~~Lawrenceburg facility. The fire damaged certain equipment in the feed dryer house and caused a temporary loss of production. The fire did not impact the Company's own or ~~customer-owned~~customer owned warehoused inventory. ~~By the end of February the facility was at pre-fire production levels. We wrote off $160 of damaged assets, which is included in~~ ~~Insurance recoveries~~ ~~on the Consolidated Statement of Operations for the year ended December 31, 2014, and incurred $447 of out-of-pocket expenses related to interruption of business, which are included as a reduction to~~ ~~Cost of sales~~ ~~on the Consolidated Statement of Operations for the year ended December 31, 2014.~~

~~During the year ended December 31, 2014, the Company received $9,375 of insurance recoveries.~~ In December 2014, the Company negotiated a final settlement with its insurance carrier to close this claim. As part of the settlement, the Company assumed the risk of all future business interruption until permanent repairs ~~are completed, which is expected by the end of 2015.~~were completed.

During October 2014, the Company experienced a fire at its Atchison facility. Certain equipment in the facility's feed drying operations was damaged, but repairable, and the Company experienced a seven-day temporary loss of production. The Company incurred $170 of out-of-pocket expenses to repair this equipment. These costs are considered business interruption costs which are included as a reduction to ~~Cost of sales~~ on the Consolidated Statement of Operations for the year ended December 31, 2014. The Company is currently working with its insurance carrier to determine the coverage for equipment damage and business interruption losses.

Detail of the activities related to the property and business interruption insurance claims and recoveries, ~~and~~as well as where the net impacts are recorded on the Consolidated ~~Statement~~Statements of ~~Operations, is~~Income, for 2015 and 2014 are as follows:



	Year Ended December 31,
	2015		2014
Total insurance recoveries	$	460	$	9,375
Insurance recoveries - interruption of business	$	460	$	925
Less: out-of-pocket expenses related to interruption of business in Cost of Sales	—		617
Net reduction to Cost of sales on the Consolidated Statements of Income	$	460	$	308

Insurance recoveries - property damage	$	—	$	8,450
Less: Net book value of property loss in insurance recoveries	—		160
Insurance recoveries on the Consolidated Statements of Income	$	—	$	8,290

Year Ended December 31,
January Fire (Indiana Facility) October Fire (Atchison Facility) Total
Total insurance recoveries $ 9,375
$ —
$ 9,375
Insurance recoveries - interruption of business $ 925
$ —
$ 925
Less: out-of-pocket expenses related to interruption of business in Cost of Sales 447
170
617
Net reduction (increase) to Cost of Sales
$ 478
$ (170 ) $ 308

Insurance recoveries - property damage $ 8,450
$ —
$ 8,450
Less: Net book value of property loss in Insurance Recoveries 160
—
160
Insurance Recoveries $ 8,290
$ —
$ 8,290



NOTE 17:	ACQUISITION

On November 7, 2016, the Company acquired 100% controlling interest in the George Remus® brand business from Queen City Whiskey LLC in a taxable purchase transaction. The results of the George Remus® brand business since that date have been included in the Company's consolidated financial statements. As a result of the acquisition, the Company is expected to expand the distribution of the George Remus® brand products. It also expects to reduce costs through economies of scale. The goodwill and other intangible asset of $1,850 arising from the acquisition relates to the synergies and those cost reductions. The aggregate noncontingent portion of the purchase price was $1,551 and was paid in cash. The purchase price also included a contingent consideration arrangement with a fair value of $350. This fair value was based on significant inputs that are not observable and are referred to as Level 3 inputs. The contingent consideration to be paid is calculated on the excess sales over a base level through 2020 and is not limited in amount.

The following table summarizes the consideration paid for the George Remus® brand business and the amount of estimated fair value of the assets acquired at the acquisition date.



Consideration:
Cash	$	1,551
Contingent consideration arrangement (included in Other non-current liabilities on the Consolidated Balance Sheets)	350
Fair value of total consideration transferred	$	1,901

Recognized amounts of identifiable assets acquired:
Inventory	$	51
Total identifiable net assets assumed	$	51
Goodwill and Brand name (indefinite lived) (included in Other assets on the Consolidated Balance Sheets) (see Note 4)	1,850
Total	$	1,901



NOTE 18:	SUBSEQUENT EVENTS

~~Purchase Commitment~~

~~On January 9, 2015, the Company entered into a purchase commitment totaling $5,439 for the replacement of the dryers damaged in the January 2014 fire at the Company's Indiana facility.~~

Dividend Declaration

On February ~~27, 2015,~~15, 2017, the Board of Directors declared a quarterly dividend payable to stockholders of record as of March ~~26, 2015,~~1, 2017, of the Company's Common Stock and a dividend equivalent payable to holders of RSUs as of March ~~26, 2015,~~1, 2017, of ~~$0.06~~$0.04 per share and per unit. The dividend payment and dividend equivalent payment will ~~be paid~~occur on ~~April 21, 2015.~~

~~Credit Agreement~~March 24, 2017.

On February 27, 2015, the Company, as a guarantor and a party, and its subsidiaries MGPI Processing, Inc., MGPI Pipeline, Inc. and MGPI of Indiana, LLC as the “Borrowers,” entered into a five year, $80,000 revolving loan pursuant to a Second Amended and Restated Credit Agreement and associated schedules (the “Restated Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent (the “Agent”). The Restated Credit Agreement amends and restates the Company’s existing revolving credit facility under the Amended and Restated Credit Agreement between the Company and Wells Fargo Bank, National Association, as Lender, dated November 2, 2012, as amended. The Restated Credit Agreement differs from the Company’s prior revolving loan agreement by (i) increasing amount available under the revolving credit facility to $80,000, (ii) extending the maturity date to February 27, 2020, (iii) providing for the addition of U.S. Bank, National Association, as a lender, and (iv) reductions in certain applicable interest rates, and (v) incorporating other modifications consistent with the increase in the loan amount and to reflect Wells Fargo’s status as the Agent. A copy of the executed Restated Credit Agreement is attached hereto as Exhibit 10.30 and is incorporated by reference into this description of the Restated Credit Agreement. The loan fees incurred by the Company related to the Restated Credit Amendment through March 5, 2015 were $211.

~~Stock Repurchase~~

On February 27, 2015, the Board of Directors of the Company authorized the purchase of up to $3,500,000 market value of the Company's common stock. Pursuant to the authorization, the Company is permitted to purchase its shares from time to time on the open market or in privately negotiated transactions.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of ~~our~~the fiscal year, our Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that our current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

REPORT ON INTERNAL CONTROLS

At June 30, 2014 the Company determined that it will cease to qualify for smaller reporting company SEC filing status and will transition to accelerated filing status disclosure requirements for the period ended March 31, 2015, per Item 10(f) of Regulation S-K. The Company is filing this Form 10-K for the year ended December 31, 2014 in compliance with the accelerated filer deadline, per SEC Division of Corporation Finance Exchange Act Rules Compliance & Disclosure Interpretation Question 130.04. Also as a result of the Company's change in filing status from smaller reporting company to accelerated, it no longer qualifies for exemption from Section 404(b) of the Sarbanes-Oxley Act.

Management’s Annual Report on Internal Control Over Financial Reporting and our independent registered public accounting firm’s attestation report on our internal control over financial reporting can be found under Item 8. Financial Statements and Supplementary Data.

CHANGES IN INTERNAL CONTROLS

~~Except as related to the change in filing status discussed above, there~~There has been no change in the Company’s internal control over financial reporting required by Exchange Act Rule 13a-15 that occurred during ~~the quarter ended December 31, 2014~~2016 that has materially affected, or is reasonably likely to materially affect MGP Ingredients, Inc.’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

~~Not applicable.~~None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Incorporated by reference to the information under Election of Directors, Corporate Governance and Committee Reports - The Board; Standing Committees; Meetings; Independence, Corporate Governance and Committee ~~Reports-~~Reports - Audit Committee, and Section 16(a) Beneficial Ownership Reporting Compliance of the Proxy Statement.

The Company has adopted a code of conduct (ethics) that applies to all its employees, including the principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A current copy is filed on the Company's website at www.mgpingredients.com. The Company intends to disclose any changes in, or waivers from, this code of conduct by posting such information on the same website or by filing a Current Report on Form 8-K, in each case to the extent such disclosure is required by applicable rules.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the information in Executive Compensation and Other Information, Corporate Governance and Committee Reports - The Board; Standing Committees; Meetings; Independence and Corporate Governance and Committee Reports - Compensation Committee Interlocks and Insider Participation of the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference to the information under Principal Stockholders of the Proxy Statement.

The following is a summary of securities authorized for issuance under equity compensation plans as of December 31, ~~2014:~~2016:


	(1) Number of shares to be issued upon exercise of outstanding options, warrants and rights	(2) Weighted-average of exercise price of outstanding options, warrants and rights		(3) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (1))	(1) Number of shares to be issued upon exercise of outstanding options, warrants and rights	(2) Weighted average of exercise price of outstanding options, warrants and rights		(3) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (1))
Equity compensation plans approved by security holders	4,000	$	10.45	2,162,928	527,486	$	10.17	1,509,683
Equity compensation plans not approved by security holders	—	—		—	—	—		—
Total	4,000	$	10.45	2,162,928	527,486	$	10.17	1,509,683

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference to the information under Corporate Governance and Committee Reports – The Board; Standing Committees; Meetings; Independence and to the information under Related Transactions of the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference to the information under Audit and Certain Other Fees Paid Accountants of the Proxy Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following financial statements are filed as part of this report:

~~KPMG LLPs~~Management's Report on Internal Control over Financial ~~Statements.~~Reporting.

~~Consolidated Statements of Operations – for the Years Ended December 31, 2014 and 2013.~~


▪	Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.


▪	Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements.


▪	Consolidated Statements of Income – for the Years Ended December 31, 2016, 2015 and 2014.

Consolidated Statements of Comprehensive Income (Loss) – for the Years Ended December 31, ~~2014,~~2016, 2015 and ~~2013.~~

2014.

Consolidated Balance Sheets at December 31, ~~2014~~2016 and ~~2013.~~2015.

~~Consolidated Statements of Changes in Stockholders’ Equity – for the Years Ended December 31, 2014 and 2013.~~

~~Consolidated Statements of Cash Flows – for the Years Ended December 31, 2014 and 2013.~~

~~Notes to Consolidated Financial Statements.~~


▪	Consolidated Statements of Changes in Stockholders’ Equity – for the Years Ended December 31, 2016, 2015 and 2014.


▪	Consolidated Statements of Cash Flows – for the Years Ended December 31, 2016, 2015 and 2014.


▪	Notes to Consolidated Financial Statements.

(b) Financial Statement Schedules:

~~As a smaller reporting company, we~~We have omitted all other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission either because they are not required ~~to provide~~under the related instructions, because the information required is included in the consolidated financial ~~statement schedules in this Form 10-K.~~statements and notes thereto, or because they do not apply.

~~(d)~~(c) The exhibits required by Item 601 of Regulation S-K are set forth in the Exhibit Index below.

EXHIBIT LIST



2.1	Agreement of Merger and Plan of Reorganization, dated as of January 3, 2012, by and among MGPI Processing, Inc. (formerly MGP Ingredients, Inc.), MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.) and MGPI Merger Sub, Inc. (Incorporated by reference to Exhibit 2 of the Company’s current report on Form 8-K filed January 5, 2012 (File number 000-17196))
2.2	Asset Purchase Agreement by and among Lawrenceburg Distillers Indiana, LLC, Angostura US Holdings Limited and MGPI of Indiana, LLC, dated October 20, 2011 (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed December 28, 2011 (File number 000-17196))
3.1.1	Articles of Incorporation of MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.), as amended (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
3.1.2	Certificate of Amendment to Articles of Incorporation of MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.) (Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
3.1.3	Certificate of Amendment to Articles of Incorporation of MGP Ingredients, Inc., dated May ~~22,2014~~22, 2014 (Incorporated by reference to Exhibit A of the Company's Proxy Statement on Schedule 14A filed April 24, 2014 (File number 000-17196))
3.2	Amended and Restated Bylaws of MGP Ingredients, Inc. dated ~~July 29, 2014~~May 21, 2015 (Incorporated by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K filed ~~August 4, 2014~~May 27, 2015 (File number 000-17196)
4.1	Third Amended and Restated Credit Agreement, dated ~~November 2, 2012 between MGP Ingredients, Inc.,~~March 21, 2016, by and among MGPI Processing, Inc., MGPI Pipeline, Inc. and MGPI of Indiana, LLC ~~and~~as Borrowers, MGP Ingredients, Inc., Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto (Incorporated by reference to Exhibit 10.1 of the ~~Company’s~~Company's Current Report on Form 8-K filed ~~November 8, 2012 (File number 000-17196)~~on March 25, 2016.)
~~4.1.1~~4.1.1**	~~First~~ Amendment No. 1 to Third Amended and Restated Credit Agreement, dated ~~February 12, 2014, between Wells Fargo Bank, National Association~~November 8, 2016, by and ~~MGP Ingredients, Inc.,~~among MGPI Processing, Inc., MGPI Pipeline, Inc. and MGPI of Indiana, LLC ~~(Incorporated by reference to Exhibit 10.01 of the Company Current Report filed on February 18, 2014 (File number 000-17196).~~
~~4.1.2~~	~~Amendment 2 to Amended and Restated Credit Agreement dated August 5, 2014, between~~as Borrowers, MGP Ingredients, Inc., Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto
4.1.2**	Reaffirmation of Loan Documents and Amendment No. 2 to Guaranty and Security Agreement, dated March 21, 2016, by and among MGP Ingredients, Inc., MGPI Processing, Inc., MGPI Pipeline, Inc. ~~and~~, MGPI of Indiana, LLC, ~~(Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2014 (File number 000-17196))~~
~~4.1.3~~	~~Amended~~ and ~~Restated Patent Security Agreement dated November 2, 2012 between MGPI Processing, Inc~~Thunderbird Real Estate Holdings, LLC, as Grantors, and Wells Fargo Bank, National Association, ~~(Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on November 8, 2012 (File number 000-17196))~~
~~4.1.4~~	Trademark Security Agreement dated November 2, 2012 between MGPI Processing, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on November 8, 2012 (File number 000-17196))
~~4.1.5~~	~~Assignment of Membership Interests dated~~ as of July 21, 2009 between MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and Wells Fargo Bank, National Association, relating to MGPI of Indiana, LLC (formerly, Firebird Acquisitions, LLC) (Incorporated by reference to Exhibit 4.1.2 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
~~4.1.6~~	Stock Pledge Agreement dated as of July 21, 2009 between MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and Wells Fargo Bank, National Association, relating to stock of Midwest Grain Pipeline, Inc. (Incorporated by reference to Exhibit 4.1.3 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
~~4.1.7~~	Control Agreement and Assignment of Hedging Account among Wells Fargo Bank, National Association, MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and ADM Investor Services, Inc. (Incorporated by reference to Exhibit 4.1.4 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
~~4.1.8~~	Amended and Restated Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated as of August 31, 2009 relating to MGPI Processing, Inc.’s (formerly MGP Ingredients, Inc.) Atchison facility in favor of Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 4.1.6 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196)) and subsequently amended on November 2, 2012 as described in the Company’s Current Report on Form 8-K filed November 8, 2012 (File number 000-17196))

Administrative Agent



~~4.1.9~~	~~Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated~~ February 15, 2010 to Wells Fargo Bank, National Association, relating to MGPI Processing, Inc.’s (formerly MGP Ingredients, Inc.) Executive Office Building & Technical Center in Atchison, Kansas (Incorporated by reference to Exhibit 4.1.13 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2010 (File number 000-17196)) and subsequently amended on November 2, 2012 as described in the Company’s Current Report on Form 8-K filed November 8, 2012 (File number 000-17196))
~~4.1.10~~	~~Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated~~ February 15, 2010 to Wells Fargo Bank, National Association, relating to MGPI Processing, Inc.’s (formerly MGP Ingredients, Inc.) Executive Office Building & Technical Center in Atchison, Kansas (Incorporated by reference to Exhibit 4.1.13 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2010 (File number 000-17196))
~~4.1.11~~	Amended and Restated Bond Pledge and Security Agreement dated November 2, 2012 by and among MGPI Processing, Inc. (formerly MGP Ingredients, Inc.), Commerce Bank, as Trustee and Wells Fargo Bank, National Association relating to City of Atchison, Kansas, $7,000,000 original principal amount of Taxable Industrial Revenue Bonds, Series 2006 (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on November 8, 2012 (File number 000-17196))
~~4.1.12~~4.1.3	Amended and Restated Guaranty and Security Agreement dated November 2, 2012, by and among MGP Ingredients, Inc., MGPI of Indiana, LLC, MGPI Pipeline, Inc., MGPI Processing, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed November 8, 2012 (File number 000-17196))
4.2	Commercial Security Agreement from MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) to Union State Bank of Everest dated March 31, 2009 (Incorporated by reference to Exhibit 4.5.2 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
4.2.1	Amendment to Commercial Security Agreement dated as of July 20, 2009 between MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and Union State Bank of Everest (Incorporated by reference to Exhibit 4.5.3 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
4.3	Promissory Note dated July 20, 2009 from MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) to Union State Bank of Everest in the initial principal amount of $2,000,000 (Incorporated by reference to Exhibit 4.6 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
4.3.1	Commercial Security Agreement dated July 20, 2009 from MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) to Union State Bank of Everest relating to equipment at the Atchison and Onaga facilities (Incorporated by reference to Exhibit 4.6.1 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
4.3.2	Mortgage dated July 20, 2009 from MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) to Union State Bank of Everest relating to the Atchison facility (Incorporated by reference to Exhibit 4.6.2 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 30, 2009 (File number 000-17196))
4.4	Amended and Restated Intercreditor Agreement between Wells Fargo Bank, National Association and Union State Bank of Everest dated October 31, 2012 (Incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed November 8, 2012 (File number 000-17196))
4.5	Master Lease Agreement dated as of June 28, 2011 between U.S. Bancorp Equipment Finance, Inc. and MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and related bill of sale and Schedules #001-0018787-001 and 1166954-001-0018787-001 (Incorporated by reference to Exhibit 4.7 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011(File number 000-17196))
4.5.1	Mortgagee’s Waiver executed by Union State Bank of Everest (Incorporated by reference to Exhibit 4.7.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 (File number 000-17196))



4.5.2	Mortgagee’s Waiver and lien release executed by Wells Fargo Bank National Association (Incorporated by reference to Exhibit 4.7.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011(File number 000-17196))
~~4.6~~	~~In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments respecting long-term debt of the Registrant have been omitted but will be furnished to the Commission upon request.~~
10.1	Assumption Agreement, dated as of January 3, 2012, between MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.) (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
10.2	Limited Liability Company Agreement dated November 20, 2009 between MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and Illinois Corn Processing Holdings LLC (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on November 27, 2009 (File number 000-17196))
10.3*	Copy of MGP Ingredients, Inc. 1996 Stock Option Plan for Outside Directors, as amended (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (File number 333-51849))
10.4*	Copy of amendments to Options granted under MGP Ingredients, Inc. 1996 Stock Option Plan for Outside Directors (Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended September 30, 1998 (File number 000-17196))



10.5*	Form of Option Agreement for the grant of Options under the MGP Ingredients, Inc. 1996 Stock Option Plan for Outside Directors, as amended (Incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended September 30, 1998 (File number 000-17196))
10.6*	Non-Employee Directors’ Restricted Stock and Restricted Unit Plan, as amended and restated (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
10.7*	Amendment 1 to Non-Employee Directors' Restricted Stock and restricted Stock Unit Plan dated as of March 14, 2014 (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 2014 (File number 000-17196))
10.710.8	Stock Incentive Plan of 2004, as amended (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statements on Form S-8 (File numbers 333-162625 & 333-119860))
10.8.110.9.1	First Amended and Restated MGP Ingredients, Inc. Short-Term Incentive Plan (For 2012 and Subsequent Years) (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed December 19, 2012 (File number 000-17196))
10.8.210.9.2	First Amendment to the First Amended and Restated MGP Ingredients, Inc. Short-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on August 9, 2013 (File number 000-17196))
10.910.10	MGP Ingredients, Inc. 2014 Non-Employee Director Equity Incentive Plan (Incorporated by reference to Exhibit C of the Company's Proxy Statement on Schedule 14A filed April 24, 2014 (File number 000-17196))
10.1010.11	~~Guidelines for Issuance of Fiscal 2008 Restricted Share Awards~~MGP Ingredients, Inc. 2014 Equity Incentive Plan (as amended and restated) (Incorporated by reference ~~from Ex. 10(ss)~~to Exhibit 10.1 of the ~~Company’s Annual~~Company's Current Report on Form ~~10-K for the Fiscal Year ended July 1, 2007~~8-K filed on May 20, 2016 (File number 000-17196))
10.11*	Guidelines on issuance of Fiscal 2009 Restricted Share Awards (Incorporated by reference to Exhibit 10.36 of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 20, 2010 (File number 000-17196))
10.12*	Guidelines on Issuance of Fiscal 2010 Restricted Share Awards (Incorporated by reference to Exhibit 10.51of the Company’s Annual Report on Form 10-K for the Fiscal Year ended June 20, 2010 (File number 000-17196))
10.13*	Guidelines on Issuance of 2011 Transition Period Restricted Stock Unit Awards (Incorporated by reference to Exhibit 10.52 of the Company’s Report on Form 10-K for the transition period from July 1, 2011 to December 31, 2011 (File number 000-17196))
10.1410.13	Guidelines on Issuance of Fiscal 2011 Restricted Share Awards (Incorporated by reference to Exhibit 10.48 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 (File number 000-17196))
10.1510.14	Guidelines on Issuance of Fiscal 2012 Restricted Stock Unit Awards (Incorporated by reference to Exhibit 10.41 of the Company’s Report on Form 10-K for fiscal 2012 (File number 000-17196))
10.1610.15	Guidelines on Issuance of Fiscal 2013 Restricted Stock Unit Awards (Incorporated by reference to Exhibit 10.22 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013)
10.1710.16	Non-Employee Director Restricted Share Award Agreement effective October 21, 2011 of John Speirs (Similar agreements were made for the same number of shares with Michael Braude, John Byom, Cloud L. Cray, Gary Gradinger, Linda Miller, Karen Seaberg and Daryl Schaller) (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (File number 000-17196))
10.18*	Agreement with Timothy Newkirk as to Award of Restricted Shares Granted Under the Stock Incentive Plan of 2004 with respect to Fiscal 2011 (Similar agreements have been made for 16,500 shares to each of the following named executive officers: Donald Tracy, Randall M. Schrick, Donald Coffey and Scott Phillips) (Incorporated by reference to Exhibit 10.49 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 (File number 000-17196))
10.19*	Form of Award Agreement for Fiscal 2012 Restricted Stock Unit Awards granted under the Stock Incentive Plan of 2004 (Incorporated by reference to Exhibit 10.40 of the Company’s Report on Form 10-K for fiscal 2012 (File number 000-17196))
10.2010.19	Form of Award Agreement for Fiscal 2013 Restricted Stock Unit Awards granted under the Non-Employee Directors’ Restricted Stock and Restricted Unit Plan (Incorporated by reference to Exhibit 10.26 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013)
10.2110.20	Form of Award Agreement for Fiscal 2014 Restricted Stock Unit Awards granted under the Non-Employee Director Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2014 (File number 000-17196))
10.2210.21	MGP Ingredients, Inc. Agreement as to Award of Restricted Stock Units Granted under the 2014 Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2014 (File number 000-17196))

10.23*

10.22*	Compensation Claw Back Policy (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed December 12, 2011 (File number 000-17196))



10.24.110.23.1	Form of Indemnification Agreement between MGPI Processing, Inc. (formerly MGP Ingredients, Inc.) and its Directors and Executive Officers (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly report on Form 10-Q for the quarter ended December 31, 2006 (File number 000-17196))
10.24.210.23.2	Form of Indemnification Agreement between MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.) and its Directors and Executive Officers (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
10.25*	Executive Employment Agreement effective August 8, 2013 between MGP Ingredients, Inc. and Timothy Newkirk (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on August 9, 2013 (File number 000-17196))
10.26.1*	Executive Employment Agreement effective August 8, 2013 between MGP Ingredients, Inc. and Donald P. Tracy (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on August 9, 2013 (File number 000-17196))
10.26.2*	Amendment and Restatement of the Executive Employment Agreement dated December 17, 2013 between MGP Ingredients, Inc. and Donald P. Tracy ((Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 23, 2013 (File number 000-17196))
10.26.310.24	Employment Agreement, dated July 23, 2014, between MGP Ingredients, Inc. and Augustus C. Griffin, Chief Executive Officer (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2014 (File number 000-17196))
10.27*	Transition Services Agreement dated December 3, 2013 between MGP Ingredients, Inc. and Timothy Newkirk (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report filed on December 6, 2013 (File number 000-17196))
~~10.28~~10.25	Settlement Agreement and Mutual Release dated December 3, 2013 among MGP Ingredients, Inc. and Cloud "Bud" Cray, Jr., Karen Seaberg, and Thomas M. Cray, Michael Braude, Linda Miller, Gary Gradinger, Daryl Schaller, John Speirs, and Timothy Newkirk (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 6, 2013 (File number 000-17196))
~~10.29~~10.26*	~~Voting Agreement dated December 3, 2013 among~~Offer Letter between MGP Ingredients, Inc. and ~~Cloud "Bud" Cray, Jr., Karen Seaberg, Thomas M. Cray, and Michael Braude, Linda Miller, Gary Gradinger, Daryl Schaller, John Speirs, and John Byom~~Tom Pigott dated August 28, 2015 (Incorporated by reference to Exhibit ~~10.2~~10.27 of the ~~Company’s Current~~Company's Annual Report on Form ~~8-K filed on~~10-K for the year ended December ~~6, 2013 (File number 000-17196))~~31, 2015)
~~10.30~~10.27	~~Second Amended and Restated Credit~~Stock Repurchase Agreement ~~dated February 27, 2015, by and among MGPI Processing, Inc., MGPI Pipeline, Inc. and MGPI of Indiana, LLC as Borrowers,~~between MGP Ingredients, Inc. and F2 SEA Inc., ~~Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto~~dated September 1, 2015 (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on ~~March 5,~~September 8, 2015).
~~10.31~~	Reaffirmation of Loan Documents and Amendment No. 1 to Guaranty and Security Agreement, dated February 27, 2015, by and among MGP Ingredients, Inc., MGPI Processing, Inc., MGPI Pipeline, Inc., MGPI of Indiana, LLC, and Thunderbird Real Estate Holdings, LLC, as Grantors, and Wells Fargo Bank, National Association, as Administrative Agent (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on March 5, 2015).
~~10.32~~	Real Property Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of February 27, 2015, between MGPI of Indiana, LLC and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on March 5, 2015).
~~10.33~~	Fourth Modification to Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of February 27, 2015, between MGPI Processing, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on March 5, 2015).
~~10.34~~	Modification to Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of February 27, 2015, between MGPI Processing, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on March 5, 2015).
14	~~Code of Conduct (Incorporated by reference to Exhibit 14 of the Company’s Current Report on Form 8-K filed on May 28, 2013 (File number 000-17196))~~
21**	Subsidiaries of the Company
23.1**	Consent of KPMG, LLP, Independent Registered Public Accounting Firm
24	Powers of Attorney executed by all officers and directors of the Company who have signed this report on Form 10-K (Incorporated by reference to the signature pages of this report)
31.1**	CEO Certification pursuant to Rule 13a-14(a)
31.2**	CFO Certification pursuant to Rule 13a-14(a)
32.1**	CEO Certification furnished pursuant to Rule 13a-14(b) and 18 U.S.C. 1350
32.2**	CFO Certification furnished pursuant to Rule 13a-14(b)



101**	The following financial information from MGP Ingredients, Inc.’s Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2016, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Consolidated Balance Sheets as of December 31, ~~2014~~2016 and December 31, ~~2013~~2015, and , (ii) Consolidated Statements of ~~Operations,~~Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows (and in the case of (ii), (iii), (iv) and (v)) for the ~~year~~years ended December 31, ~~2014 and the year ended~~2016, December 31, ~~2013,~~2015, and December 31, 2014, and (vi) the Notes to the Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement

** ** Filed herewith

ITEM 16. FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Atchison, State of Kansas, on this ~~12th~~8th day of March, ~~2015.~~2017.



	MGP INGREDIENTS, INC.

	By	/s/ Augustus C. Griffin
		Augustus C. Griffin, President and Chief Executive Officer

	By	/s/ ~~Donald P. Tracy~~Thomas K. Pigott
		~~Donald P. Tracy,~~Thomas K. Pigott, Vice President, Finance and Chief Financial Officer

~~POWER OF ATTORNEY~~

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Augustus Griffin and Donald Tracy each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, and to sign any and all reports of the Registrant on Form 10-K and to sign any and all amendments to such reports and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities & Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on the dates indicated



~~Name~~	~~Title~~	~~Date~~
~~/s/Augustus C. Griffin~~ ~~Augustus C. Griffin~~	~~President and Chief Executive Officer~~	~~March 12, 2015~~
~~/s/Donald P. Tracy~~ ~~Donald P. Tracy~~	~~Vice President, Finance and Chief Financial Officer~~	~~March 12, 2015~~
~~/s/John P. Bridendall~~ ~~John P. Bridendall~~	~~Director~~	~~March 12, 2015~~
~~/s/Cloud L. Cray, Jr.~~ ~~Cloud L. Cray, Jr.~~	~~Director~~	~~March 12, 2015~~
~~/s/ Terrence P. DunnTerrence P. Dunn~~	~~Director~~	~~March 12, 2015~~
~~/s/Anthony P. Foglio~~ ~~Anthony P. Foglio~~	~~Director~~	~~March 12, 2015~~
~~/s/ George W. Page, Jr.~~ ~~George W. Page, Jr.~~	~~Director~~	~~March 12, 2015~~
~~/s/Daryl R. Schaller~~ ~~Daryl R. Schaller~~	~~Director~~	~~March 12, 2015~~
~~/s/Karen Seaberg~~ ~~Karen Seaberg~~	~~Director~~	~~March 12, 2015~~
~~/s/M. Jeannine Strandjord~~ ~~M. Jeannine Strandjord~~	~~Director~~	~~March 12, 2015~~



Kansas	~~48-0531200~~45-4082531
(State or Other Jurisdiction	(I.R.S. Employer
of Incorporation or Organization)	Identification No.)

100 Commercial Street, Box 130, Atchison, Kansas	66002
(Address of Principal Executive Offices)	(Zip Code)



Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, no par value	NASDAQ Global Select Market



	~~Forward Looking Statements~~		~~iii~~
	~~Method of Presentation~~		~~iii~~
	~~Available Information~~		~~iii~~
PART I
	Item 1.	Business	1
		~~General Information~~	1
		~~Financial Information About Segments~~	2
		~~Business Strategy~~	2
		~~Product Sales~~	3
		~~Distillery Products Segment~~	3
		~~Ingredient Solutions Segment~~	5
		~~Other Segment~~	7
		~~Patents~~	7
		~~Research and Development~~	8
		~~Seasonality~~	8
		~~Transportation~~	8
		~~Raw Materials~~	8
		~~Energy~~	9
		~~Employees~~	9
		~~Regulation~~	9
		~~Investment in Equity Method Investments~~	10
		~~Officers of the Registrant~~	10
	Item 1A.	Risk Factors	127
	Item 1B.	Unresolved Staff Comments	2014
	Item 2.	Properties	2114
	Item 3.	Legal Proceedings	2114
	Item 4.	Mine Safety Disclosures	2114
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities	22
		~~Trading Market~~	22
		~~Historical Stock Prices and Dividends~~	22
		~~Record Holders~~	22
		~~Trading Volumes~~	22
		~~Purchases of Equity Securities by Issuer~~	2315
	Item 6.	Selected Financial Data and Supplementary Financial Information	2318
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2319
		~~General~~	23
		~~Critical Accounting Policies and Estimates~~	24
		~~2014 Activities and Recent Initiatives~~	26
		~~Segment Results~~	34
		~~Year Ended December 31, 2014 Compared to December 31, 2013~~	29
		~~Liquidity and Capital Resources~~	37
		~~Off Balance Sheet Obligations~~	43
		~~New Accounting Pronouncements~~	43



	Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	4335
	Item 8.	Financial Statements and Supplementary Data	4436
		Management’s Report on Internal Control Over Financial Reporting	4436
		Report of Independent Registered Public Accounting Firm	4537
		Consolidated Statements of ~~Operations –~~Income - Years Ended December 31, ~~201~~42016, 2015, and ~~2013~~ 2014	4638
		Consolidated Statements of Comprehensive Income ~~(Loss) –~~- Years Ended December 31, ~~201~~42016, 2015, and ~~2013~~ 2014	4739
		Consolidated Balance Sheets - December 31, ~~2014~~2016 and ~~2013~~2015	4840
		Consolidated Statements of Cash Flows – Years Ended December 31, 20146, 2015, and ~~2013~~2014	4941
		Consolidated Statements of Changes in Stockholders’ Equity – Years Ended December 31, 20146, 2015, and ~~2013~~2014	5042
		Notes to Consolidated Financial Statements – Years Ended December 31, 20146, 2015, and ~~2013~~2014	5143
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	8877
	Item 9A	Controls and Procedures	8877
	Item 9B.	Other Information	8877
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	8978
	Item 11.	Executive Compensation	8978
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	8978
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	8978
	Item 14.	Principal Accountant Fees and Services	8978
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	9079
	Item 16.	Form 10-K Summary	83
SIGNATURES			9684



(Mark One)
X	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(1)	Portions of the MGP Ingredients, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held on ~~May 21, 2015~~June 1, 2017 are incorporated by reference into Part III of this report to the extent set forth herein.



	PRODUCT GROUP SALES
	Year Ended December 31,
	2014				2013
Distillery Products:	Amount		%		Amount		%
Food grade alcohol	$	208,375	66.5	%	$	208,695	64.6	%
Distillers feed and related co- products	30,361		9.7		43,513		13.5
Fuel grade alcohol	12,987		4.2		8,026		2.5
Warehouse revenue	4,838		1.5		3,864		1.1
Total Distillery Products	$	256,561	81.9	%	$	264,098	81.7	%

Ingredient Solutions:
Specialty wheat starches	$	28,217	9.0	%	$	27,820	8.6	%
Specialty wheat proteins	18,618		5.9		20,086		6.2
Commodity wheat starch	7,884		2.5		8,509		2.6
Vital wheat gluten (commodity wheat proteins)	2,123		0.7		2,552		0.8
Total Ingredient Solutions	$	56,842	18.1	%	$	58,967	18.2	%

Other Products:	$	—	—	%	$	199	0.1	%
Net Sales	$	313,403	100.0	%	$	323,264	100.0	%


•	~~FiberRite~~^®~~RW Resistant Starch.~~ ~~FiberRite~~^® RW is a product that boosts dietary fiber levels while also reducing fat and caloric content in such foods as breads, sweet goods, ice cream, yogurt, salad dressings, sandwich spreads and emulsified meats.


•	~~Arise~~^®~~series.~~ ~~Our Arise~~^® series of products consists of specialty wheat proteins that increase the freshness and shelf life of frozen, refrigerated and fresh dough products after they are baked, or can substitute for egg whites. Certain ingredients in this series are also sold for use in the manufacturing of high protein, lower net carbohydrate products.


•	~~HWG 2009~~^™. This is a lightly hydrolyzed wheat protein that is rich in peptide-bonded glutamine, an amino acid that counters muscle fatigue brought on by exercise and other physical activities. Applications include nutritional beverages and snack products.



Location	Purpose	Owned or Leased	Area (in sq. ft.)	Tract Area (in acres)
Atchison, Kansas	Grain processing, distillery, warehousing, and research and quality control laboratories (Distillery Products and Ingredient Solutions)	Owned	494,640	26

	Principal executive office building (Corporate)	Leased	18,000	1

	Technical Innovation Center (Ingredient Solutions and Distillery Products)	Leased	19,600	1

Lawrenceburg and Greendale, Indiana	Distillery, warehousing, tank farm and quality control facilities	Owned	1,458,143	43

Lenexa, Kansas	Administrative office space	Leased	3,222	1



Pekin, Illinois	Distillery, warehousing and quality control laboratories (Distillery Products)	Owned	462,926	49



	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)			(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 1, 2014 through October 31, 2014	—					—	$	—
November 1, 2014 through November 30, 2014	4,734	^(a)	$	14.88	^(a)	—
December 1, 2014 through December 31, 2014	4,240	^(b)	$	13.51	^(b)	—
Total	8,974					—



	$ (thousands)
Net loss for the year ended December 31, 2013	$	(4,929	)
Improved by:
Change in operating profits from distillery products segment	16,714
Improved earnings from equity method investments	10,341
Savings from reduced selling general and administrative expenses	6,101

Reduced by:
Change in operating profits from ingredients solutions segment	(564		)
Impact of income taxes	(2,979		)
Change in discontinued operations	(878		)
Other	(131		)
Net income for the year ended December 31, 2014	$	23,675



	PRODUCT GROUP NET SALES
	Year Ended December 31,						Year-versus-Year Net Sales Change Increase/ (Decrease)					Year-versus-Year Volume Change
	2014			2013			$ Change			% Change		% Change
	Amount			Amount			$ Change			% Change		% Change
Food grade alcohol	$	208,375		$	208,695		$	(320	)	(0.2)%		15.3	%
Distillers feed and related co-products	30,361			43,513			(13,152		)	(30.2)		(5.0	)
Fuel grade alcohol	12,987			8,026			4,961			61.8		65.1
Warehouse revenue	4,838			3,864			974			25.2		n/a
Total distillery products	$	256,561		$	264,098		$	(7,537	)	(2.9)%		n/a

	Other Financial Information
	Year Ended December 31,						Year-versus-Year Increase/Decrease
	2014			2013			Change			% Change
	2014			2013			Change			% Change
Gross profit	$	22,332		$	14,309		$	8,023		56.1	%
Gross margin %	8.7		%	5.4		%	3.3		%	61.1	%
Income from continuing operations before taxes	$	28,701		$	11,987		$	16,714		139.4	%
Return on sales	11.2		%	4.5		%	6.7		%	148.9	%


^(a)	Includes related party sales to MGPI of ~~$34,615~~$27,675, $38,941, and ~~$7,736~~$36,289 for ~~the years ended December 31,~~2016, 2015, and 2014, ~~and 2013,~~ respectively.


^(b)	Includes depreciation and amortization of $3,030, $2,634, and $2,847 for 2016, 2015, and ~~$4,523~~2014, respectively.


^(c)	Includes business interruption insurance proceeds of $4,112 for ~~the years ended December 31, 2014 and 2013, respectively.~~2015.


^(a)	On December 23, 2016, the Company received its portion of the remaining DMI liquidation proceeds totaling $351. Prior to receiving the proceeds, the Company's equity method investment was $384. The difference of $33 was recognized as an equity method investment loss for the year ended December 31, 2016.


^(a)	During ~~the year ended December 31, 2014,~~2016, the Company received a ~~$4,835~~$3,300 cash distribution from ICP, which reduced the Company's investment in ICP.



Balance as of December 31, 2015	$	—
Goodwill	1,500
Brand name (indefinite lived)	350
Balance as of December 31, 2016	$	1,850


	(1)			(2)			(3) = (1) - (2)		(1)			(2)			(3) = (1) - (2)
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts offset in the Balance Sheet			Net Amounts of Assets (Liabilities) presented in the Balance Sheet		Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts offset in the Balance Sheet			Net Amounts of Assets (Liabilities) presented in the Balance Sheet
December 31, 2014:
December 31, 2015:
Investment in bonds	$	7,000		$	7,000		$	0	$	7,000		$	7,000		$	0
Capital lease obligation	$	(7,000	)	$	(7,000	)	$	0	$	(7,000	)	$	(7,000	)	$	0

December 31, 2013:
Investment in bonds	$	7,000		$	7,000		$	0
Capital lease obligation	$	(7,000	)	$	(7,000	)	$	0


					Capital Leases
Year Ending December 31,	Credit Agreement		Long-Term Debt		Minimum Lease Payments		Less Interest		Net Present Value		Total Debt		Operating Leases		Credit Agreement		Long-Term Debt		Total Debt
2015	$	—	$	368	$	1,316	$	72	$	1,245	$	1,613	$	3,641
2016	—		36		1,317		39		1,277		1,313		2,457
2017	6,670		—		694		7		687		7,357		1,466		$	—	$	358	$	358
2018	—		—		—		—		—		—		320		—		372		$	372
2019	—		—		—		—		—		—		235		—		386		$	386
2020															34,253		400		$	34,653
2021															—		416		$	416
Thereafter	—		—		—		—		—		—		1,304		—		392		$	392
Total	$	6,670	$	404	$	3,327	$	118	$	3,209	$	10,283	$	9,423	$	34,253	$	2,324	$	36,577



	Valuation allowance
Balance at January 1, 2013	$	9,053
Additions:
Charges to costs and expenses	2,070
Charges to other accounts	152
Balance at December 31, 2013	$	11,275
Reductions	7,446
Balance at December 31, 2014	$	3,829


	Years Ended December 31,				Years Ended December 31,
	2014		2013		2016			2015		2014
Beginning of year balance	$	566	$	445	$	613		$	613	$	566
Additions for tax positions of prior years	8		62		2			—		8
Additions for tax positions of the current year	39		59		21			—		39
Reduction for prior year tax positions					(48		)	—		—
Reductions for settlements					(545		)
End of year balance	$	613	$	566	$	43		$	613	$	613



Dividend and Dividend Equivalent Information (per Share and Unit)
Declaration date	Payment date	Declared		Paid		Total payment
2016
March 7, 2016	April 14, 2016	$	0.08	$	0.08	$	1,378
August 1, 2016	September 8, 2016	0.02		0.02		344
October 31, 2016	December 8, 2016	0.02		0.02		344
		$	0.12	$	0.12	$	2,066
2015
March 10, 2015	April 21, 2015	$	0.06	$	0.06	$	1,087
2014
February 28, 2014	April 9, 2014	$	0.05	$	0.05	$	907


^(a)	Net ~~operating~~ income ~~(loss)~~ attributable to all shareholders.


^(c)	~~Net income (loss) attributable to~~ Under the two class method, basic weighted average common ~~shareholders.~~shares exclude outstanding unvested participating securities consisting of restricted stock awards of 0, 128,500, and 278,900 for 2016, 2015, and 2014, respectively.


^(f)	~~Income (loss) from continuing operations based on net income (loss) attributable to common shareholders.~~


^(g)	~~Income from discontinued operations based on net loss attributable to common shareholders.~~


	Pension Plan Items			Post-Employment Benefit Plan Items			Equity Method Investment Translation Adjustment and Post-Employment Benefit Adjustment			Total			Pension Plan Items			^(a)	Post-Employment Benefit Plan Items			Equity Method Investment Translation Adjustment and Post-Employment Benefit Adjustment			Total
Balance, December 31, 2012	$	(627	)	$	429		$	(35	)	$	(233	)
Other comprehensive income before reclassifications	179			333			18			530
Amounts reclassified from accumulated other comprehensive income	71			(372		)	—			(301		)
Net 2013 other comprehensive income (loss)	250			(39		)	18			229
Balance, December 31, 2013	$	(377	)	$	390		$	(17	)	$	(4	)	$	(377	)		$	390		$	(17	)	$	(4	)
Other comprehensive income (loss) before reclassifications	218			(1,620		)	(15		)	(1,417		)	218				(1,620		)	(15		)	(1,417		)
Amounts reclassified from accumulated other comprehensive income	(85		)	774			—			689			(85		)		774			—			689
Net 2014 other comprehensive income (loss)	133			(846		)	(15		)	(728		)	133				(846		)	(15		)	(728		)
Balance, December 31, 2014	$	(244	)	$	(456	)	$	(32	)	$	(732	)	$	(244	)		$	(456	)	$	(32	)	$	(732	)
Other comprehensive income (loss) before reclassifications													(355		)		47			(10		)	(318		)
Amounts reclassified from accumulated other comprehensive income													599				(101		)	52			550
Net 2015 other comprehensive income (loss)													244				(54		)	42			232
Balance, December 31, 2015													$	—			$	(510	)	$	10		$	(500	)
Other comprehensive income (loss) before reclassifications													—				113			(14		)	99
Amounts reclassified from accumulated other comprehensive income													—				21			7			28
Net 2016 other comprehensive income (loss)													—				134			(7		)	127
Balance, December 31, 2016													$	—			$	(376	)	$	3		$	(373	)


^(a)	The Company's pension benefit plans were terminated as of the quarter ended June 2015.


Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Statement of Operations	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Consolidated Statements of Income
Pension Plan Items:
Post Employment Benefit Items:
Amortization of prior service cost					$	(338	)	^(a)
Recognized net actuarial loss	$	20		^(a)	269			^(a)
Settlement loss	50			^(a)
	70			Total before tax	(69		)	Total before tax
	155			Tax benefit	90			Tax expense
	$	(85	)	Net of tax	$	21		Net of tax

Post Employment Benefit Items:
Amortization of prior service cost	$	(369	)	^(a)
Recognized net actuarial loss	18			^(a)
Plan amendment and curtailment	1,183
Recognition of prior service cost due to curtailment	(52		)
Equity Method Investment Adjustment:
Accumulated postretirement benefit obligation					$	13
	780			Total before tax	(6		)	Tax benefit
	6			Tax benefit	$	7		Net of tax
	$	774		Net of tax

Reclassifications for 2014	$	689		Net of tax
Reclassifications for 2016					$	28		Total net of tax