UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

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

For the transition period from _________________________ to _________________________________

Commission File Number: 0-17196

MGP INGREDIENTS, INC.

(Exact name of registrant as specified in its charter)


Kansas			45-4082531
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


100 Commercial Street
Atchison,	Kansas	66002
(Address of principal executive offices)		(Zip Code)

(913) 367-1480

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	MGPI	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically, ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). x Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.” See definition of “large accelerated ~~filer”,~~filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

x Large accelerated filer ☐ Accelerated filer

☐ Non-accelerated filer ☐ Smaller Reporting Company

☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

~~21,994,036~~22,009,834 shares of Common Stock, no par value, as of ~~October~~April 28, ~~2022~~2023

INDEX


PART I. FINANCIAL INFORMATION			Page

	Item 1.	Financial Statements

	Condensed Consolidated Statements of Income (Unaudited)		3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)		4
	Condensed Consolidated Balance Sheets (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows (Unaudited)		6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)		7
	Notes to Unaudited Condensed Consolidated Financial Statements		98

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2217

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3525

	Item 4.	Controls and Procedures	3525

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	3625

	Item 1A.	Risk Factors	3625

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3626

	Item 3.	Defaults Upon Senior Securities	3626

	Item 4.	Mine Safety Disclosures	3626

	Item 5.	Other Information	3626

	Item 6.	Exhibits	3726

METHOD OF PRESENTATION

Throughout this Report, when we refer to “the Company,” “MGP,” “we,” “us,” “our,” and words of similar import, we are referring to the combined business of MGP Ingredients, Inc. and its consolidated subsidiaries, except to the extent that the context otherwise indicates. In this ~~document,~~Report, for any references to Note 1 through Note ~~11,~~10, refer to the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1.

All amounts in this ~~report,~~Report, except for share, par values, bushels, gallons, pounds, mmbtu, proof gallons, 9-liter cases, per share, per bushel, per gallon, per proof gallon, per 9-liter case and percentage amounts, are shown in thousands unless otherwise noted.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

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


		Quarter Ended September 30,				Year to Date Ended September 30,					Quarter Ended March 31,
		2022		2021		2022		2021			2023		2022

Sales	Sales	$	201,146	$	176,611	$	591,363	$	459,873	Sales	$	201,010	$	195,235
Cost of sales	Cost of sales	142,098		119,525		401,270		313,661		Cost of sales	131,186		123,414
Gross profit	Gross profit	59,048		57,086		190,093		146,212		Gross profit	69,824		71,821
Advertising and promotion expenses	Advertising and promotion expenses	7,279		5,664		18,848		9,888		Advertising and promotion expenses	7,733		5,504
Selling, general and administrative expenses		17,904		18,527		52,029		55,266
Other operating (income) expense, net		1		11		(34)		11
Selling, general, and administrative expenses										Selling, general, and administrative expenses	20,532		16,237

Operating income	Operating income	33,864		32,884		119,250		81,047		Operating income	41,559		50,080
Interest expense, net	Interest expense, net	(1,350)		(1,116)		(4,491)		(2,708)		Interest expense, net	(995)		(1,598)
Other income (expense), net	Other income (expense), net	(1,353)		(421)		(2,361)		(479)		Other income (expense), net	123		54
Income before income taxes	Income before income taxes	31,161		31,347		112,398		77,860		Income before income taxes	40,687		48,536
Income tax expense	Income tax expense	7,533		7,674		26,037		18,701		Income tax expense	9,655		11,165
Net income	Net income	23,628		23,673		86,361		59,159		Net income	31,032		37,371
Net (income) loss attributable to noncontrolling interest		180		203		444		279
Net loss attributable to noncontrolling interest										Net loss attributable to noncontrolling interest	39		66
Net income attributable to MGP Ingredients, Inc.	Net income attributable to MGP Ingredients, Inc.	23,808		23,876		86,805		59,438		Net income attributable to MGP Ingredients, Inc.	31,071		37,437
Income attributable to participating securities	Income attributable to participating securities	(188)		(175)		(688)		(471)		Income attributable to participating securities	(311)		(318)

Net income used in Earnings Per Common Share calculation		$	23,620	$	23,701	$	86,117	$	58,967
Net income used in earnings per common share calculation										Net income used in earnings per common share calculation	$	30,760	$	37,119

Share information:
Basic weighted average common shares		22,008,381		21,981,201		22,000,026		20,293,818
Diluted weighted average common shares		22,228,814		21,981,201		22,000,026		20,293,818
Weighted average common shares										Weighted average common shares
Basic										Basic	22,040,224		21,989,100
Diluted										Diluted	22,072,271		21,989,100

Basic Earnings Per Common Share		$	1.07	$	1.08	$	3.91	$	2.91
Diluted Earnings Per Common Share		$	1.06	$	1.08	$	3.91	$	2.91
Earnings per common share										Earnings per common share
Basic										Basic	$	1.40	$	1.69
Diluted										Diluted	$	1.39	$	1.69

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


		Quarter Ended September 30,				Year to Date Ended September 30,					Quarter Ended March 31,
		2022		2021		2022		2021			2023		2022
Net income attributable to MGP Ingredients, Inc.	Net income attributable to MGP Ingredients, Inc.	$	23,808	$	23,876	$	86,805	$	59,438	Net income attributable to MGP Ingredients, Inc.	$	31,071	$	37,437
Other comprehensive loss, net of tax:
Unrealized loss on foreign currency translation adjustment		(467)		(141)		(1,116)		(134)
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on foreign currency translation adjustment										Unrealized gain (loss) on foreign currency translation adjustment	175		(219)
Change in Company-sponsored post-employment benefit plan	Change in Company-sponsored post-employment benefit plan	(76)		(89)		(102)		(40)		Change in Company-sponsored post-employment benefit plan	(107)		(13)
Other comprehensive loss		(543)		(230)		(1,218)		(174)
Other comprehensive income (loss)										Other comprehensive income (loss)	68		(232)

Comprehensive income attributable to MGP Ingredients, Inc.	Comprehensive income attributable to MGP Ingredients, Inc.	23,265		23,646		85,587		59,264		Comprehensive income attributable to MGP Ingredients, Inc.	31,139		37,205

Comprehensive loss attributable to noncontrolling interest	Comprehensive loss attributable to noncontrolling interest	(180)		(203)		(444)		(279)		Comprehensive loss attributable to noncontrolling interest	(39)		(66)
Comprehensive income	Comprehensive income	$	23,085	$	23,443	$	85,143	$	58,985	Comprehensive income	$	31,100	$	37,139

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

~~(Dollars~~ (Dollars in thousands)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	50,674	$	21,568	Cash and cash equivalents	$	31,728	$	47,889
Receivables (less allowance for credit loss, $175 and $150 at September 30, 2022, and December 31, 2021, respectively)		107,653		92,537
Receivables (less allowance for credit loss, $1,475 at both March 31, 2023, and December 31, 2022)						Receivables (less allowance for credit loss, $1,475 at both March 31, 2023, and December 31, 2022)	128,611		109,267
Inventory	Inventory	275,478		245,944		Inventory	308,558		289,722
Prepaid expenses	Prepaid expenses	5,833		1,510		Prepaid expenses	6,542		2,957
Refundable income taxes	Refundable income taxes	1,006		5,539		Refundable income taxes	—		4,327
Total current assets	Total current assets	440,644		367,098		Total current assets	475,439		454,162
Property, plant, and equipment	Property, plant, and equipment	430,945		404,149		Property, plant, and equipment	461,069		450,800
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(210,254)		(196,863)		Less accumulated depreciation and amortization	(220,100)		(215,168)
Property, plant, and equipment, net	Property, plant, and equipment, net	220,691		207,286		Property, plant, and equipment, net	240,969		235,632
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	14,516		9,671		Operating lease right-of-use assets, net	14,698		15,042
Investment in joint ventures	Investment in joint ventures	6,140		4,944		Investment in joint ventures	5,274		5,534
Intangible assets, net	Intangible assets, net	217,285		218,838		Intangible assets, net	216,250		216,768
Goodwill	Goodwill	226,294		226,294		Goodwill	226,294		226,294
Other assets	Other assets	6,505		7,336		Other assets	5,262		4,779
Total assets	Total assets	$	1,132,075	$	1,041,467	Total assets	$	1,184,186	$	1,158,211
Current Liabilities	Current Liabilities					Current Liabilities
Current maturities of long-term debt	Current maturities of long-term debt	$	4,800	$	3,227	Current maturities of long-term debt	$	6,400	$	5,600
Accounts payable	Accounts payable	64,858		53,712		Accounts payable	66,755		66,432
Federal and state excise taxes payable	Federal and state excise taxes payable	4,713		6,992		Federal and state excise taxes payable	7,388		4,627

Income taxes payable						Income taxes payable	4,716		—
Accrued expenses and other	Accrued expenses and other	26,420		24,869		Accrued expenses and other	17,056		28,716

Total current liabilities	Total current liabilities	100,791		88,800		Total current liabilities	102,315		105,375
Long-term debt, less current maturities	Long-term debt, less current maturities	31,105		35,266		Long-term debt, less current maturities	27,914		29,510
Convertible senior notes	Convertible senior notes	195,146		194,906		Convertible senior notes	195,305		195,225
Long-term operating lease liabilities	Long-term operating lease liabilities	11,327		6,997		Long-term operating lease liabilities	11,252		11,622

Other noncurrent liabilities	Other noncurrent liabilities	4,047		5,132		Other noncurrent liabilities	3,768		3,723
Deferred income taxes	Deferred income taxes	65,799		66,101		Deferred income taxes	67,685		67,112
Total liabilities	Total liabilities	408,215		397,202		Total liabilities	408,239		412,567
Commitments and Contingencies (Note 8)
Commitments and Contingencies (Note 7)						Commitments and Contingencies (Note 7)
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Capital stock	Capital stock					Capital stock
Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares	Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares	4		4		Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares	4		4
Common stock	Common stock					Common stock
No par value; authorized 40,000,000 shares; issued 23,125,166 shares at September 30, 2022 and December 31, 2021; and 21,993,355 and 21,964,314 shares outstanding at September 30, 2022 and December 31, 2021, respectively		6,715		6,715
No par value; authorized 40,000,000 shares; issued 23,125,166 shares at March 31, 2023 and December 31, 2022; and 22,008,929 and 21,994,042 shares outstanding at March 31, 2023 and December 31, 2022, respectively						No par value; authorized 40,000,000 shares; issued 23,125,166 shares at March 31, 2023 and December 31, 2022; and 22,008,929 and 21,994,042 shares outstanding at March 31, 2023 and December 31, 2022, respectively	6,715		6,715
Additional paid-in capital	Additional paid-in capital	317,541		315,802		Additional paid-in capital	320,997		318,839
Retained earnings	Retained earnings	423,063		344,237		Retained earnings	471,471		443,061
Accumulated other comprehensive income		(864)		354
Treasury stock, at cost, 1,131,811 and 1,160,852 shares at September 30, 2022 and December 31, 2021, respectively		(21,665)		(22,357)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(236)		(304)
Treasury stock, at cost, 1,116,237 and 1,131,124 shares at March 31, 2023 and December 31, 2022, respectively						Treasury stock, at cost, 1,116,237 and 1,131,124 shares at March 31, 2023 and December 31, 2022, respectively	(21,885)		(21,591)
Total MGP Ingredients, Inc. stockholders’ equity	Total MGP Ingredients, Inc. stockholders’ equity	724,794		644,755		Total MGP Ingredients, Inc. stockholders’ equity	777,066		746,724
Noncontrolling interest	Noncontrolling interest	(934)		(490)		Noncontrolling interest	(1,119)		(1,080)
Total equity	Total equity	723,860		644,265		Total equity	775,947		745,644
Total liabilities and equity	Total liabilities and equity	$	1,132,075	$	1,041,467	Total liabilities and equity	$	1,184,186	$	1,158,211

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


		Year to Date Ended September 30,					Quarter to Date Ended March 31,
		2022		2021			2023		2022
Cash Flows from Operating Activities	Cash Flows from Operating Activities					Cash Flows from Operating Activities
Net income	Net income	$	86,361	$	59,159	Net income	$	31,032	$	37,371
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	16,257		13,668		Depreciation and amortization	5,171		5,621

Share-based compensation	Share-based compensation	3,086		5,247		Share-based compensation	1,215		1,373

Equity method investment loss (income)						Equity method investment loss (income)	260		(394)
Deferred income taxes, including change in valuation allowance	Deferred income taxes, including change in valuation allowance	(302)		465		Deferred income taxes, including change in valuation allowance	573		347
Other, net	Other, net	1,462		(231)		Other, net	99		24
Changes in operating assets and liabilities, net of effects of acquisition:
Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Receivables, net	Receivables, net	(15,582)		(5,593)		Receivables, net	(19,227)		(9,601)
Inventory	Inventory	(30,599)		(7,588)		Inventory	(18,707)		(13,696)
Prepaid expenses	Prepaid expenses	1,165		1,206		Prepaid expenses	(3,578)		657
Refundable income taxes		(1,006)		(2,086)
Income taxes payable (refundable)						Income taxes payable (refundable)	9,043		5,437
Accounts payable	Accounts payable	12,613		(6,678)		Accounts payable	6,498		4,638
Accrued expenses and other	Accrued expenses and other	1,220		15,859		Accrued expenses and other	(10,208)		(8,896)
Federal and state excise taxes payable	Federal and state excise taxes payable	(2,279)		(1,961)		Federal and state excise taxes payable	2,761		(515)

Other, net	Other, net	(143)		(682)		Other, net	89		(136)
Net cash provided by operating activities	Net cash provided by operating activities	72,253		70,785		Net cash provided by operating activities	5,021		22,230

Cash Flows from Investing Activities	Cash Flows from Investing Activities					Cash Flows from Investing Activities
Additions to property, plant, and equipment	Additions to property, plant, and equipment	(29,217)		(37,257)		Additions to property, plant, and equipment	(16,237)		(10,642)

Purchase of business, net of cash acquired		—		(149,613)

Contributions to equity method investment	Contributions to equity method investment	(2,232)		(988)		Contributions to equity method investment	—		(1,028)

Other, net	Other, net	(315)		(1,308)		Other, net	(708)		(363)
Net cash used in investing activities	Net cash used in investing activities	(31,764)		(189,166)		Net cash used in investing activities	(16,945)		(12,033)

Cash Flows from Financing Activities	Cash Flows from Financing Activities					Cash Flows from Financing Activities
Payment of dividends and dividend equivalents	Payment of dividends and dividend equivalents	(7,984)		(7,362)		Payment of dividends and dividend equivalents	(2,669)		(2,661)
Purchase of treasury stock	Purchase of treasury stock	(714)		(767)		Purchase of treasury stock	(801)		(714)
Loan fees paid related to borrowings		—		(666)

Principal payments on long-term debt	Principal payments on long-term debt	(2,603)		(813)		Principal payments on long-term debt	(800)		(807)
Proceeds from credit agreement - revolver		—		242,300
Payments on credit agreement - revolver		—		(32,300)
Payment on assumed debt as part of the Merger		—		(87,509)
Net cash provided by (used in) financing activities		(11,301)		112,883

Effect of exchange rate changes on cash		(82)		(2)

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

Effect of exchange rate changes on cash and cash equivalents						Effect of exchange rate changes on cash and cash equivalents	33		(288)
Increase (decrease) in cash and cash equivalents	Increase (decrease) in cash and cash equivalents	29,106		(5,500)		Increase (decrease) in cash and cash equivalents	(16,161)		5,727
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	21,568		21,662		Cash and cash equivalents, beginning of period	47,889		21,568
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	50,674	$	16,162	Cash and cash equivalents, end of period	$	31,728	$	27,295

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For ~~Year~~Quarter to Date Ended ~~September 30,~~March 31, 2023 and 2022

(Unaudited)

(Dollars in thousands)
Capital
Stock
Preferred Issued Common Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Treasury
Stock Non-controlling Interest Total
Balance, December 31, 2021 $ 4 $ 6,715 $ 315,802 $ 344,237 $ 354 $ (22,357) $ (490) $ 644,265
Comprehensive income:
Net income (loss) — — — 37,437 — — (66) 37,371
Other comprehensive loss — — — — (232) — — (232)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — (2,661) — — — (2,661)
Share-based compensation — — 1,373 — — — — 1,373
Stock shares awarded, forfeited or vested — — (604) — — 604 — —
Stock shares repurchased — — — — — (711) — (711)
Balance, March 31, 2022 4 6,715 316,571 379,013 122 (22,464) (556) 679,405
Comprehensive income:
Net income (loss) — — — 25,560 — — (198) 25,362
Other comprehensive loss — — — — (443) — — (443)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — (2,658) — — — (2,658)
Share-based compensation — — 1,409 — — — — 1,409
Stock shares awarded, forfeited or vested — — (740) — — 740 — —
Stock shares repurchased — — — — — (2) — (2)
Balance, June 30, 2022 4 6,715 317,240 401,915 (321) (21,726) (754) 703,073
Comprehensive income:
Net income (loss) — — — 23,808 — (180) 23,628
Other comprehensive loss — — — — (543) — (543)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — (2,660) — — — (2,660)
Share-based compensation — — 363 — — — — 363
Stock shares awarded, forfeited, or vested — — (62) — — 62 — —
Stock shares repurchased — — — — — (1) — (1)
Balance, September 30, 2022 $ 4 $ 6,715 $ 317,541 $ 423,063 $ (864) $ (21,665) $ (934) $ 723,860

~~See accompanying notes to unaudited condensed consolidated financial statements~~


	Capital Stock Preferred		Issued Common		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Treasury Stock		Non-controlling Interest		Total
Balance, December 31, 2022	$	4	$	6,715	$	318,839	$	443,061	$	(304)	$	(21,591)	$	(1,080)	$	745,644
Comprehensive income:
Net income (loss)	—		—		—		31,071		—		—		(39)		31,032
Other comprehensive income	—		—		—		—		68		—		—		68
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures	—		—		—		(2,661)		—		—		—		(2,661)
Share-based compensation	—		—		2,665		—		—		—		—		2,665
Stock shares awarded, forfeited or vested	—		—		(507)		—		—		507		—		—
Stock shares repurchased	—		—		—		—		—		(801)		—		(801)
Balance, March 31, 2023	$	4	$	6,715	$	320,997	$	471,471	$	(236)	$	(21,885)	$	(1,119)	$	775,947

~~MGP INGREDIENTS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~For Year to Date Ended September 30, 2021~~

~~(Unaudited)~~

~~(Dollars in thousands)~~


		Capital Stock Preferred		Issued Common		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total			Capital Stock Preferred		Issued Common		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Treasury Stock		Non-controlling Interest		Total
Balance, December 31, 2020		$	4	$	6,715	$	15,503	$	262,943	$	486	$	(23,125)	$	—	$	262,526
Comprehensive income:
Net income		—		—		—		15,427		—		—		—		15,427
Other comprehensive income		—		—		—		—		55		—		—		55
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures		—		—		—		(2,052)		—		—		—		(2,052)
Share-based compensation		—		—		3,229		—		—		—		—		3,229
Stock shares awarded, forfeited or vested		—		—		(716)		—		—		716		—		—
Stock shares repurchased		—		—		—		—		—		(674)		—		(674)
Balance, March 31, 2021		4		6,715		18,016		276,318		541		(23,083)		—		278,511
Comprehensive income:
Net income (loss)		—		—		—		20,135		—		—		(76)		20,059
Other comprehensive income		—		—		—		—		1		—		—		1
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures		—		—		—		(2,653)		—		—		—		(2,653)
Share-based compensation		—		—		1,538		—		—		—		—		1,538
Stock shares awarded, forfeited, or vested		—		—		(705)		—		—		705		—		—
Stock shares repurchased		—		—		—		—		—		(91)		—		(91)
Equity consideration for Merger		—		—		296,213		—		—		—		—		296,213
Balance, June 30, 2021		4		6,715		315,062		293,800		542		(22,469)		(76)		593,578
Balance, December 31, 2021																		Balance, December 31, 2021	$	4	$	6,715	$	315,802	$	344,237	$	354	$	(22,357)	$	(490)	$	644,265
Comprehensive income:	Comprehensive income:																	Comprehensive income:
Net income (loss)	Net income (loss)	—		—		—		23,876		—		—		(203)		23,673		Net income (loss)	—		—		—		37,437		—		—		(66)		37,371
Other comprehensive loss	Other comprehensive loss	—		—		—		—		(230)		—		—		(230)		Other comprehensive loss	—		—		—		—		(232)		—		—		(232)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures	Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures	—		—		—		(2,654)		—		—		—		(2,654)		Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures	—		—		—		(2,661)		—		—		—		(2,661)
Share-based compensation	Share-based compensation	—		—		480		—		—		—		—		480		Share-based compensation	—		—		1,373		—		—		—		—		1,373
Stock shares awarded, forfeited, or vested		—		—		(64)		—		—		64		—		—
Stock shares awarded, forfeited or vested																		Stock shares awarded, forfeited or vested	—		—		(604)		—		—		604		—		—
Stock shares repurchased	Stock shares repurchased	—		—		—		—		—		(1)		—		(1)		Stock shares repurchased	—		—		—		—		—		(711)		—		(711)
Equity consideration for Merger		—		—		65		—		—		—		—		65
Balance, September 30, 2021		$	4	$	6,715	$	315,543	$	315,022	$	312	$	(22,406)	$	(279)	$	614,911
Balance, March 31, 2022																		Balance, March 31, 2022	$	4	$	6,715	$	316,571	$	379,013	$	122	$	(22,464)	$	(556)	$	679,405

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise noted)

Note 1. Accounting Policies and Basis of Presentation

The Company. MGP Ingredients, Inc. (“the Company,” or “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients. Distilled spirits include premium bourbon, rye, and ~~rye~~other whiskeys and grain neutral spirits (“GNS”), including vodka and gin. The Company’s distilled spirits are either ~~packaged and sold under its own brands to distributors,~~ sold directly or indirectly to manufacturers of other branded ~~spirits, or direct to consumer.~~spirits. MGP is also a ~~top~~ producer of ~~high-quality,~~high quality industrial alcohol for use in both food and non-food applications. The Company has a portfolio of its own high quality branded spirits which are produced through its distilleries and bottling facilities and sold to distributors. The Company’s branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end American whiskey, tequila and gin. The Company’s protein and starch food ingredients provide a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the consumer packaged goods industry. The ~~Company’s industrial alcohol and~~ ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries. ~~The Company’s distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and milo), and its ingredient products are derived primarily from wheat flour.~~

On April 1, 2021, the Company acquired Luxco, Inc. and its affiliated companies (“Luxco”), which is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage.~~Luxco’s operations predominately involve the producing, importing, bottling and rectifying of distilled spirits. See Note 3, Business Combination, for further details.~~

The Company reports three operating segments: Distilling Solutions, Branded Spirits and Ingredient Solutions. ~~During 2022, the Company changed the name of its Distillery Products segment to Distilling Solutions.~~ Certain amounts in the ~~2021~~2022 consolidated financial statements have been reclassified to conform to the ~~2022~~2023 presentation.

Basis of Presentation and Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements as of and for the quarter ~~and year to date~~ ended ~~September 30, 2022,~~March 31, 2023, should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission (“SEC”). The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal and recurring adjustments) necessary to fairly present the results for interim periods in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to the rules and regulations of the SEC, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted.

The Company holds a 60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The Company consolidated Dos Primos’ activity on the financial statements and presented the 40 percent non-controlling interest portion on a separate line.

Use of Estimates. The financial reporting policies of the Company conform to GAAP. The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The application of certain of these policies places demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently ~~uncertain, inclusive of the effects related to the COVID-19 pandemic.~~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.

~~Immaterial Correction to Prior Period Financial Statements.~~ During the year to date ended September 30, 2022, the Company identified an immaterial correction related to gross amounts of Property, plant and equipment and Accumulated depreciation and amortization in the Condensed Consolidated Balance Sheet as of December 31, 2021. The Company performed a materiality assessment, considering both quantitative and qualitative factors, which resulted in the determination that the correction to the financial statements was immaterial. As such, the Company corrected the December 31, 2021 gross balances for Property, plant, and equipment and Accumulated depreciation and amortization on the Condensed Consolidated Balance Sheet reported in this Form 10-Q by equal and offsetting amounts, which resulted in no change to the balance of Property, plant, and equipment, net.

Inventory. Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process as well as bottles, caps, and labels used in the bottling process, and certain maintenance and repair items. Bourbons, ryes, and other whiskeys included in inventory are normally aged in barrels for several years, following industry ~~practice; all~~practice. All barreled bourbon, rye, and ~~whiskey is~~other whiskeys are classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs.

Inventories are stated at the lower of cost or net realizable value on the first-in, first-out, or FIFO, method. Inventory valuations are impacted by constantly changing prices paid for key ~~materials.~~materials, primarily corn. Inventory consists of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Finished goods	Finished goods	$	49,008	$	35,362	Finished goods	$	50,730	$	47,073
Barreled distillate (bourbons and whiskeys)		185,681		174,080
Barreled distillate (bourbons and other whiskeys)						Barreled distillate (bourbons and other whiskeys)	210,615		199,040
Raw materials	Raw materials	27,496		24,981		Raw materials	33,524		29,931
Work in process	Work in process	1,581		1,261		Work in process	1,351		1,645
Maintenance materials	Maintenance materials	10,020		9,179		Maintenance materials	10,004		9,931
Other	Other	1,692		1,081		Other	2,334		2,102
Total	Total	$	275,478	$	245,944	Total	$	308,558	$	289,722

Revenue Recognition. Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration itthe Company expects to be entitled to receive in exchange for the performance obligations. The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one year or less.

Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms. This is a faithful depiction of the satisfaction of the performance obligation because, at the point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has a present obligation to pay.

The ~~Company’s~~ Distilling Solutions segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers. Even though the aged and unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product. Control is transferred to the customer in bill and hold transactions when: the customer acceptance specifications have been met, legal title has transferred, the customer has a present obligation to pay for the product, and the risk and rewards of ownership have transferred to the customer. Additionally, all of the following bill and hold criteria have to be met in order for control to be transferred to the customer: the reason for the bill and hold arrangement is substantive, - the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer.

Warehouse services revenue is recognized over the time that warehouse services are rendered and as they are rendered. This is a faithful depiction of the satisfaction of the performance obligation because control of the aging products has already passed to the customer and there are no additional performance activities required by the Company, except as requested by the customer. The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized. Contract bottling is recognized over the time contract bottling services are rendered and as they are rendered.

Sales in the Branded Spirits segment reflect reductions attributable to consideration given to customers in incentive programs, including discounts and allowances for certain volume targets. These allowances and discounts are not for distinct goods and are paid only when the depletion volume targets are achieved by the customer. The amounts reimbursed to customers are determined based on agreed-upon amounts and are recorded as a reduction of revenue.

Excise ~~Taxes.~~Tax. The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau

of the U.S. Treasury Department (the “TTB”) regulations, which ~~includes~~include making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its ~~Federal~~federal and state excise tax expense based upon units shipped and on its understanding of the applicable excise tax ~~laws~~. laws. Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from ~~revenue.~~revenue and expense.

Income Taxes. The Company accounts for income taxes using an asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized if it is ~~“more~~more likely than ~~not”~~not that at least some portion of the deferred tax asset will not be realized.

Earnings Per Common Share (“EPS”). Basic and diluted EPS is computed using the two-class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings. Basic EPS amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each period. Diluted EPS is computed using the if-converted method by dividing the net income attributable to common shareholders by the weighted average shares outstanding, inclusive of the impact of the Convertible Senior Notes, except for where the result would be anti-dilutive as of the balance sheet date.

Translation of Foreign Currencies. Assets and liabilities of Niche Drinks Co., Ltd. (“Niche”), a wholly owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the condensed consolidated balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included as a component of ~~Accumulated~~accumulated other comprehensive ~~income~~income..

~~Business Combinations.~~ ~~Assets acquired and liabilities assumed during~~The Company maintains a ~~business combination are generally recorded~~U.S. bank account denominated in British pound sterling, which is adjusted for the market exchange rate at ~~fair market value as~~the reporting period-end. Any impact of the ~~acquisition date. Goodwill is recognized~~adjustment for the exchange rate applied to the ~~extent that~~financial asset is reported in other income (expense), net on the ~~purchase consideration exceeds the value~~Condensed Consolidated Statements of the assets acquired and liabilities assumed. The Company uses its best estimate and third party valuation specialists to determine the fair value of the assets acquired and liabilities assumed. During the measurement period, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill.Income.

Goodwill and ~~Indefinite-Lived~~Other Intangible Assets. The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company evaluates goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value. To the extent that the carrying ~~amount~~value exceeds fair value, an impairment of goodwill is recognized. Judgment is required in the determination of reporting units, the assignment of assets and liabilities to reporting units, including goodwill, and the determination of fair value of the reporting units. The Company separately evaluates indefinite-lived intangible assets for impairment. As of ~~September 30, 2022,~~March 31, 2023, the Company determined that goodwill and indefinite-lived intangible assets were not impaired.

Fair Value of Financial Instruments. The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.

The Company’s short-term financial instruments include cash and cash equivalents, accounts ~~receivables~~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~~Excluding the impact of the conversion feature of the Convertible Senior Notes, the fair value of the Company’s debt was ~~$178,062~~$141,877 and ~~$272,971~~$150,249 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The financial statement carrying value of total debt ~~was $231,051 (including~~(net of unamortized loan fees) was $229,619 and ~~$233,399 (including unamortized loan fees)~~$230,335 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. These fair values are considered Level 2 under the fair value hierarchy. Fair value disclosure for deferred compensation plan investments is included in Note 9,8, Employee and Non-Employee Benefit Plans. ~~See Note 3, Business Combination, for discussion related to the fair value of tangible and intangible assets acquired and liabilities assumed as part of the merger with Luxco.~~

Equity Method Investments. The Company holds 50 percent interests in DGL Destiladores, S.de R.L. de C.V. (“DGL”) and Agricola LG, S.de R.L. de C.V. (“Agricola”) (combined “LMX”), which are accounted for as equity method investments ~~since the date of acquisition~~ and are considered affiliates of the Company. The investment in LMX, which is recorded in ~~Investment~~investment in joint ventures on the Condensed Consolidated Balance ~~Sheet,~~Sheets, was ~~$6,140~~$5,274 and ~~$4,944~~$5,534 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

During the quarter ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company recorded a loss of ~~$856~~$260 and ~~$405~~a gain of $394 from our equity method investments, respectively, which is recorded in ~~Other~~other income (expense), net on the Condensed Consolidated Statement of Income. During the year to date ended September 30, 2022 and 2021, the Company recorded a loss of $1,036 and $739 from our equity method investments, respectively, which is recorded in Other (income) expense, net on the Condensed Consolidated StatementStatements of Income. During the quarter ~~and year to date~~ ended ~~September 30,~~March 31, 2023 and 2022, the Company purchased ~~$8,265~~$8,417 and ~~$28,194,~~$8,391, respectively, of finished goods from LMX and bulk beverage alcohol from ~~LMX, and during~~ the ~~quarter and year to date ended September 30, 2021, the Company purchased $8,052 and $19,724, respectively,~~other 50 percent owner of ~~bulk beverage alcohol from LMX.~~DGL.

Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended ~~September 30, 2022~~.March 31, 2023.

Note 2. Revenue

The Company generates ~~revenues~~revenue from the Distilling Solutions segment by the sale of products and by providing warehouse services related to the storage and aging of customer products. The Company generates ~~revenues~~revenue from the Branded Spirits segment by the sale of products and by providing contract bottling services. The Company generates ~~revenues~~revenue from the Ingredient Solutions segment by the sale of products. Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services and contract bottling services is recognized over time. Contracts with customers include a single performance obligation (either the sale of products, the provision of warehouse services or contract bottling services).

Disaggregation of Sales.

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

Quarter Ended September 30, Year to Date Ended September 30,
2022 2021 2022 2021
Distilling Solutions
Brown goods $ 57,423 $ 42,793 $ 175,899 $ 129,600
White goods 20,469 21,187 57,996 56,049
Premium beverage alcohol 77,892 63,980 233,895 185,649
Industrial alcohol 10,761 14,790 35,141 46,896
Food grade alcohol 88,653 78,770 269,036 232,545
Fuel grade alcohol 3,713 3,592 10,307 10,862
Distillers feed and related co-products 9,943 4,016 30,127 13,660
Warehouse services 6,335 4,666 17,821 12,949
Total Distilling Solutions 108,644 91,044 327,291 270,016
Branded Spirits
Ultra premium 13,804 11,363 35,836 19,491
Super premium 3,350 2,798 9,522 6,393
Premium 6,013 5,683 17,928 11,012
Mid 20,834 22,992 63,408 48,399
Value 12,097 12,756 36,304 25,984
Other 6,663 5,969 14,080 11,278
Total Branded Spirits 62,761 61,561 177,078 122,557
Ingredient Solutions
Specialty wheat starches 16,241 12,231 47,445 35,051
Specialty wheat proteins 9,697 8,901 29,225 23,299
Commodity wheat starches 3,803 2,626 10,286 7,572
Commodity wheat proteins — 248 38 1,378
Total Ingredient Solutions 29,741 24,006 86,994 67,300
Total sales $ 201,146 $ 176,611 $ 591,363 $ 459,873

~~Note 3. Business Combination~~

~~Description of the Transaction~~. On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, and subsequently completed the merger on April 1, 2021 (the “Merger”). Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. As a result of the Merger, MGP increased its scale and market position in the branded-spirits sector and believes it strengthened its platform for future growth of higher valued-added products.

Following the Merger, Luxco became a wholly owned subsidiary of MGP and is included within the Branded Spirits segment. The aggregate consideration paid by the Company in connection with the Merger was $237,500 in cash (less assumed indebtedness) and 5,007,833 shares of common stock of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”). The Company Shares were valued at $296,213 and represented approximately 22.8 percent of the Company’s outstanding common stock immediately following the closing of the Merger. The Merger Consideration was subject to customary purchase price adjustments related to, among other things, net working capital, acquired cash and assumed debt. The consideration paid at closing included a preliminary estimated purchase price adjustment. In September 2021, the parties finalized the purchase price adjustment, which decreased the cash consideration paid by approximately $608 and increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.


	Quarter Ended March 31,
	2023		2022
Distilling Solutions
Brown goods	$	68,324	$	62,145
White goods	15,954		20,086
Premium beverage alcohol	84,278		82,231
Industrial alcohol	10,439		11,495
Food grade alcohol	94,717		93,726
Fuel grade alcohol	2,556		3,282
Distillers feed and related co-products	9,092		8,917
Warehouse services	6,858		5,584
Total Distilling Solutions	113,223		111,509

Branded Spirits
Ultra premium	9,115		12,597
Super premium	2,847		2,946
Premium	6,784		6,140
Premium plus	18,746		21,683
Mid	20,835		19,273
Value	13,421		11,299
Other	3,881		3,496
Total Branded Spirits	56,883		55,751

Ingredient Solutions
Specialty wheat starches	14,686		15,203
Specialty wheat proteins	11,890		9,419
Commodity wheat starches	3,807		3,353
Commodity wheat proteins	521		—
Total Ingredient Solutions	30,904		27,975

Total sales	$	201,010	$	195,235

1311

The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with borrowings under the Company’s existing Credit Agreement which was drawn down on April 1, 2021. See Note 5, Corporate Borrowings, for further details.

For tax purposes, the transaction was structured partially as a tax-free reorganization and partially as a taxable acquisition, as defined in the Internal Revenue Code. The amount transferred in a tax deferred manner, under the tax-free reorganization rules, did not create additional tax basis for the Company. The taxable component of the transaction created additional tax basis and a corresponding future tax deduction for the Company.

~~Purchase Price Allocation.~~ The Merger was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The following table summarizes the allocation of the consideration paid for Luxco to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.


~~Consideration:~~
~~Cash, net of assumed debt~~	$	~~149,484~~
~~Value of MGP Common Stock issued at close~~ ~~(a)~~	~~296,279~~
~~Fair value of total consideration transferred~~	$	~~445,763~~

~~Recognized amounts of identifiable assets acquired and liabilities assumed:~~
~~Cash~~	$	~~479~~
~~Receivables~~	~~29,675~~
~~Inventory~~	~~90,854~~
~~Prepaid expenses~~	~~1,454~~
~~Property, plant and equipment, net~~	~~41,279~~
~~Investments in joint ventures~~	~~5,085~~
~~Intangible assets~~ ~~(b)~~	~~219,500~~
~~Other assets~~	~~4,257~~
~~Total assets~~	~~392,583~~
~~Current maturities of long-term debt~~ ~~(c)~~	~~87,509~~
~~Accounts payable~~	~~14,453~~
~~Federal and state excise taxes payable~~	~~8,352~~
~~Accrued expenses and other~~	~~2,832~~
~~Other noncurrent liabilities~~	~~196~~
~~Deferred income taxes~~	~~57,034~~
~~Total liabilities~~	~~170,376~~
~~Goodwill~~	~~223,556~~
~~Total~~	$	~~445,763~~

~~(a)~~ On April 1, 2021, the Company issued 5,007,833 shares of MGP Common Stock which was valued at $59.15 per share. In September 2021, the parties finalized the purchase price adjustments which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.

~~(b)~~ ~~Intangible assets acquired included trade names with an estimated fair value of $178,100 and distributor relationships with an estimated fair value of $41,400.~~

~~(c)~~ ~~The fair value of Luxco’s debt that was assumed by MGP in the transaction and repaid on the closing date.~~

In accordance with ASC 805 assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates and market comparables, among others. The fair value of work-in-process and finished goods inventory was determined using the comparative sales method and raw materials was determined using the replacement cost method. The fair value of personal property assets was determined using the market approach and the indirect and direct method of the cost approach, and the fair value of real property was determined using the

~~cost approach and the sales comparison approach.~~

Goodwill of $223,556, none of which is deductible for tax purposes, represents the excess of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed. The Intangible assets acquired included indefinite-lived intangible assets, trade names, with an estimated fair value of $178,100 and definite-lived intangible assets, distributor relationships, with an estimated fair value of $41,400 and a useful life of 20 years. The trade names and distributor relationships acquired by the Company have been recorded at the estimated fair values using the relief from royalty method and multi-period earnings method, respectively. Management engaged a third party valuation specialist to assist in the valuation analysis of certain acquired assets including trade names and distributor relationships.

~~Pro Forma Information. The following table summarizes the unaudited pro forma financial results for the quarter and year to date ended September 30, 2021, as if the Merger had occurred on January 1, 2020:~~

Pro Forma Financial Information
Quarter Ended September 30, Year to Date Ended September 30,
2021 2021
Sales $ 176,611 $ 504,243
Net income 23,673 68,934
Basic and diluted earnings per common share 1.08 3.38

The pro forma results are adjusted for items that are non-recurring in nature and directly attributable to the Merger, including the income tax effect of the adjustments. Merger related costs incurred by the Company of $294 and $8,922 for the quarter

and year to date ended September 30, 2021, respectively, were excluded and $7,032 is assumed to have been incurred on January 1, 2020. Merger related costs incurred by Luxco of $3,132 were excluded from the year to date ended September 30, 2021 pro forma results. A non-recurring expense of $2,529 for the quarter and year to date ended September 30, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed. Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives.

The summary pro forma financial information is for informational purposes only, is based on estimates and assumptions, and does not purport to represent what the Company’s consolidated results of operations actually would have been if the Merger had occurred at an earlier date, and such data does not purport to project the Company’s results of operations for any future period. The basic and diluted shares outstanding used to calculate the pro forma net income per share amounts presented above have been adjusted to assume shares issued at the closing of the Merger were outstanding since January 1, 2020.

Note 4.3. Goodwill and Intangible Assets

Definite-Lived Intangible Assets. The Company ~~has a~~acquired definite-lived intangible ~~asset which was acquired as a result~~assets in connection with various acquisitions of ~~the Merger.~~businesses. The distributor relationships have a carrying value of ~~$38,295,~~$37,260, net of accumulated amortization of ~~$3,105.~~$4,140. The distributor relationships have a useful life of 20 years. The amortization expense ~~for the quarter and year to date ended September 30, 2022~~ was $518 for both quarters ended March 31, 2023 and ~~$1,553, respectively, and the amortization expense for the quarter and year to date ended September 30, 2021 was $517 and $1,035, respectively.~~2022.

As of ~~September 30, 2022,~~March 31, 2023, the expected future amortization expense related to definite-lived intangible assets are as follows:


Remainder of 2022		$	517
2023		2,070
Remainder of 2023				Remainder of 2023	$	1,553
2024	2024	2,070		2024	2,070
2025	2025	2,070		2025	2,070
2026	2026	2,070		2026	2,070
2027				2027	2,070
Thereafter	Thereafter	29,498		Thereafter	27,427
Total	Total	$	38,295	Total	$	37,260

Goodwill and Indefinite-Lived Intangible Assets. The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units. The carrying amount of goodwill, which relates to the Branded Spirits segment, was $226,294 at both March 31, 2023 and December 31, 2022. The carrying amount of indefinite-lived intangible assets, which relates to the Branded Spirits segment, was $178,990 at both March 31, 2023 and December 31, 2022.

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

Distilling Solutions Branded Spirits Ingredient Solutions Total
Balance, December 31, 2021 $ — $ 226,294 $ — $ 226,294
Acquisitions — — — —
Balance, September 30, 2022 $ — $ 226,294 $ — $ 226,294

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

Distilling Solutions Branded Spirits Ingredient Solutions Total
Balance, December 31, 2021 $ — $ 178,990 $ — $ 178,990
Acquisitions — — — —
Balance, September 30, 2022 $ — $ 178,990 $ — $ 178,990

Note 5.4. Corporate Borrowings

The following table presents the Company’s outstanding indebtedness:


Description(a)	Description(a)	September 30, 2022		December 31, 2021		Description(a)	March 31, 2023		December 31, 2022
Credit Agreement - Revolver, 4.14% (variable rate) due 2025		$	—	$	—
Credit Agreement - Revolver, 5.90% (variable rate) due 2026						Credit Agreement - Revolver, 5.90% (variable rate) due 2026	$	—	$	—
Convertible Senior Notes, 1.88% (fixed rate) due 2041	Convertible Senior Notes, 1.88% (fixed rate) due 2041	201,250		201,250		Convertible Senior Notes, 1.88% (fixed rate) due 2041	201,250		201,250

Note Purchase Agreement	Note Purchase Agreement					Note Purchase Agreement
Series A Senior Secured Notes, 3.53% (fixed rate) due 2027	Series A Senior Secured Notes, 3.53% (fixed rate) due 2027	16,000		18,400		Series A Senior Secured Notes, 3.53% (fixed rate) due 2027	14,400		15,200
Senior Secured Notes, 3.80% (fixed rate) due 2029	Senior Secured Notes, 3.80% (fixed rate) due 2029	20,000		20,000		Senior Secured Notes, 3.80% (fixed rate) due 2029	20,000		20,000
Other long-term borrowings		—		203

Total indebtedness outstanding	Total indebtedness outstanding	237,250		239,853		Total indebtedness outstanding	235,650		236,450
Less unamortized loan fees(b)	Less unamortized loan fees(b)	(6,199)		(6,454)		Less unamortized loan fees(b)	(6,031)		(6,115)
Total indebtedness outstanding, net	Total indebtedness outstanding, net	231,051		233,399		Total indebtedness outstanding, net	229,619		230,335
Less current maturities of long-term debt	Less current maturities of long-term debt	(4,800)		(3,227)		Less current maturities of long-term debt	(6,400)		(5,600)
Long-term debt and Credit Agreement - Revolver		$	226,251	$	230,172
Long-term debt						Long-term debt	$	223,219	$	224,735

(a) Interest rates are as of ~~September 30, 2022.~~March 31, 2023.

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

Credit Agreement. On February 14, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with multiple participants led by Wells Fargo Bank, National Association (“Wells Fargo Bank”) that matures on ~~February~~March 14, ~~2025.~~2026. The Credit Agreement provided for a $300,000 revolving credit facility. On May 14, 2021, the Credit Agreement was amended to increase the principal amount to $400,000 and to increase the amount of the revolving credit facility by up to an additional $100,000. On August 31, 2022, the Credit Agreement was amended to change the interest rate benchmark from LIBOR to SOFR. The Credit Agreement includes certain requirements and covenants with which the Company was in compliance ~~with~~ at September 30, 2022. The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with $242,300 borrowings under the Credit Agreement which was drawn down on April 1, 2021.March 31, 2023. As of ~~September 30, 2022,~~March 31, 2023, the Company had no outstanding borrowings under the Credit Agreement, leaving $400,000 available.

Convertible Senior Notes. On November 16, 2021, the Company issued $201,250 in aggregate principal amount of ~~1.875%~~1.88% convertible senior notes due in 2041 (“2041 Notes”). The 2041 Notes were issued pursuant to an indenture, dated as of November 16, 2021 ( the “Indenture”), by and among the Company, as issuer, Luxco, Inc., MGPI Processing, Inc. and MGPI of Indiana, LLC as subsidiary guarantors, and U.S. Bank National Association, as trustee. The 2041 Notes are senior, unsecured obligations of the Company and interest is payable semi-annually in arrears at a fixed interest rate of ~~1.875%~~1.88% on May 15 and

November 15 of each year. The 2041 Notes mature on November 15, 2041 (“Maturity Date”) unless earlier repurchased, redeemed or converted, per the agreement. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2041 Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2041 Notes being converted.

Note Purchase Agreements. The Company’s Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”), with PGIM, Inc.,(“Prudential”), an affiliate of Prudential Financial, Inc., and certain affiliates of Prudential, provides for the issuance of $20,000 of Series A Senior Secured Notes and the issuance of up to $105,000 of additional Senior Secured Notes (or any higher amount solely to the extent Prudential has provided written notice to the Company of its authorization of such a higher amount). On July 29, 2021, Prudential provided the Company notice pursuant to Section 1.2 of the Note Purchase Agreement that Prudential has authorized an increase in the amount of additional Senior Secured Notes that may be issued under the uncommitted shelf facility under the Note Purchase Agreement from $105,000 to $140,000, effective as of July 29, 2021. The deadline for issuing the notes under the shelf facility is August 23, 2023.

During 2017, the Company issued $20,000 of Series A Senior Secured Notes with a maturity date of August 23, 2027. During 2019, the Company issued $20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029. The Note Purchase Agreement includes certain requirements and covenants with which the Company was in compliance ~~with~~ at ~~September 30, 2022~~March 31, 2023. As of ~~September 30, 2022,~~March 31, 2023, the Company ~~has $16,000~~had $14,400 of Series A Senior Secured Notes and $20,000 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $120,000 available of Senior Secured Notes.

~~Other long-term borrowings.~~ As part of the Merger, the Company acquired additional long-term notes payable to certain counties in Kentucky and during the quarter ended September 30, 2022, the Company paid off the outstanding balances.

Note 6.5. Income Taxes

The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The Company’s quarterly effective tax rate can be subject to significant change due to the effect of discrete items arising in a given quarter. Beginning in the second quarter of 2021, the estimated annual effective tax rate includes both domestic and foreign entities acquired in the Merger. See Note 3, Business Combination, for further details.

Income tax expense for the quarter ~~and year to date~~ ended ~~September 30, 2022,~~March 31, 2023, was ~~$7,533 and $26,037~~$9,655 for an effective tax rate of ~~24.2 percent and 23.2 percent, respectively.~~23.7 percent. The effective tax rate for the quarter ~~and year to date~~ ended ~~September 30, 2022~~March 31, 2023 differed from the 21 percent federal statutory rate on pretax income primarily due to state and foreign income taxes, partially offset by state and federal tax credits, ~~and~~ the deduction applicable to export ~~activity. The increase in Income tax expense for~~activity, and the ~~year~~discrete impact of certain items related to ~~date ended September 30, 2022 was primarily due to higher Income before income taxes as compared to the prior year periods.~~equity compensation.

Income tax expense for the quarter ~~and year to date~~ ended ~~September 30, 2021,~~March 31, 2022, was ~~$7,674 and $18,701~~$11,165 for an effective tax rate of ~~24.5 percent and 24.0 percent, respectively.~~23.0 percent. The effective tax rate for the quarter ~~and year to date~~ ended ~~September 30, 2021~~March 31, 2022 differed from the 21 percent federal statutory rate on pretax income primarily due to state income taxes, income taxes on foreign subsidiaries, ~~acquired as a result of the Merger, nondeductible transaction costs,~~ partially offset by state and federal tax credits, and the deduction applicable to export activity.

1713

Note 7.6. Equity and EPS

The computations of basic and diluted EPS:


		Quarter Ended September 30,				Year to Date Ended September 30,					Quarter Ended March 31,
		2022		2021		2022		2021			2023		2022
Operations:	Operations:									Operations:
Net income(a)	Net income(a)	$	23,628	$	23,673	$	86,361	$	59,159	Net income(a)	$	31,032	$	37,371
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	180		203		444		279		Net loss attributable to noncontrolling interest	39		66
Income attributable to participating securities (unvested shares and units)(b)	Income attributable to participating securities (unvested shares and units)(b)	(188)		(175)		(688)		(471)		Income attributable to participating securities (unvested shares and units)(b)	(311)		(318)
Net income used in EPS calculation	Net income used in EPS calculation	$	23,620	$	23,701	$	86,117	$	58,967	Net income used in EPS calculation	$	30,760	$	37,119

Share information:	Share information:									Share information:
Basic weighted average common shares(c)	Basic weighted average common shares(c)	22,008,381		21,981,201		22,000,026		20,293,818		Basic weighted average common shares(c)	22,040,224		21,989,100

Diluted weighted average common shares(c)(d)		22,228,814		21,981,201		22,000,026		20,293,818
Diluted weighted average common shares(d)										Diluted weighted average common shares(d)	22,072,271		21,989,100

Basic EPS	Basic EPS	$	1.07	$	1.08	$	3.91	$	2.91	Basic EPS	$	1.40	$	1.69
Diluted EPS	Diluted EPS	$	1.06	$	1.08	$	3.91	$	2.91	Diluted EPS	$	1.39	$	1.69

(a)Net income attributable to all shareholders.

(b)Participating securities included ~~176,398~~227,810 and ~~163,024~~189,297 unvested restricted stock units (“RSUs”), at ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

(c)Under the two-class method, basic ~~and diluted~~ weighted average common shares ~~at September 30, 2022 and 2021~~ exclude unvested participating securities.

(d)The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares if the inclusion was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market price per share during the quarter and year to date period exceeds the conversion price of $96.24 per share. There was no dilutive impact for the quarter ended March 31, 2022.

Common Stock Share ~~Issuance.~~Activity. ~~On April 1, 2021, as part of~~The following table presents the consideration for the Merger, the Company issued 5,007,833 shares of common stock. In September 2021, the parties finalized the purchase price adjustments, which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.Company’s share activity:


	Shares Outstanding
	Capital Stock Preferred	Common Stock
Balance, December 31, 2022	437	21,994,042
Issuance of Common Stock	—	23,324
Repurchase of Common Stock (a)	—	(8,437)
Balance, March 31, 2023	437	22,008,929

~~Share Repurchase.~~ On February 25, 2019, MGP’s Board of Directors approved a $25,000 share repurchase authorization commencing February 27, 2019, through February 27, 2022. Under the share repurchase program, the Company could have repurchased stock from time to time for cash in open market purchases, block transactions, and privately negotiated transactions in accordance with applicable federal securities laws. The Company did not repurchase any shares under the share repurchase program during 2022, prior to its expiration on February 27, 2022. The Company did not renew the share repurchase program upon its expiration.

~~Common Stock Share Activity.~~

Shares Outstanding
Capital Stock Preferred Common Stock
Balance, December 31, 2021 437 21,964,314
Issuance of Common Stock — 29,807
Repurchase of Common Stock (a)
— (9,021)
Balance, March 31, 2022 437 21,985,100
Issuance of Common Stock — 7,655
Repurchase of Common Stock(a)
— (4)
Balance, June 30, 2022 437 21,992,751
Issuance of Common Stock — 606
Repurchase of Common Stock(a)
— (2)
Balance, September 30, 2022 437 21,993,355

Shares Outstanding
Capital Stock Preferred Common Stock
Balance, December 31, 2020 437 16,915,862
Issuance of Common Stock — 35,114
Repurchase of Common Stock (a)
— (10,376)
Balance, March 31, 2021 437 16,940,600
Issuance of Common Stock — 5,022,122
Repurchase of Common Stock(a)
— (1,489)
Balance, June 30, 2021 437 21,961,233
Issuance of Common Stock — 2,361
Repurchase of Common Stock(a)
— (20)
Balance, September 30, 2021 437 21,963,574


	Shares Outstanding
	Capital Stock Preferred	Common Stock
Balance, December 31, 2021	437	21,964,314
Issuance of Common Stock	—	29,807
Repurchase of Common Stock (a)	—	(9,021)
Balance, March 31, 2022	437	21,985,100

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

Note 8.7. Commitments and Contingencies

There are various legal and regulatory proceedings involving the Company and its subsidiaries. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated.

~~Shareholder matters.~~ ~~On May 11, 2020, Mitchell Dorfman, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption~~ ~~Dorfman, derivatively on behalf of MGP Ingredients v. Griffin, et al., Case 2:20-cv-02239. On June 4, 2020, Justin Carter, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption~~ ~~Carter, derivatively on behalf of MGP Ingredients v. Griffin, et al., Case 2:20-cv-02281. On June 18, 2020, Alexandra Kearns, a shareholder in MGP, filed an action in the District Court of Atchison County, Kansas, under the caption Kearns, derivatively on behalf of MGP Ingredients v. Griffin, et al.~~, Case 2020-CV-000042. The defendants were certain of the Company’s current and former officers and directors. The Company was a nominal defendant in each action. Plaintiffs alleged that the Company was damaged as a result of the commencement of securities litigation against defendants, the repurchase of Company stock at artificially inflated prices, and compensation paid to the individual defendants. The Complaint in ~~Dorfman~~ asserted claims for violations of Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The Complaint in ~~Carter~~ ~~asserted claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The Petition in~~ ~~Kearns~~ asserted claims for breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The pleadings prayed for an award of compensatory damages, including interest, in favor of the Company, for equitable relief related to the Company’s corporate governance, for disgorgement of compensation, and for an award of attorneys’ fees and costs.

~~On August 31, 2021, the court dismissed with prejudice the securities litigation on which some of the derivative claims were based. On January 4, 2022, the court dismissed the~~ ~~Carter~~ ~~action. On January 11, 2022, the court dismissed the~~ ~~Dorfman~~ ~~action. On February 2, 2022, the plaintiffs and defendants entered into a stipulation of dismissal of the~~ ~~Kearns~~ ~~action. The federal claims alleged in~~ ~~Carter~~ ~~were dismissed with prejudice. All other derivative claims were dismissed without prejudice.~~

~~2016 Atchison Chemical Release.~~ A chemical release occurred at the Company’s Atchison facility on October 21, 2016, which resulted in emissions venting into the air (“the Atchison Chemical Release”). Private plaintiffs initiated legal proceedings against the Company for damages resulting from the Atchison Chemical Release. The Company reached a settlement with the plaintiffs in December 2021 and the legal proceedings were dismissed with prejudice in January 2022.

Note 9.8. Employee and Non-Employee Benefit Plans

Share-Based Compensation Plans. The Company’s share-based compensation plans provide for the awarding of stock options, stock appreciation rights, shares of restricted stock (“Restricted Stock”), and RSUs for senior executives and salaried employees, as well as non-employee directors. The Company currently has two active equity-based compensation plans: the Employee Equity Incentive Plan of 2014 (the “2014 Plan”) and the Non-Employee Director Equity Incentive Plan (the “Directors’ Plan”).

1914

As of ~~September 30, 2022, 585,353~~March 31, 2023, 658,081 RSUs had been granted of the 1,500,000 shares approved under the 2014 Plan, and ~~130,982~~132,395 shares had been granted of the 300,000 shares approved under the Directors’ Plan. As of ~~September 30, 2022,~~March 31, 2023, there were ~~178,608~~227,810 unvested RSUs under the Company’s long-term incentive plans, ~~and 176,398~~all of which were participating securities ~~(Note 7)~~(See Note 6).

Deferred Compensation Plan. The Company established an unfunded Executive Deferred Compensation Plan (“EDC Plan”) effective as of June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation. The Company’s obligations under this plan will change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the plan. Realized and unrealized gains (losses) on deferred compensation plan investments were included as a component of ~~Other~~other income (expense), net on the Company’s Condensed Consolidated Statements of ~~Income~~Income. For the quarter ended March 31, 2023, the Company had a gain on deferred compensation plan investments of $179, and for the quarter ~~and year to date~~ ended ~~September 30, 2022. For quarter and year to date ended September 30,~~March 31, 2022, the Company had a loss on deferred compensation plan investments of $103 and $931, respectively. For quarter ended September 30, 2021, the Company had a loss on deferred compensation plan investments of $15 and for the year to date ended September 30, 2021, the Company had a gain on deferred compensation plan investments of $261.$339.

Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Participants were able to direct the deferral of a portion of their base salary and a portion of their estimated accrued Short-term incentive plan (“STI Plan”) amounts that were paid during the first quarter of the following year. Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options. STI Plan deferral amounts are deposited, at the time of payment, into the EDC Plan by the Company and allocated by participants among Company-determined investment options.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the EDC Plan investments were ~~$2,510~~$2,751 and ~~$3,072,~~$2,176, respectively, which were recorded in ~~Other~~other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were ~~$617~~$470 and $510 at ~~both September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, which were included in ~~Accrued~~accrued expenses and other on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan non-current liabilities were ~~$2,310~~$2,445 and ~~$2,981~~$2,191 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and were included in ~~Other~~other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets.

Note ~~10.~~9. Operating Segments

At ~~September 30, 2022,~~March 31, 2023, the Company had three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. The Distilling Solutions segment consists of food grade alcohol and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry) and fuel grade alcohol. The Distilling Solutions segment also includes warehouse services, including barrel put away, barrel storage, ~~retrieval,~~ and ~~blending~~barrel retrieval services. The Branded Spirits segment consists of ~~producing, importing,~~a portfolio of high quality branded spirits which are produced through the distilleries and bottling ~~and rectifying of distilled spirits.~~facilities. The Ingredient Solutions segment consists of specialty starches and proteins and commodity starches and proteins.

Operating profit for each segment is based on sales less identifiable operating expenses. Non-direct selling, general and administrative expenses, interest expense, ~~other special charges,~~ and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, property, plant and equipment, leases, goodwill and intangible assets have been identified with the segments to which they relate. All other assets are considered as Corporate.

Quarter Ended September 30, Year to Date Ended September 30,
2022 2021 2022 2021
Sales to Customers
Distilling Solutions $ 108,644 $ 91,044 $ 327,291 $ 270,016
Branded Spirits 62,761 61,561 177,078 122,557
Ingredient Solutions 29,741 24,006 86,994 67,300
Total $ 201,146 $ 176,611 $ 591,363 $ 459,873
Gross Profit
Distilling Solutions $ 25,917 $ 26,981 $ 94,630 $ 87,211
Branded Spirits 25,067 23,217 70,809 41,737
Ingredient Solutions 8,064 6,888 24,654 17,264
Total $ 59,048 $ 57,086 $ 190,093 $ 146,212
Depreciation and Amortization
Distilling Solutions $ 2,929 $ 2,695 $ 8,716 $ 7,900
Branded Spirits 1,434 1,743 4,618 3,481
Ingredient Solutions 613 531 1,838 1,487
Corporate 357 274 1,085 800
Total $ 5,333 $ 5,243 $ 16,257 $ 13,668
Income (loss) before Income Taxes
Distilling Solutions $ 25,213 $ 26,047 $ 92,332 $ 84,225
Branded Spirits 9,776 9,293 28,016 15,182
Ingredient Solutions 6,822 6,214 21,770 15,121
Corporate (10,650) (10,207) (29,720) (36,668)
Total $ 31,161 $ 31,347 $ 112,398 $ 77,860
The following table presents summarized financial information for each segment:


	Quarter Ended March 31,
	2023		2022
Sales to Customers
Distilling Solutions	$	113,223	$	111,509
Branded Spirits	56,883		55,751
Ingredient Solutions	30,904		27,975
Total	$	201,010	$	195,235

Gross Profit
Distilling Solutions	$	33,028	$	38,933
Branded Spirits	24,593		24,782
Ingredient Solutions	12,203		8,106
Total	$	69,824	$	71,821

Depreciation and Amortization
Distilling Solutions	$	2,851	$	2,861
Branded Spirits	1,491		1,782
Ingredient Solutions	658		612
Corporate	171		366
Total	$	5,171	$	5,621

Income (loss) before Income Taxes
Distilling Solutions	$	32,301	$	37,992
Branded Spirits	9,157		10,786
Ingredient Solutions	10,846		7,471
Corporate	(11,617)		(7,713)
Total	$	40,687	$	48,536

The following table allocates assets to each segment as of:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Identifiable Assets	Identifiable Assets					Identifiable Assets
Distilling Solutions	Distilling Solutions	$	330,487	$	314,816	Distilling Solutions	$	369,447	$	350,068
Branded Spirits	Branded Spirits	699,354		658,826		Branded Spirits	706,854		698,985
Ingredient Solutions	Ingredient Solutions	57,061		43,009		Ingredient Solutions	72,827		63,943
Corporate	Corporate	45,173		24,816		Corporate	35,058		45,215
Total	Total	$	1,132,075	$	1,041,467	Total	$	1,184,186	$	1,158,211

Note ~~11.~~10. Subsequent Events

Dividend. On ~~November 3, 2022,~~May 4, 2023, the Company’s Board of Directors declared a quarterly dividend payable to stockholders of record as of ~~November 18, 2022,~~May 19, 2023, of the Company’s Common Stock, ~~and a~~resulting in dividend ~~equivalent~~equivalents payable to holders of certain RSUs as of ~~November 18, 2022,~~May 19, 2023, of $0.12 per share and per unit, payable on ~~December~~June 2, ~~2022.~~2023.

2116

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollar amounts in thousands, unless otherwise noted)

CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

This Report on Form 10-Q 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 our Annual Report on Form 10-K for the year ended December 31, ~~2021 and the additional risk factors included in our Form 10-Q for the quarter ended June 30, 2022 in Part II, Item 1A.~~2022. 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.

OVERVIEW

MGP is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients. Distilled spirits include premium bourbon, rye, and ~~rye~~other whiskeys (“brown goods”) and grain neutral spirits (“GNS”), including vodka and gin. WeOur distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP is also a ~~top~~ producer of high quality industrial alcohol for use in both food and non-food applications. ~~Our distilled spirits are either packaged and sold under~~The Company has a portfolio of our own ~~brands to distributors, sold, directly or indirectly, to manufacturers of other~~high quality branded spirits, ~~or direct to consumer. Our Branded Spirits consist of producing, importing, bottling and rectifying distilled spirits~~which we produce through our distilleries and bottling ~~facilities.~~facilities and sell to distributors. Our branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end

American whiskey, tequila and gin. The Company’s protein and starch food ingredients ~~provide~~serve a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the consumer packaged goods industry. Our ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this ~~Form 10-Q,~~Report, as well as our audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations - General, set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

2217

RESULTS OF OPERATIONS

Consolidated Results

The table below details the consolidated results for the quarters ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Quarter Ended September 30,										Quarter Ended March 31,
		2022			2021			2022 v. 2021				2023			2022			2023 v. 2022
Sales	Sales	$	201,146		$	176,611		14	%		Sales	$	201,010		$	195,235		3	%
Cost of sales	Cost of sales	142,098			119,525			19			Cost of sales	131,186			123,414			6
Gross profit	Gross profit	59,048			57,086			3			Gross profit	69,824			71,821			(3)
Gross margin %	Gross margin %	29.4		%	32.3		%	(2.9)		pp(a)	Gross margin %	34.7		%	36.8		%	(2.1)		pp(a)
Advertising and promotion expenses	Advertising and promotion expenses	7,279			5,664			29			Advertising and promotion expenses	7,733			5,504			41
Selling, general, and administrative (“SG&A”) expenses	Selling, general, and administrative (“SG&A”) expenses	17,904			18,527			(3)			Selling, general, and administrative (“SG&A”) expenses	20,532			16,237			26
Other operating (income) expense, net		1			11			(91)

Operating income	Operating income	33,864			32,884			3			Operating income	41,559			50,080			(17)
Operating margin %	Operating margin %	16.8		%	18.6		%	(1.8)		pp	Operating margin %	20.7		%	25.7		%	(5.0)		pp
Interest expense, net	Interest expense, net	(1,350)			(1,116)			(21)			Interest expense, net	(995)			(1,598)			38
Other income (expense), net	Other income (expense), net	(1,353)			(421)			(221)			Other income (expense), net	123			54			128
Income before income taxes	Income before income taxes	31,161			31,347			(1)			Income before income taxes	40,687			48,536			(16)
Income tax expense	Income tax expense	7,533			7,674			(2)			Income tax expense	9,655			11,165			(14)
Effective tax expense rate %	Effective tax expense rate %	24.2		%	24.5		%	(0.3)		pp	Effective tax expense rate %	23.7		%	23.0		%	0.7		pp
Net income	Net income	$	23,628		$	23,673		—	%		Net income	$	31,032		$	37,371		(17)	%
Net income margin %	Net income margin %	11.7		%	13.4		%	(1.7)		pp	Net income margin %	15.4		%	19.1		%	(3.7)		pp

(a) Percentage points (“pp”).

Sales - Sales for the quarter ended ~~September 30, 2022~~March 31, 2023 were ~~$201,146,~~$201,010, an increase of 143 percent compared to the year-ago quarter, which was the result of increased sales in the ~~Distilling~~Ingredient Solutions, ~~Ingredient~~Distilling Solutions, and Branded Spirits segments. Within the Ingredient Solutions segment, sales were up 10 percent, primarily due to increased sales of specialty wheat proteins. Within the Distilling Solutions segment, sales were up 192 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol and distillers feed and related co-products. Within the Ingredient Solutions segment, sales were up 24 percent, primarily due to increased sales of specialty wheat starches and commodity wheat starches.alcohol. Within the Branded Spirits segment, sales were up 2 percent, primarily due to increased sales of brands in the ~~ultra premium~~value and mid price ~~tier~~tiers (see Segment Results).

Gross profit - Gross profit for the quarter ended ~~September 30, 2022~~March 31, 2023 was ~~$59,048, an increase~~$69,824, a decrease of 3 percent compared to the year-ago quarter. The ~~increase~~decrease was driven by a decrease in gross profit in the Distilling Solutions and Branded Spirits segments, partially offset by an increase in gross profit in the ~~Branded Spirits and~~ Ingredient Solutions ~~segments, partially offset by a decrease in~~segment. Within the Distilling Solutions segment, gross ~~profit. In~~profit declined by $5,905, or 15 percent. Within the Branded Spirits segment, gross profit ~~increased~~was in line with the year-ago quarter, slightly decreasing by ~~$1,850,~~$189, or 81 percent. InWithin the Ingredient Solutions segment, gross profit increased by ~~$1,176,~~$4,097, or ~~17 percent. In the Distilling Solutions segment, gross profit declined by $1,064, or 4~~51 percent (see Segment Results).

Advertising and promotion expenses - Advertising and promotion expenses for the quarter ended ~~September 30, 2022~~March 31, 2023 were ~~$7,279,~~$7,733, an increase of 2941 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the ~~ultra~~ premium ~~super premium and premium~~plus price tiers.

SG&A expenses - SG&A expenses for the quarter ended ~~September 30, 2022~~March 31, 2023 were ~~$17,904, a decrease~~$20,532, an increase of 326 percent compared to the year-ago quarter, primarily due to ~~lower incentive compensation expense and one-time acquisition costs in 2021 related to the Merger with Luxco that did not recur in 2022.~~higher personnel expense.

2318

Operating income - Operating income for the quarter ended ~~September 30, 2022 increased~~March 31, 2023 decreased to ~~$33,864~~$41,559 from ~~$32,884~~$50,080 for the quarter ended ~~September 30, 2021,~~March 31, 2022, primarily due to an increase in gross profit in the Branded Spirits and Ingredient Solutions segments as well as a decrease in the previously described SG&A expenses. These were partially offset by an increase in the previously described Advertising and promotion expenses and a decrease in gross profit in the Distilling Solutions and Branded Spirits segments as well as an increase in the previously described advertising and promotion and SG&A expenses. These decreases were partially offset by an increase in gross profit in the Ingredient Solutions segment.

Operating income, quarter versus quarter Operating Income Change
Operating income for quarter ended September 30, 2021 $ 32,884
Increase in gross profit - Branded Spirits segment(a)
1,850 5
pp(b)
Increase in gross profit - Ingredient Solutions segment(a)
1,176 4 pp
Decrease in gross profit - Distilling Solutions segment(a)
(1,064) (3) pp
Increase in Advertising and promotion expenses (1,615) (5) pp
Decrease in SG&A expenses 623 2 pp
Change in Other operating income (expense), net 10 — pp
Operating income for quarter ended September 30, 2022 $ 33,864 3 %


Operating income, quarter versus quarter	Operating Income		Change
Operating income for the quarter ended March 31, 2022	$	50,080
Decrease in gross profit - Distilling Solutions segment(a)	(5,905)		(12)	%	pp(b)
Decrease in gross profit - Branded Spirits segment(a)	(189)		—		pp
Increase in gross profit - Ingredient Solutions segment(a)	4,097		8		pp
Increase in advertising and promotion expenses	(2,229)		(4)		pp
Increase in SG&A expenses	(4,295)		(9)		pp

Operating income for the quarter ended March 31, 2023	$	41,559	(17)	%

(a) See segment discussion.

(b) Percentage points (“pp”).

Income tax expense - Income tax expense for the quarter ended ~~September 30, 2022~~March 31, 2023 was ~~$7,533,~~$9,655, for an effective tax rate of ~~24.2~~23.7 percent. Income tax expense for the quarter ended ~~September 30, 2021,~~March 31, 2022 was ~~$7,674,~~$11,165, for an effective tax rate of ~~24.5~~23.0 percent. The decrease in ~~Income~~income tax expense, quarter versus quarter, was due primarily to lower ~~Income~~income before income taxes. The ~~decrease~~increase in effective tax rate, quarter versus quarter, was due primarily to ~~favorable~~lower state tax ~~benefits, related to certain tax credits concerning our capital spend.~~credits.

Earnings per common share (“EPS”) - Basic EPS was ~~$1.07~~$1.40 for the quarter ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$1.08~~$1.69 for the quarter ended ~~September 30, 2021.~~March 31, 2022. The change in Basic EPS, quarter versus quarter, was primarily due to a ~~change~~decrease in ~~Other income (expense), net and a change in interest expense, net, partially offset by an increase in Operating~~operating income. ~~Dilutive~~Diluted EPS was ~~$1.06~~$1.39 for the quarter ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$1.08~~$1.69 for the quarter ended ~~September 30, 2021.~~March 31, 2022. The change in Diluted EPS, quarter versus quarter, was primarily due to the same changes as Basic EPS as well as the impact of dilutive shares ~~outstanding.~~outstanding related to the conversion feature of the Convertible Senior Notes.

Change in basic and diluted EPS, quarter versus quarter Basic and Diluted EPS Change
Basic and diluted EPS for quarter ended September 30, 2021 $ 1.08
Increase in Operating income(a)
0.03 3
pp(b)
Change in Other income (expense), net(a)
(0.03) (3) pp
Change in Interest expense, net(a)
(0.01) (1) pp
Basic EPS for quarter ended September 30, 2022 $ 1.07 (1) %
Impact of dilutive shares outstanding (0.01) (1) pp
Diluted EPS for quarter ended September 30, 2022 $ 1.06 (2) %


Change in basic and diluted EPS, quarter versus quarter	Basic and Diluted EPS		Change
Basic and diluted EPS for the quarter ended March 31, 2022	$	1.69
Change in operating income(a)	(0.30)		(18)	%	pp(b)



Change in interest expense, net(a)	0.02		1		pp
Change in weighted average shares outstanding	(0.01)		(1)		pp
Basic EPS for the quarter ended March 31, 2023	$	1.40	(18)	%
Impact of dilutive shares outstanding	(0.01)		(1)		pp
Diluted EPS for the quarter ended March 31, 2023	$	1.39	(19)	%

(a) Item is net of tax based on the effective tax rate for the base year ~~(2021)~~(2022).

(b) Percentage points (“pp”).

~~The table below details the consolidated results for year to date ended September 30, 2022 and 2021:~~

Year to Date Ended September 30,
2022 2021 2022 v. 2021
Sales $ 591,363 $ 459,873 29 %
Cost of sales 401,270 313,661 28
Gross profit 190,093 146,212 30
   Gross margin % 32.1 % 31.8 % 0.3
pp(a)
Advertising and promotion expenses 18,848 9,888 91
SG&A expenses 52,029 55,266 (6)
Other operating (income) expense, net (34) 11 (409)
Operating income 119,250 81,047 47
   Operating margin % 20.2 % 17.6 % 2.6 pp
Interest expense, net (4,491) (2,708) (66)
Other income (expense), net (2,361) (479) (393)
Income before income taxes 112,398 77,860 44
Income tax expense 26,037 18,701 39
   Effective tax expense rate % 23.2 % 24.0 % (0.8) pp
Net income $ 86,361 $ 59,159 46 %
   Net income margin % 14.6 % 12.9 % 1.7 pp

~~(a) Percentage points (“pp”).~~

~~Sales~~ - Sales for year to date ended September 30, 2022 were $591,363, an increase of 29 percent compared to the year-ago period, which was the result of increased sales in the Distilling Solutions, Branded Spirits and Ingredient Solutions segments. Within the Distilling Solutions segment, sales were up 21 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol and distillers feed and related co-products. Within the Branded Spirits segment, sales were up 44 percent, primarily due to the additional brands acquired as part of the April 1, 2021 Merger. Within the Ingredient Solutions segment, sales were up 29 percent, primarily due to increased sales of specialty wheat starches and proteins, and commodity wheat starches (see Segment Results).

~~Gross profit -~~ Gross profit for year to date ended September 30, 2022 was $190,093, an increase of 30 percent compared to the year-ago period. The increase was driven by an increase in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments. In the Branded Spirits segment, gross profit increased by $29,072, or 70 percent. In the Distilling Solutions segment, gross profit increased by $7,419, or 9 percent. In the Ingredient Solutions segment, gross profit increased by $7,390, or 43 percent (see Segment Results).

~~Advertising and promotion expenses -~~ Advertising and promotion expenses for year to date ended September 30, 2022 were $18,848, an increase of 91 percent compared to the year-ago period, primarily driven by the assumption of Luxco’s Advertising and promotion expenses as well as increased advertising and promotion investment in the Branded Spirits segment, specifically in the ultra premium, super premium and premium price tiers.

~~SG&A expenses -~~ SG&A expenses for year to date ended September 30, 2022 were $52,029, a decrease of 6 percent compared to the year-ago period. The decrease in SG&A expenses was driven primarily by the one-time acquisition costs in 2021 related to the Merger with Luxco that did not recur in 2022, partially offset by the assumption of Luxco’s SG&A expenses.

~~Operating income -~~ Operating income for year to date ended September 30, 2022 increased to $119,250 from $81,047 for year to date period ended September 30, 2021, primarily due to an increase in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments as well as a decrease in the previously described SG&A expenses. These were partially offset by an increase in the previously described Advertising and promotion expenses.

Operating income, year to date versus year to date Operating Income Change
Operating income for year to date ended September 30, 2021 $ 81,047
Increase in gross profit - Branded Spirits segment(a)
29,072 36 pp(b)
Increase in gross profit - Distilling Solutions segment(a)
7,419 9 pp
Increase in gross profit - Ingredient Solutions segment(a)
7,390 9 pp
Increase in Advertising and promotion expenses (8,960) (11) pp
Decrease in SG&A expenses 3,237 4 pp
Change in Other operating income (expense), net 45 — pp
Operating income for year to date ended September 30, 2022 $ 119,250 47 %

~~(a) See segment discussion.~~

~~(b) Percentage points (“pp”).~~

~~Income tax expense -~~ Income tax expense for year to date ended September 30, 2022 was $26,037, for an effective tax rate of 23.2 percent. Income tax expense for the year to date ended September 30, 2021, was $18,701, for an effective tax rate of 24.0 percent. The increase in Income tax expense, year to date versus year to date, was primarily due to higher Income before income taxes. The decrease in effective tax rate, year to date versus year to date, was due to favorable tax benefits, related to certain tax credits concerning our capital spend.

~~Earnings per common share -~~ EPS was $3.91 for year to date ended September 30, 2022, compared to $2.91 for year to date ended September 30, 2021. EPS increased, year to date versus year to date, primarily due to an increase in operating income, partially offset by an increase in shares outstanding as a result of shares issued as part of the consideration paid for the Merger with Luxco.

Change in basic and diluted EPS, year to date versus year to date Basic and Diluted EPS Change
Basic and diluted EPS for year to date ended September 30, 2021 $ 2.91
Increase in operating income(a)
1.63 56 pp(b)
Change in interest expense, net(a)
(0.08) (3) pp
Change in other income (expense), net(a)
(0.06) (2) pp
Tax: Change in effective tax rate 0.02 1 pp
Change in weighted average shares outstanding (0.51) (18) pp
Basic and diluted EPS for year to date ended September 30, 2022 $ 3.91 34 %

~~(a) Item is net of tax based on the effective tax rate for the base year (2021).~~

~~(b) Percentage points (“pp”).~~

2619

SEGMENT RESULTS

Distilling Solutions

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


		DISTILLING SOLUTIONS SALES												DISTILLING SOLUTIONS SALES
		Quarter Ended September 30,						Quarter versus Quarter Sales Change Increase/(Decrease)						Quarter Ended March 31,						Quarter versus Quarter Sales Change Increase/(Decrease)
		2022			2021			$ Change		% Change				2023			2022			$ Change		% Change
Brown goods	Brown goods	$	57,423		$	42,793		$	14,630	34	%		Brown goods	$	68,324		$	62,145		$	6,179	10	%
White goods	White goods	20,469			21,187			(718)		(3)			White goods	15,954			20,086			(4,132)		(21)
Premium beverage alcohol	Premium beverage alcohol	77,892			63,980			13,912		22			Premium beverage alcohol	84,278			82,231			2,047		2
Industrial alcohol	Industrial alcohol	10,761			14,790			(4,029)		(27)			Industrial alcohol	10,439			11,495			(1,056)		(9)
Food grade alcohol	Food grade alcohol	88,653			78,770			9,883		13			Food grade alcohol	94,717			93,726			991		1
Fuel grade alcohol	Fuel grade alcohol	3,713			3,592			121		3			Fuel grade alcohol	2,556			3,282			(726)		(22)
Distillers feed and related co-products	Distillers feed and related co-products	9,943			4,016			5,927		148			Distillers feed and related co-products	9,092			8,917			175		2
Warehouse services	Warehouse services	6,335			4,666			1,669		36			Warehouse services	6,858			5,584			1,274		23
Total Distilling Solutions	Total Distilling Solutions	$	108,644		$	91,044		$	17,600	19	%		Total Distilling Solutions	$	113,223		$	111,509		$	1,714	2	%

		Change in Quarter versus Quarter Sales Attributed to:												Change in Quarter versus Quarter Sales Attributed to:
		Total (a)			Volume(b)			Net Price/Mix(c)						Total (a)			Volume(b)			Net Price/Mix(c)
Premium beverage alcohol	Premium beverage alcohol	22%			4%			18%					Premium beverage alcohol	2%			(17)%			19%

		Other Financial Information												Other Financial Information
		Quarter Ended September 30,						Quarter versus Quarter Increase / (Decrease)						Quarter Ended March 31,						Quarter versus Quarter Increase / (Decrease)
		2022			2021			$ Change		% Change				2023			2022			$ Change		% Change
Gross profit	Gross profit	$	25,917		$	26,981		$	(1,064)	(4)	%		Gross profit	$	33,028		$	38,933		$	(5,905)	(15)	%
Gross margin %	Gross margin %	23.9		%	29.6		%			(5.7)		pp(d)	Gross margin %	29.2		%	34.9		%			(5.7)		pp(d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.

(d) Percentage points (“pp”).

Total sales of the Distilling Solutions segment for the quarter ended ~~September 30, 2022~~March 31, 2023 increased by ~~$17,600,~~$1,714, or 192 percent, compared to the prior year quarter. Sales of brown goods within premium beverage alcohol, warehouse services, and distillers feed and related co-products ~~warehouse services, and fuel grade alcohol~~ increased while ~~industrial alcohol and~~ white goods within premium beverage alcohol, ~~decreased compared to the prior year quarter.~~industrial alcohol, and fuel grade alcohol decreased. The increase in sales of brown goods was driven by ~~higher sales volume. The increase in sales of distillers feed and related co-products was due to~~a higher average selling price, partially offset by lower sales ~~volumes, both of which primarily resulted from the previously disclosed dryer fire at our Atchison facility which occurred in 2020. These increases were~~volume. This increase was partially offset by a decrease in sales of white goods and industrial alcohol, ~~and white goods~~ which ~~were~~was driven primarily by lower sales volume, partially offset by a higher average selling price.

Gross profit decreased quarter versus quarter by ~~$1,064,~~$5,905, or 415 percent. Gross margin for the quarter ended ~~September 30, 2022~~March 31, 2023 decreased to ~~23.9~~29.2 percent from ~~29.6~~34.9 percent for the prior year quarter. The decrease in gross profit was primarily due to higher input costs and lower sales volume for brown goods, as well as higher input costs for white goods and industrial alcohol. The average selling price for these products also increased, but not enough to offset the higher input ~~costs. This decrease in gross profit was partially offset by an increase in brown goods gross profit.~~costs and lower sales volumes.

2720

Branded Spirits

The following tables show selected financial information for the ~~Distilling~~Branded Spirits segment for the quarters ended March 31, 2023 and 2022.


	BRANDED SPIRITS SALES
	Quarter Ended March 31,						Quarter versus Quarter Sales Change Increase/(Decrease)
	2023			2022			$ Change		% Change
Ultra premium	$	9,115		$	12,597		$	(3,482)	(28)	%
Super premium	2,847			2,946			(99)		(3)
Premium	6,784			6,140			644		10
Premium plus	18,746			21,683			(2,937)		(14)
Mid	20,835			19,273			1,562		8
Value	13,421			11,299			2,122		19
Other	3,881			3,496			385		11
Total Branded Spirits	$	56,883		$	55,751		$	1,132	2	%

	Change in Quarter versus Quarter Sales Attributed to:
	Total (a)			Volume(b)			Net Price/Mix(c)
Total Branded Spirits	2%			8%			(6)%

	Other Financial Information
	Quarter Ended March 31,						Quarter versus Quarter Increase / (Decrease)
	2023			2022			$ Change		% Change
Gross profit	$	24,593		$	24,782		$	(189)	(1)	%
Gross margin %	43.2		%	44.5		%			(1.3)		pp(d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(d) Percentage points (“pp”).

Total sales of the Branded Spirits segment for the quarter ended March 31, 2023 increased by $1,132, or 2 percent compared to the prior year quarter. Sales increased primarily due to an increase in sales of brands within the value and mid price tiers primarily due to a distributor realignment which resulted in increased sales volume in these price tiers. These increases were partially offset by a decrease in the ultra premium price tier primarily due to timing of sales of our American whiskey brands.

Gross profit decreased quarter versus quarter by $189, or 1 percent. Gross margin for the quarter ended March 31, 2023 decreased to 43.2 percent from 44.5 percent for the prior year quarter. The decrease in gross profit was primarily driven by a decrease in sales volume in the ultra premium price tier due to the timing of sales of our American whiskey brands, partially offset by increased sales price and volume of brands within the mid and value price tiers.

Ingredient Solutions

The following tables show selected financial information for the Ingredient Solutions segment for the ~~year to date~~quarters ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

DISTILLING SOLUTIONS SALES
Year to Date Ended September 30, Year to Date versus Year to Date
Sales Change Increase/(Decrease)
2022 2021 $ Change % Change
Brown Goods $ 175,899 $ 129,600 $ 46,299 36 %
White Goods 57,996 56,049 1,947 3
Premium beverage alcohol 233,895 185,649 48,246 26
Industrial alcohol 35,141 46,896 (11,755) (25)
Food grade alcohol 269,036 232,545 36,491 16
Fuel grade alcohol 10,307 10,862 (555) (5)
Distillers feed and related co-products 30,127 13,660 16,467 121
Warehouse services 17,821 12,949 4,872 38
Total Distilling Solutions $ 327,291 $ 270,016 $ 57,275 21 %
Change in Year to Date versus Year to Date Sales Attributed to:
Total(a)
Volume(b)
Net Price/Mix(c)
Premium beverage alcohol 26% 6% 20%
Other Financial Information
Year to Date Ended September 30, Year to Date versus Year to Date Increase / (Decrease)
2022 2021 $ Change % Change
Gross profit $ 94,630 $ 87,211 $ 7,419 9 %
Gross margin % 28.9 % 32.3 % (3.4)
pp(d)


	INGREDIENT SOLUTIONS SALES
	Quarter Ended March 31,						Quarter versus Quarter Sales Change Increase / (Decrease)
	2023			2022			$ Change		% Change
Specialty wheat starches	$	14,686		$	15,203		$	(517)	(3)	%
Specialty wheat proteins	11,890			9,419			2,471		26
Commodity wheat starches	3,807			3,353			454		14
Commodity wheat proteins	521			—			521		N/A
Total Ingredient Solutions	$	30,904		$	27,975		$	2,929	10	%

	Change in Quarter versus Quarter Sales Attributed to:
	Total(a)			Volume(b)			Net Price/Mix(c)
Total Ingredient Solutions	10%			(12)%			22%

	Other Financial Information
	Quarter Ended March 31,						Quarter versus Quarter Increase / (Decrease)
	2023			2022			$ Change		% Change
Gross profit	$	12,203		$	8,106		$	4,097	51	%
Gross margin %	39.5		%	29.0		%			10.5		pp(d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(d) Percentage points (“pp”).

Total sales of Distilling Solutions for year to date ended September 30, 2022 increased by $57,275, or 21 percent compared to the year-ago period. Sales of brown goods within premium beverage alcohol, distillers feed and related co-products, warehouse services and white goods within premium beverage alcohol increased while industrial alcohol and fuel grade alcohol decreased compared to the prior year to date period. The increase in sales of brown goods was driven by higher sales volume and higher average selling price. The increase in sales of distillers feed and related co-products was due to higher average selling price, partially offset by lower sales volumes, both of which primarily resulted from the previously disclosed dryer fire at our Atchison facility which occurred in 2020. The increase in sales of white goods was driven by higher average selling price, partially offset by lower sales volume. These increases were partially offset by a decrease in sales of industrial alcohol which was driven by lower sales volume, partially offset by higher average selling price.

Gross profit for year to date ended September 30, 2022 increased by $7,419, or 9 percent compared to the year-ago period. Gross margin for year to date ended September 30, 2022 decreased to 28.9 percent from 32.3 percent for the prior year period. The increase in gross profit was due primarily to higher average selling price and higher sales volume on brown goods. These increases were partially offset by higher input costs for industrial alcohol, white goods, and fuel grade alcohol. The average selling price for these products also increased, but not enough to offset the higher input costs which caused a decrease in the gross margin percentage.

~~Branded Spirits~~

~~The following tables show selected financial information for the Branded Spirits segment for the quarters ended September 30, 2022 and 2021.~~

BRANDED SPIRITS SALES
Quarter Ended September 30, Quarter versus Quarter Sales Change Increase/(Decrease)
2022 2021 $ Change % Change
Ultra premium $ 13,804 $ 11,363 $ 2,441 21 %
Super premium 3,350 2,798 552 20
Premium 6,013 5,683 330 6
Mid 20,834 22,992 (2,158) (9)
Value 12,097 12,756 (659) (5)
Other 6,663 5,969 694 12
Total Branded Spirits $ 62,761 $ 61,561 $ 1,200 2 %
Change in Quarter versus Quarter Sales Attributed to:
Total (a)
Volume(b)
Net Price/Mix(c)
Total Branded Spirits 2% (6)% 8%
Other Financial Information
Quarter Ended September 30, Quarter versus Quarter Increase / (Decrease)
2022 2021 $ Change % Change
Gross profit $ 25,067 $ 23,217 $ 1,850 8 %
Gross margin % 39.9 % 37.7 % 2.2
pp(d)

~~(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.~~

~~(d) Percentage points (“pp”).~~

Total sales of Branded Spirits for quarter ended September 30, 2022 increased by $1,200, or 2 percent compared to the prior year quarter. Sales increased primarily due to an increase in the ultra premium price tier due primarily to increased sales of American whiskey brands as well as an increase in the other tier due to timing of certain contracted private label sales. These increases were partially offset by a decrease in sales of brands within the mid price tier as a result of a change in the product mix towards more premium brands as well as the re-opening of on-premise locations during the prior year period.

Gross profit increased quarter versus quarter by $1,850, or 8 percent. Gross margin for the quarter ended September 30, 2022 increased to 39.9 percent from 37.7 percent for the prior year quarter. The increase in gross profit was primarily driven by increased sales volume and higher average selling price of brands within the ultra premium price tier. These increases were partially offset by increased inputs costs in the mid and value price tier categories.

~~The following tables show selected financial information for the Branded Spirits segment for year to date ended September 30, 2022 and 2021.~~

BRANDED SPIRITS SALES
Year to Date Ended September 30, Year to Date versus Year to Date Sales Change Increase/(Decrease)
2022 2021 $ Change % Change
Ultra premium $ 35,836 $ 19,491 $ 16,345 84 %
Super premium 9,522 6,393 3,129 49
Premium 17,928 11,012 6,916 63
Mid 63,408 48,399 15,009 31
Value 36,304 25,984 10,320 40
Other 14,080 11,278 2,802 25
Total Branded Spirits $ 177,078 $ 122,557 $ 54,521 44 %
Change in Year to Date versus Year to Date Sales Attributed to:
Total (a)
Volume(b)
Net Price/Mix(c)
Total Branded Spirits 44% 31% 13%
Other Financial Information
Year to Date Ended September 30, Year to Date versus Year to Date Increase / (Decrease)
2022 2021 $ Change % Change
Gross profit $ 70,809 $ 41,737 $ 29,072 70 %
Gross margin % 40.0 % 34.1 % 5.9
pp(d)

~~(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.~~

~~(d) Percentage points (“pp”).~~

Total sales of Branded Spirits for year to date ended September 30, 2022 increased by $54,521, or 44 percent compared to the year-ago period. Sales across all pricing tiers increased compared to the year-ago period, primarily due to the additional brands acquired as part of the Merger.

Gross profit for year to date ended September 30, 2022 increased by $29,072, or 70 percent. Gross margin for year to date ended September 30, 2022 increased to 40.0 percent from 34.1 percent for the prior year. The increase in gross profit was primarily driven by the additional brands acquired as part of the Merger as well as a required step up in value of certain assets due to purchase accounting related to the Merger in 2021 that did not recur in 2022. Of the purchase accounting step ups, $2,529 was associated with marking the finished goods inventory to fair value and fully flowed through in the prior year period.

~~Ingredient Solutions~~

~~The following tables show selected financial information for~~ the Ingredient Solutions segment for the ~~quarters ended September 30, 2022 and 2021.~~

INGREDIENT SOLUTIONS SALES
Quarter Ended September 30, Quarter versus Quarter Sales Change Increase / (Decrease)
2022 2021 $ Change % Change
Specialty wheat starches $ 16,241 $ 12,231 $ 4,010 33 %
Specialty wheat proteins 9,697 8,901 796 9
Commodity wheat starches 3,803 2,626 1,177 45
Commodity wheat proteins — 248 (248) (100)
Total Ingredient Solutions $ 29,741 $ 24,006 $ 5,735 24 %
Change in Quarter versus Quarter Sales Attributed to:
Total(a)
Volume(b)
Net Price/Mix(c)
Total Ingredient Solutions 24% 5% 19%
Other Financial Information
Quarter Ended September 30, Quarter versus Quarter Increase / (Decrease)
2022 2021 $ Change % Change
Gross profit $ 8,064 $ 6,888 $ 1,176 17 %
Gross margin % 27.1 % 28.7 % (1.6)
pp(d)

~~(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.~~

~~(d) Percentage points (“pp”).~~

~~Total Ingredient Solutions sales for~~ quarter ended ~~September 30, 2022~~March 31, 2023 increased by ~~$5,735,~~$2,929, or 2410 percent, compared to the prior year quarter. The increase was primarily driven by higher sales of specialty wheat proteins, commodity wheat proteins and commodity wheat starches due to higher average selling prices. These increases were partially offset by a decrease in specialty wheat starches due primarily to lower sales volume, ~~and~~partially offset by higher average selling prices. ~~Commodity wheat starches and specialty wheat proteins increased due primarily to higher average selling price.~~

Gross profit increased quarter versus quarter by ~~$1,176,~~$4,097, or 1751 percent. Gross margin for the quarter ended ~~September 30, 2022 decreased~~March 31, 2023 increased to ~~27.1~~39.5 percent from ~~28.7~~29.0 percent for the prior year quarter. The increase in gross profit was primarily driven by higher average selling price ~~of specialty wheat starches and proteins, and commodity wheat starches,~~across all product categories, partially offset by higher input costs for specialty wheat starches and ~~proteins, and commodity starches. These increased input costs are the primary driver for the decrease in gross margin percentage.~~

~~The following tables show selected financial information for the Ingredient Solutions segment for the year to date September 30, 2022 and 2021.~~

INGREDIENT SOLUTIONS SALES
Year to Date Ended September 30, Year to Date versus Year to Date Sales Change Increase/(Decrease)
2022 2021 $ Change % Change
Specialty wheat starches $ 47,445 $ 35,051 $ 12,394 35 %
Specialty wheat proteins 29,225 23,299 5,926 25
Commodity wheat starches 10,286 7,572 2,714 36
Commodity wheat proteins 38 1,378 (1,340) (97)
Total Ingredient Solutions $ 86,994 $ 67,300 $ 19,694 29 %
Change in Year to Date versus Year to Date Sales Attributed to:
Total(a)
Volume(b)
Net Price/Mix(c)
Total Ingredient Solutions 29% 9% 20%
Other Financial Information
Year to Date Ended September 30, Year to Date versus Year to Date Increase / (Decrease)
2022 2021 $ Change % Change
Gross profit $ 24,654 $ 17,264 $ 7,390 43 %
Gross margin % 28.3 % 25.7 % 2.6
pp(d)

~~(a) Total sale changes is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.~~

~~(d) Percentage points (“pp”).~~

Total Ingredient Solutions sales for year to date ended September 30, 2022 increased by $19,694, or 29 percent, compared to the prior year period. The increase in Ingredient Solutions sales was primarily driven by higher sales of specialty wheat starches primarily due to higher sales volume and higher average selling prices. Additionally, the increase in Ingredient Solutions sales was driven by higher sales of specialty wheat proteins primarily due to higher average selling price and higher sales volume. Sales of commodity wheat starches were also up due to higher average selling price. These increases were partially offset by a decrease in sales of commodity wheat proteins due to lower sales volume.

Gross profit increased by $7,390, or 43 percent for year to date ended September 30, 2022 compared to the prior year period. Gross margin for the year to date ended September 30, 2022 increased to 28.3 percent from 25.7 percent for the prior year period. The increase in gross profit was primarily driven by higher average selling price and higher sales volumes of specialty wheat starches and proteins and commodity wheat starches. These increases were partially offset by higher input costs for all product lines within the segment. Gross profit in the prior year to date period was impacted by a temporary curtailment of natural gas usage due to extreme weather conditions which caused the Company to shut down the Atchison facilities for several days.

proteins.

3222

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 borrowings through our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement (Note 5)4) 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. Our overall liquidity 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 to be adequate to provide for budgeted capital expenditures, potential mergers or acquisitions, and anticipated operating requirements for the foreseeable future.

Cash Flow Summary


		Year to Date Ended September 30,				Changes, year versus year Increase / (Decrease)			Quarter to Date Ended March 31,				Changes, year versus year Increase / (Decrease)
		2022		2021					2023		2022

Cash provided by operating activities	Cash provided by operating activities	$	72,253	$	70,785	$	1,468	Cash provided by operating activities	$	5,021	$	22,230	$	(17,209)

Cash used in investing activities	Cash used in investing activities	(31,764)		(189,166)		157,402		Cash used in investing activities	(16,945)		(12,033)		(4,912)

Cash provided by (used in) financing activities		(11,301)		112,883		(124,184)
Cash used in financing activities								Cash used in financing activities	(4,270)		(4,182)		(88)

Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(82)		(2)		(80)		Effect of exchange rate changes on cash	33		(288)		321

Increase (decrease) in cash and cash equivalents	Increase (decrease) in cash and cash equivalents	$	29,106	$	(5,500)	$	34,606	Increase (decrease) in cash and cash equivalents	$	(16,161)	$	5,727	$	(21,888)

Cash ~~increased $29,106~~decreased $16,161 for ~~year to date~~the quarter ended ~~September 30, 2022,~~March 31, 2023, compared to ~~a decrease~~an increase of ~~$5,500~~$5,727 for ~~year to date~~the quarter ended ~~September 30, 2021,~~March 31, 2022, for a net ~~increase~~decrease in cash of ~~$34,606,~~$21,888, period versus period.

Operating Activities. Cash provided by operating activities for ~~year to date~~the quarter ended ~~September 30, 2022~~March 31, 2023 was ~~$72,253.~~$5,021. The cash provided by operating activities resulted primarily from net income of ~~$86,361,~~$31,032, adjustments for non-cash or non-operating charges of ~~$20,503,~~$7,318, including depreciation and amortization, and share-based compensation, partially offset by cash used in operating assets and liabilities of ~~$34,611.~~$33,329. The primary drivers of the changes in operating assets and liabilities were ~~$30,599~~$19,227 use of cash related to increased accounts receivable, net due to timing of sales and customer payments during the quarter, $18,707 use of cash related to an increase in inventories, primarily due to an increase in finished goods inventory and barreled distillate, ~~as well as $15,582~~and $10,208 use of cash related to ~~increased accounts receivables, net~~a decrease in accrued expenses and other, primarily due to ~~increased sales~~the incentive compensation payout during the ~~year to date period, as well as timing of customer payments.~~quarter. These uses of cash were partially offset, primarily by ~~$12,613~~$9,043 cash provided by income taxes payable, and $6,498 cash provided by an increase in accounts payable.

Cash provided by operating activities for ~~year to date~~the quarter ended ~~September 30, 2021~~March 31, 2022 was ~~$70,785.~~$22,230. The cash provided by operating activities resulted primarily from net income of ~~$59,159,~~$37,371, adjustments for non-cash or non-operating charges of ~~$19,149,~~$6,971, including depreciation and amortization, and share-based compensation, ~~as well as~~partially offset by cash used in operating assets and liabilities of ~~$7,523.~~$22,112. The primary drivers of the changes in operating assets and liabilities ~~excluding the asset and liability balances acquired as part of the Merger,~~ were ~~$7,588~~$13,696 use of cash related to an increase in inventories, primarily barreled distillate, ~~$6,678~~$9,601 use of cash related to ~~a decrease in accounts payable, and $5,593 use of cash related to~~increased accounts receivables, net due to increased sales during the quarter, ~~as well as~~and $8,896 use of cash related to accrued expenses and other primarily related to an ~~increase in insurance recoveries receivable.~~incentive compensation payout. These uses of cash were partially offset by ~~$15,859~~$5,437 cash provided by ~~accrued expenses~~an increase in income taxes payable and ~~other primarily related to legally committed insurance recovery amounts obtained prior to contingencies related to the insurance claim being resolved.~~$4,638 cash provided by accounts payable.

Investing Activities. Cash used in investing activities for ~~year to date~~the quarter ended ~~September 30, 2022~~March 31, 2023 was ~~$31,764,~~$16,945, which primarily resulted from additions to property, plant and equipment of ~~$29,217~~$16,237 (see Capital Spending). Cash used in investing activities for ~~year to date~~the quarter ended ~~September 30, 2021~~March 31, 2022 was ~~$189,166,~~$12,033, which primarily resulted from ~~$149,613 related to the Merger with Luxco, and~~ additions to property, plant and equipment of ~~$37,257~~$10,642 (see Capital Spending).

Capital Spending. We manage capital spending to support our business growth plans. We have incurred ~~$28,524~~$9,824 and ~~$33,882~~$5,074 of capital expenditures and have paid ~~$29,217~~$16,237 and ~~$37,257~~$10,642 for capital expenditures for ~~year to date~~the quarter ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The difference between the amount of capital expenditures incurred and amount paid is due to the change in capital expenditures in accounts payable. We expect approximately ~~$47,200~~$58,000 in capital expenditures in ~~2022,~~2023, which will be used for facility improvement and expansion, facility sustaining projects, and environmental health and safety projects.

Financing Activities. Cash used in financing activities for ~~year to date~~the quarter ended ~~September 30, 2022~~March 31, 2023 was ~~$11,301,~~$4,270, due to payments of dividends and dividend equivalents of ~~$7,984~~$2,669 (see Dividends and Dividend Equivalents), purchases of treasury stock of $801 (see Treasury Purchases), and net payments on debt of $800 (see Long-Term and Short-Term Debt).

Cash used in financing activities for the quarter ended March 31, 2022 was $4,182, due to payments of dividends and dividend equivalents of $2,661 (see Dividends and Dividend Equivalents), net payments on debt of ~~$2,603~~$807 (see Long-Term and Short-Term Debt), and purchases of treasury stock of $714 (see Treasury Purchases).

Cash provided by financing activities for year to date ended September 30, 2021 was $112,883, due to net proceeds from debt of $208,521 (see Long-term and Short-term Debt), partially offset by $87,509 payment on assumed debt as part of the Merger, payments of dividends and dividend equivalents of $7,362 (see Dividends and Dividend Equivalents) and purchases of treasury stock of $767 (see Treasury Purchases).

Treasury Purchases. ~~29,366~~22,592 RSUs vested and converted to common shares for employees during ~~year to date~~the quarter ended ~~September 30, 2022,~~March 31, 2023, of which we withheld and purchased for treasury ~~9,027~~8,437 shares valued at ~~$714~~$801 to cover payment of associated withholding taxes.

~~38,059~~29,346 RSUs vested and converted to common shares for employees during ~~year to date~~the quarter ended ~~September 30, 2021,~~March 31, 2022, of which we withheld and purchased for treasury ~~11,885~~9,021 shares valued at ~~$767~~$711 to cover payment of associated withholding taxes.

~~Share Repurchases.~~ On February 25, 2019, our Board of Directors approved a $25,000 share repurchase authorization commencing February 27, 2019, through February 27, 2022. The Company did not repurchase any shares during 2022 prior to the expiration of the program on February 27, 2022.

Dividends and Dividend Equivalents

Dividend and Dividend Equivalent Information (per Share and Unit)
Declaration date Record date Payment date
Declared(c)
Paid(c)
Dividend payment
Dividend equivalent payment(a)(b)
Total payment(b)
2022
February 22, 2022 March 11, 2022 March 25, 2022 $ 0.12 $ 0.12 $ 2,638 $ 23 $ 2,661
May 5, 2022 May 20, 2022 June 3, 2022 0.12 0.12 2,638 23 2,661
August 4, 2022 August 19, 2022 September 2, 2022 0.12 0.12 2,639 23 2,662
$ 0.36 $ 0.36 $ 7,915 $ 69 $ 7,984
2021
February 23, 2021 March 12, 2021 March 26, 2021 $ 0.12 $ 0.12 $ 2,033 $ 19 $ 2,052
May 3, 2021 May 21, 2021 June 4, 2021 0.12 0.12 2,635 20 2,655
August 2, 2021 August 20, 2021 September 3, 2021 0.12 0.12 2,635 20 2,655
$ 0.36 $ 0.36 $ 7,303 $ 59 $ 7,362


Dividend and Dividend Equivalent Information (per Share and Unit)
Declaration date	Record date	Payment date	Declared(c)		Paid(c)		Dividend payment		Dividend equivalent payment(a)(b)		Total payment(b)
2023
February 23, 2023	March 10, 2023	March 24, 2023	$	0.12	$	0.12	$	2,640	$	29	$	2,669




2022
February 22, 2022	March 11, 2022	March 25, 2022	$	0.12	$	0.12	$	2,638	$	23	$	2,661

(a) Dividend equivalent payments on unvested participating securities.

(b) Includes estimated forfeitures.

On ~~November 3, 2022,~~May 4, 2023, our Board of Directors declared a quarterly dividend payable to stockholders of record as of ~~November 18, 2022,~~May 19, 2023, of the Company’s Common Stock, ~~and a~~resulting in dividend ~~equivalent~~equivalents payable to holders of certain RSUs as of ~~November 18, 2022,~~May 19, 2023, of $0.12 per share and per unit, payable on ~~December~~June 2, ~~2022.~~2023.

Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, 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 ~~$231,051~~$229,619 (net of unamortized loan fees of ~~$6,199)~~$6,031) at ~~September 30, 2022,~~March 31, 2023, and ~~$233,399~~$230,335 (net of unamortized loan fees of ~~$6,454)~~$6,115) at December 31, ~~2021.~~2022.

Financial Condition and Liquidity. Our principal uses of cash in the ordinary course of business are for input costs used in our production processes, salaries, capital expenditures, and investments supporting our strategic plan, such as the aging of barreled distillate and potential mergers and acquisitions. 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 various debt agreements. Under our debt agreements, we must meet certain financial covenants and restrictions, and at ~~September 30, 2022,~~March 31, 2023, we met those covenants and restrictions.

At ~~September 30, 2022,~~March 31, 2023, our current assets exceeded our current liabilities by ~~$339,853,~~$373,124, largely due to our inventories, at cost, of ~~$275,478.~~$308,558. At ~~September 30, 2022,~~March 31, 2023, our cash balance was ~~$50,674~~$31,728 and we have used our various debt agreements for liquidity purposes, with $400,000 under our Credit Agreement remaining for additional borrowings and up to $120,000 potentially available under the Note Purchase Agreement. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We regularly assess 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, dividend payments as well as potential mergers and acquisitions. Subject to market conditions, we could also fund future mergers and acquisitions through the issuance of additional shares of common stock. In addition, we have strong operating results such that we believe financial institutions should provide sufficient credit funding to meet short-term financing requirements, if needed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to commodity price and interest rate market risks. We monitor and manage these exposures as part of our overall risk management program. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results.

Commodity Costs. Certain commodities we use in our production process, or input costs, expose us to market price risk due to volatility in the prices for those commodities. Through our grain supply contracts for our Atchison and Lawrenceburg facilities, our wheat flour supply contract for our Atchison facility, and our natural gas contracts for both facilities, we purchase grain, wheat flour, and natural gas, respectively, for delivery from one to 24 months into the future at negotiated prices. We have determined that the firm commitments to purchase grain, wheat flour, and natural gas under the terms of our supply contracts meet the normal purchases and sales exception as defined under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, because the quantities involved are for amounts to be consumed within the normal expected production process.

Interest Rate Exposures. Our various debt agreements ~~(Note 5)~~(see Note 4) expose us to market risks arising from adverse changes in interest rates. Established procedures and internal processes govern the management of this market risk.

Increases in market interest rates would cause interest expense under our variable interest rate debt 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 under variable interest rate debt during the reporting period following an increase in market interest rates. Based on weighted average outstanding variable-rate borrowings at ~~September 30, 2022,~~March 31, 2023, a 100 basis point increase over the current rates actually in effect at such date would have a minimal impact on interest expense. Based on weighted average outstanding fixed-rate borrowings at ~~September 30, 2022,~~March 31, 2023, a 100 basis point increase in market rates would result in a decrease in the fair value of our outstanding fixed-rate debt of ~~$28,936,~~$29,461, and a 100 basis point decrease in market rates would result in an increase in the fair value of our outstanding fixed-rate debt of ~~$38,728.~~$37,162.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the quarter ended ~~September 30, 2022,~~March 31, 2023, 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 us in reports that we file or submit 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 us in such reports is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal ~~Controls.~~Control. There were no changes in the Company’s internal ~~controls~~control over financial reporting during the fiscal quarter ended ~~September 30, 2022,~~March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal ~~controls~~control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to Part I, Item 3, Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and Note 87 to this Report on Form 10-Q for information on certain proceedings to which we are subject.

ITEM 1A. RISK FACTORS

~~The~~There have been no material changes to the risk factors ~~are described in~~disclosed under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2021 as updated in Part II, Item 1A. Risk Factors on the Form 10-Q for the quarter ended June 30, 2022, have not materially changed.~~2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There was no unregistered sale of equity securities during the quarter ended ~~September 30, 2022.~~March 31, 2023.

ISSUER PURCHASES OF EQUITY SECURITIES
(1) Total Number of Shares (or Units) Purchased (2) Average Price Paid per Share (or Unit) (3) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (4) Maximum
Number (or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or Programs
July 1, 2022 through July 31, 2022 2 (a) $ 101.44 $ — $ —
August 1, 2022 through August 31, 2022 — $ — $ — $ —
September 1, 2022 through September 30, 2022 — $ — $ — $ —
Total 2 $ —


	(1) Total Number of Shares (or Units) Purchased		(2) Average Price Paid per Share (or Unit)		(3) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(4) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2023 through January 31, 2023	4	(a)	$	106.38	$	—	$	—
February 1, 2023 through February 28, 2023	4,079	(a)	$	96.29	$	—	$	—
March 1, 2023 through March 31, 2023	4,354	(a)	$	93.66	$	—	$	—
Total	8,437				$	—

(a) Vested RSUs awarded under the 2014 Plan purchased to cover employee withholding taxes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit Number			Description of Exhibit
** * 10.1			~~Letter agreement dated August 5, 2022 between MGP Ingredients, Inc. and David Dykstra~~
** *10.2			~~MGP Ingredients, Inc. Amended and Restated Short-Term Incentive Plan for years beginning January 1, 2022~~
*10.3			~~Amendment No. 3 to Credit Agreement between MGP Ingredients, Inc. and Wells Fargo Bank, National Association, dated August 31, 2022~~
*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) and 18 U.S.C. 1350
*101			The following financial information from MGP Ingredients, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022,~~March 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, (ii) Condensed Consolidated Statements of Income for the ~~three~~quarter ended March 31, 2023 and ~~nine months ended September 30,~~ 2022, ~~and 2021,~~ (iii) Condensed Consolidated Statements of Comprehensive Income for the ~~three~~quarter ended March 31, 2023 and ~~nine months ended September 30,~~ 2022, ~~and 2021,~~ (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine months~~quarter ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ (v) Condensed Consolidated ~~Statement~~Statements of Changes in Stockholders’ Equity for the ~~three~~quarter ended March 31, 2023 and ~~nine months ended September 30,~~ 2022, ~~and 2021,~~ and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
*104			Cover Page Interactive Data Filed - formatted in iXBRL (Inline Extensible Business Reporting Language ) and contained in Exhibit 101

Filed herewith * Management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements on 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.

MGP INGREDIENTS, INC.


Date:	~~November 3, 2022~~May 4, 2023	By	/s/ David J. Colo
			David J. Colo, President and Chief Executive Officer

Date:	~~November 3, 2022~~May 4, 2023	By	/s/ Brandon M. Gall
			Brandon M. Gall, Vice President, Finance and Chief Financial Officer

3827


	Pro Forma Financial Information
	Quarter Ended September 30,		Year to Date Ended September 30,
	2021		2021
Sales	$	176,611	$	504,243
Net income	23,673		68,934
Basic and diluted earnings per common share	1.08		3.38


	DISTILLING SOLUTIONS SALES
	Year to Date Ended September 30,						Year to Date versus Year to Date Sales Change Increase/(Decrease)
	2022			2021			$ Change		% Change
Brown Goods	$	175,899		$	129,600		$	46,299	36	%
White Goods	57,996			56,049			1,947		3
Premium beverage alcohol	233,895			185,649			48,246		26
Industrial alcohol	35,141			46,896			(11,755)		(25)
Food grade alcohol	269,036			232,545			36,491		16
Fuel grade alcohol	10,307			10,862			(555)		(5)
Distillers feed and related co-products	30,127			13,660			16,467		121
Warehouse services	17,821			12,949			4,872		38
Total Distilling Solutions	$	327,291		$	270,016		$	57,275	21	%

	Change in Year to Date versus Year to Date Sales Attributed to:
	Total(a)			Volume(b)			Net Price/Mix(c)
Premium beverage alcohol	26%			6%			20%

	Other Financial Information
	Year to Date Ended September 30,						Year to Date versus Year to Date Increase / (Decrease)
	2022			2021			$ Change		% Change
Gross profit	$	94,630		$	87,211		$	7,419	9	%
Gross margin %	28.9		%	32.3		%			(3.4)		pp(d)


	BRANDED SPIRITS SALES
	Year to Date Ended September 30,						Year to Date versus Year to Date Sales Change Increase/(Decrease)
	2022			2021			$ Change		% Change
Ultra premium	$	35,836		$	19,491		$	16,345	84	%
Super premium	9,522			6,393			3,129		49
Premium	17,928			11,012			6,916		63
Mid	63,408			48,399			15,009		31
Value	36,304			25,984			10,320		40
Other	14,080			11,278			2,802		25
Total Branded Spirits	$	177,078		$	122,557		$	54,521	44	%

	Change in Year to Date versus Year to Date Sales Attributed to:
	Total (a)			Volume(b)			Net Price/Mix(c)
Total Branded Spirits	44%			31%			13%

	Other Financial Information
	Year to Date Ended September 30,						Year to Date versus Year to Date Increase / (Decrease)
	2022			2021			$ Change		% Change
Gross profit	$	70,809		$	41,737		$	29,072	70	%
Gross margin %	40.0		%	34.1		%			5.9		pp(d)