UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2013~~March 31, 2014

[ ] 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)

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 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 or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

[ ] Large accelerated filer [ ] Accelerated filer

[ ] Non-accelerated filer [X] Smaller Reporting Company

Indicated 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.

~~17,851,535~~17,688,434 shares of Common Stock, no par value as of ~~October 31, 2013~~April 30, 2014

INDEX



PART I. FINANCIAL INFORMATION			Page

	Item 1.	Financial Statements

	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~		4
	Condensed Consolidated Balance Sheets		5
	Condensed Consolidated Statements of Cash Flows		6
	Condensed Consolidated Statement of Changes in Stockholders’ Equity		7
	Notes to Unaudited Condensed Consolidated Financial Statements		8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2119

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3126

	Item 4.	Controls and Procedures	3126

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	3227

	Item 1A.	Risk Factors	3327

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3428

	Item 3.	Defaults Upon Senior Securities	3529

	Item 4.	Mine Safety Disclosures	3529

	Item 5.	Other Information	3529

	Item 6.	Exhibits	3630

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements as well as historical information. ��All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q regarding the prospects of our industry and our prospects, plans, financial position and business strategy 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 of these terms or variations of them or similar terminology. They reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results and are not guarantees of future performance. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: (i) disruptions in operations at our Atchison facility, Indiana plant, or ~~Indiana Distillery,~~at the Illinois Corn Processing, LLC ("ICP") facility, (ii) the availability and cost of grain and fluctuations in energy costs, (iii) the effectiveness of our ~~hedging strategy,~~corn purchasing program to mitigate our exposure to commodity price fluctuations, (iv) the competitive environment and related market conditions, (v) the ability to effectively pass raw material price increases on to customers, (vi) the viability of the ~~Illinois Corn Processing, LLC (“ICP”)~~ICP joint venture and its ability to obtain financing, (vii) our ability to maintain compliance with all applicable loan agreement covenants, (viii) our ability to realize operating efficiencies, (ix) potential adverse ~~affects~~effects to the management of our business operations and our profitability ~~as well as~~in the ~~rights~~wake of the dismissed litigation related to the proxy contest and related matters, and the termination of our ~~common shareholders as a result of a proxy contest initiated by a dissident shareholder group,~~Chief Executive Officer (CEO), (x) ~~litigation that we have launched against the co-trustees of the MGP Ingredients, Inc. Voting Trust and the Cray Family Trust, (xi)~~ actions of governments, ~~(xii)~~(xi) and consumer tastes and preferences. For further information on these and other risks and uncertainties that may affect our business, including risks specific to our Distillery and Ingredient segments, see Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2012,~~2013, as updated by Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.

METHOD OF PRESENTATION

All amounts in this report, except for share, par values, bushels, gallons, pounds, mmbtu, per share, per bushel, per gallon and percentage amounts, are shown in thousands.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MGP INGREDIENTS, INC.

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

(Unaudited)

(Dollars in thousands, except per share amounts)

Quarter Ended Year to Date Ended
September 30,
2013 September 30,
2012 September 30,
2013 September 30,
2012
Sales $ 80,709
$ 76,189
$ 253,134
$ 251,882
Less: excise taxes 538
82
7,164
3,897
Net sales 80,171
76,107
245,970
247,985
Cost of sales (a) 79,356
70,047
232,645
230,382
Gross profit 815
6,060
13,325
17,603
Selling, general and administrative expenses 6,760
6,037
17,405
20,070
Other operating costs and losses on sale of assets 1
38
59
288
Gain on sale of assets, net —
(889 ) —
(841 )
Income (loss) from operations (5,946 ) 874
(4,139 ) (1,914 )
Gain on sale of joint venture interest —
—
—
4,055
Interest expense (269 ) (226 ) (829 ) (709 )
Equity in earnings (loss) of Joint Ventures (91 ) (130 ) (962 ) 164
Income (loss) from continuing operations before income taxes (6,306 ) 518
(5,930 ) 1,596
Provision for income taxes 19
100
44
152
Net income (loss) from continuing operations (6,325 ) 418
(5,974 ) 1,444
Discontinued operations, net of tax (Note 9) —
—
1,406
—
Net income (loss) (6,325 ) 418
(4,568 ) 1,444
Other comprehensive income (loss), net of tax (111 ) 826
(401 ) 1,011
Comprehensive income (loss) $ (6,436 ) $ 1,244
$ (4,969 ) $ 2,455
Basic and diluted earnings (loss) per share

Income (loss) from continuing operations $ (0.37 ) $ 0.02
$ (0.35 ) $ 0.08
Income from discontinued operations —
—
0.08
—
Net income (loss) $ (0.37 ) $ 0.02
$ (0.27 ) $ 0.08
Dividends per common share $ —
$ —
$ 0.05
$ 0.05



	Quarter Ended
	March 31, 2014			March 31, 2013
Sales	$	84,582		$	88,718
Less: excise taxes	5,586			2,314
Net sales	78,996			86,404
Cost of sales (a)	72,195			79,175
Gross profit	6,801			7,229
Selling, general and administrative expenses	5,072			5,875
Other operating costs and losses on sale of assets	—			58
Income from operations	1,729			1,296
Interest expense, net	(197		)	(283		)
Equity method investment earnings (loss)	3,334			(942		)
Income from continuing operations before income taxes	4,866			71
Provision for income taxes	81			—
Net income from continuing operations	4,785			71
Discontinued operations, net of tax (Note 6)	—			1,406
Net income	4,785			1,477
Other comprehensive loss, net of tax	(175		)	(149		)
Comprehensive income	$	4,610		$	1,328
Basic and diluted earnings per share
Income from continuing operations	$	0.26		$	—
Income from discontinued operations	—			0.08
Net income	$	0.26		$	0.08
Dividends and dividend equivalents per common share	$	0.05		$	0.05


(a)	Includes related party purchases of ~~$702~~$7,132 and ~~$9,806~~$3,491 for the quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012, respectively. Includes related party purchases of~~ ~~$5,494~~ ~~and $40,931~~ ~~for the year to date periods ended~~ ~~September 30,~~ 2013 ~~and~~ ~~2012~~, respectively. See Note 2. Equity Method Investments.

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Current Assets
Cash and cash equivalents	$	—		$	—		$	—		$	2,857
Restricted cash	—			12
Receivables (less allowance for doubtful accounts: September 30, 2013 - $20; December 31, 2012 - $12)	31,796			35,325
Receivables (less allowance for doubtful accounts: March 31, 2014 - $18; December 31, 2013 - $18)							31,871			27,821
Inventory	36,801			36,532			30,875			34,917
Prepaid expenses	1,238			697			2,035			848
Deferred income taxes	6,349			5,283			4,162			4,977
Refundable income taxes	226			242			258			466
Total current assets	76,410			78,091			69,201			71,886
Property and equipment	192,361			190,519			195,667			194,687
Less accumulated depreciation and amortization	(122,061		)	(115,128		)	(127,409		)	(124,443		)
Property and equipment, net	70,300			75,391			68,258			70,244
Equity method investments	6,352			7,301			10,458			7,123
Other noncurrent assets	2,153			2,388
Other assets							1,985			2,076
Total assets	$	155,215		$	163,171		$	149,902		$	151,329
Current Liabilities
Current maturities of long-term debt	$	1,558		$	1,683		$	1,570		$	1,557
Accounts payable	19,689			18,860			18,552			23,107
Accounts payable to affiliate, net	517			4,008			2,564			1,204
Accrued expenses	7,145			5,220			7,239			8,282
Total current liabilities	28,909			29,771			29,925			34,150
Long-term debt, less current maturities	4,005			5,168			3,214			3,611
Revolving credit facility	24,867			25,893			18,455			18,000
Deferred credit	3,793			4,133			3,770			3,925
Accrued retirement health and life insurance benefits	4,884			5,096			4,363			4,423
Other noncurrent liabilities	946			1,000			662			640
Deferred income taxes	6,349			5,283			4,162			4,977
Total liabilities	73,753			76,344			64,551			69,726
Commitments and Contingencies – See Note 4
Commitments and Contingencies – (Note 4)
Stockholders’ Equity
Capital stock
Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares	4			4			4			4
Common stock
No par value; authorized 40,000,000 shares; issued 18,115,965 shares at September 30, 2013 and December 31, 2012, 17,827,135 and 17,934,233 shares outstanding at September 30, 2013 and December 31, 2012, respectively	6,715			6,715
No par value; authorized 40,000,000 shares; issued 18,115,965 shares at March 31, 2014 and December 31, 2013, 17,717,186 and 17,750,421 shares outstanding at March 31, 2014 and December 31, 2013, respectively							6,715			6,715
Additional paid-in capital	8,844			7,894			8,758			8,728
Retained earnings	67,047			72,531			70,564			66,686
Accumulated other comprehensive loss, net of tax	(634		)	(233		)	(179		)	(4		)
Treasury stock, at cost
288,830 and 181,732 shares at September 30, 2013 and December 31, 2012, respectively	(514		)	(84		)
Shares of 398,779 and 365,544 at March 31, 2014 and December 31, 2013, respectively							(511		)	(526		)
Total stockholders’ equity	81,462			86,827			85,351			81,603
Total liabilities and stockholders’ equity	$	155,215		$	163,171		$	149,902		$	151,329

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						Quarter Ended
	September 30, 2013			September 30, 2012			March 31, 2014			March 31, 2013
Cash Flows from Operating Activities
Net income (loss)	$	(4,568	)	$	1,444
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income							$	4,785		$	1,477
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	8,955			8,680			3,042			2,968
Gain on sale of bioplastics manufacturing business	(1,453		)	—			—			(1,453		)
Gain on sale of joint venture interest	—			(4,055		)
Gain on sale of assets, net	—			(841		)
Share based compensation	970			628			149			353
Equity in (earnings) loss of Joint Ventures	962			(164		)
Equity method investment (earnings) loss							(3,334		)	942
Changes in operating assets and liabilities:
Restricted cash	12			7,476			—			12
Receivables, net	3,529			(2,490		)	(4,050		)	980
Inventory	(342		)	(3,423		)	4,042			(2,539		)
Prepaid expenses	(541		)	(621		)	(942		)	(654		)
Refundable income taxes	16			152			208			(38		)
Accounts payable	(509		)	(8,031		)	(3,352		)	3,603
Accounts payable to affiliate, net	(3,491		)	(3,595		)	1,360			(3,287		)
Accrued expenses	1,478			1,311			(1,951		)	529
Change in derivatives	—			(2,492		)
Deferred credit	(340		)	(448		)	(155		)	(97		)
Accrued retirement health and life insurance benefits and other noncurrent liabilities	(680		)	(826		)	(214		)	(242		)
Other	6			(158		)	(230		)	—
Net cash provided by (used by) operating activities	4,004			(7,453		)
Net cash provided by (used in) operating activities							(642		)	2,554
Cash Flows from Investing Activities
Additions to property and equipment							(2,182		)	(798		)
Proceeds from sale of bioplastics manufacturing business	2,797			—			—			2,797
Proceeds from sale of joint venture interest	—			9,103
Proceeds from the disposition of property and equipment	—			3,215
Additions to property and equipment	(3,571		)	(7,712		)
Investment in and advances to unconsolidated subsidiaries	—			(500		)
Net cash provided by (used by) investing activities	(774		)	4,106
Net cash provided by (used in) investing activities							(2,182		)	1,999
Cash Flows from Financing Activities
Payment of dividends	(916		)	(914		)
Loan fees incurred with borrowings	—			(100		)
Purchase of treasury stock							(104		)	—
Principal payments on long-term debt	(1,288		)	(1,248		)	(384		)	(426		)
Proceeds from revolving credit facility	83,031			99,239			14,776			28,850
Payments on revolving credit facility	(84,057		)	(94,013		)	(14,321		)	(32,977		)
Net cash provided by (used by) financing activities	(3,230		)	2,964
Net cash used in financing activities							(33		)	(4,553		)
Decrease in cash and cash equivalents	—			(383		)	(2,857		)	—
Cash and cash equivalents, beginning of year	—			383			2,857			—
Cash and cash equivalents, end of period	$	—		$	—		$	—		$	—

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENT OF

CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)

Capital
Stock
Preferred

Issued
Common

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock
Total
Balance, December 31, 2012 $ 4
$ 6,715
$ 7,894
$ 72,531
$ (233 ) $ (84 ) $ 86,827
Comprehensive income:
Net loss —
—
—
(4,568 ) —
—
(4,568 )
Change in pension plans, net of tax (a) —
—
—
—
50
—
50
Change in post employment benefits, net of tax (a) —
—
—
—
(464 ) —
(464 )
Change in translation adjustment on non-consolidated foreign subsidiary, net of tax —
—
—
—
13
—
13
Dividends declared and paid —
—
—
(916 ) —
—
(916 )
Share-based compensation —
—
970
—
—
—
970
Common shares reacquired due to taxes derived from vesting of restricted stock and restricted stock units —
—
(20 ) —
—
(430 ) (450 )
Balance, September 30, 2013 $ 4
$ 6,715
$ 8,844
$ 67,047
$ (634 ) $ (514 ) $ 81,462



	Capital Stock Preferred		Issued Common		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, December 31, 2013	$	4	$	6,715	$	8,728	$	66,686		$	(4	)	$	(526	)	$	81,603
Comprehensive income:
Net income	—		—		—		4,785			—			—			4,785
Change in pension plans (a)	—		—		—		—			(21		)	—			(21		)
Change in post employment benefits (a)	—		—		—		—			(155		)	—			(155		)
Change in translation adjustment on non-consolidated foreign subsidiary, net of tax	—		—		—		—			1			—			1
Dividends and dividend equivalents declared and paid, net	—		—		—		(907		)	—			—			(907		)
Share-based compensation	—		—		30		—			—			119			149
Common shares reacquired due to taxes derived from vesting of restricted stock and restricted stock units	—		—				—			—			(104		)	(104		)
Balance, March 31, 2014	$	4	$	6,715	$	8,758	$	70,564		$	(179	)	$	(511	)	$	85,351


(a)	See Note 7. Employee Benefit Plans for amounts reclassified from Accumulated Other Comprehensive Income (Loss).

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.

MGP Ingredients, Inc. (“Company”) is a Kansas corporation headquartered in Atchison, Kansas. It was incorporated in 2011 and is a holding company with no operations of its own. Its principal directly-owned operating subsidiaries are MGPI Processing, Inc. (“Processing”) and MGPI of Indiana, LLC (“MGPI-I”). Processing was incorporated in Kansas in 1957 and is the successor to a business founded in 1941 by Cloud L. Cray, Sr. On January 3, 2012, MGP Ingredients, Inc. reorganized into a holding company structure (the “Reorganization”) through a series of steps involving various legal ~~entities, which is discussed in greater detail in the Company’s Report on Form 10-K for the year ended~~ ~~December 31, 2012~~.entities. Prior to the Reorganization, Processing was named MGP Ingredients, Inc.

MGPI-I acquired substantially all the beverage alcohol distillery assets of Lawrenceburg Distillers Indiana, LLC (“LDI”) at its Lawrenceburg and Greendale, Indiana facility (“Indiana Distillery”) on ~~December 27, 2011~~.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of the Company reflect all adjustments (consisting only of normal adjustments) which, in the opinion of the Company’s management, are necessary to fairly present the financial position, results of operations and cash flows of the Company. All intercompany balances and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements as of and for the period ended ~~September 30, 2013~~March 31, 2014 should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Report on Form 10-K for the year ended December 31, ~~2012~~2013 filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Inventory

Inventory includes finished goods, barreled distillate, raw materials in the form of agricultural commodities used in the production process, work in process, and certain maintenance and repair items. Whiskey and bourbon must be aged in barrels for several years, following industry practice; all barreled whiskey and bourbon is classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs.

Inventories are stated at the lower of cost or market on the first-in, first-out (“FIFO”) method. Inventory valuations are impacted by constantly changing prices paid for key materials, primarily corn. Inventory consists of the following:


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Finished goods	$	12,579	$	14,272	$	9,203	$	11,355
Barreled distillate	12,038		9,080		9,176		10,310
Work in process	2,204		2,571		2,046		2,737
Raw materials	4,783		5,959		4,894		5,183
Maintenance materials	4,670		4,116		4,842		4,766
Other	527		534		714		566
Total	$	36,801	$	36,532	$	30,875	$	34,917

Equity Method Investments

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

The Company reviews its investments in non-consolidated subsidiaries for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investments may not be fully recoverable. Evidence of a loss in value that is other than temporary include, but are not limited to, the absence of an ability to recover the carrying amount of the investment, the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the investment. If the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate write-down is recorded based on the excess of the carrying value over the best estimate of fair value of the investment. ~~The Company considered the losses incurred by ICP during the year to date period ended~~ ~~September 30, 2013~~ ~~and the Company's election to provide notice to shutdown the plant (as more fully described in~~ ~~Note 2. Equity Method Investments), however these circumstances did not cause the Company to determine that its investment in ICP was not fully recoverable.~~

Revenue Recognition

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

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

Sales include customer-paid freight costs billed to customers of ~~$3,153~~$3,490 and ~~$2,537~~$2,980 for the quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012, respectively, and~~ ~~$8,789~~ ~~and~~ ~~$7,656~~ ~~for the year to date periods ended~~ ~~September 30,~~ 2013 ~~and~~ ~~2012~~, respectively.

Income Taxes

The effective ~~tax rates~~rate for the ~~quarters~~period ended ~~September 30, 2013~~March 31, 2014 ~~and~~was ~~2012~~ ~~were~~ ~~(0.3)~~1.7 percent, after consideration of utilization of certain deferred tax assets, primarily net operating loss carry forwards and the related impact to the valuation allowance. The provision of income taxes of ~~19.3~~$81 ~~percent, respectively. The effective tax rates~~ for the ~~year to date periods~~period ended ~~September 30, 2013~~March 31, 2014 ~~and~~ ~~2012~~ ~~were (0.2) percent and~~ ~~9.5~~ ~~percent, respectively, consisting of state income taxes~~relates to states for which no net operating loss ~~carryforwards~~carry forwards are currently available. As of March 31, 2014, the Company still has significant federal and state net operating loss carry forwards. A detailed analysis of the Company's current and deferred tax position, including the loss carry forwards, is presented in Note 5 of the Company's report on Form 10-K for the year ended December 31, 2013.

The effective tax rate for the period ended March 31, 2013 was 3.1 percent, after consideration of utilization of certain deferred tax assets, primarily net operating loss carry forwards and the related impact to the valuation allowance. The $47 of taxes related to discontinued operations were included in the computation of the effective rate for the ~~year to date period~~quarter ended ~~September 30, 2013~~.March 31, 2013.

~~For the quarters and year to date periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~September 30, 2012, the effective rates differed from the Company's statutory rate primarily due to the expected utilization of available net operating losses.~~

At this time, management is unable to conclude it is more likely than not that deferred tax assets will be realized. As a result of this analysis, the Company continues to record a full valuation allowance on net deferred tax assets. Management will continue to evaluate the available positive and negative evidence in future periods.

Earnings per Share

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

Impairment

The Company tests its long-lived assets for impairment whenever events or conditions and circumstances indicate a carrying amount of an asset may not be recoverable. No events or conditions occurred during the ~~quarterly or year to date periods~~quarter ended ~~September 30, 2013~~March 31, 2014 that required the Company to test for impairment.

Fair Value Measurements

The fair value of an asset is considered to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of inputs used to measure fair value are as follows:

Level 1 - quoted prices in active markets for identical assets or liabilities accessible by the reporting entity.

Level 2 - observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - unobservable inputs for an asset or liability. Unobservable inputs should only be used to the extent observable inputs are not available.

The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying value of the short term financial instruments approximates the fair value due to their short-term nature. These financial instruments have no stated maturities or the financial instruments have short-term maturities that approximate ~~market.~~market

The fair value of the Company’s debt is estimated based on current market interest rates for debt with similar maturities and credit quality. The fair values of the Company’s debt were $~~30,585~~23,275 and $~~32,596~~23,300 at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively. The financial statement carrying value was $~~30,430~~23,239 and $~~32,744~~23,168 at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively. These fair values are considered Level 2 under the fair value hierarchy.

Dividends and Dividend Equivalents

On February 28, ~~2013~~,2014, the Board of Directors declared a dividend and dividend equivalent of $0.05 per share of the Company’s common stock, no par value (the “Common Stock”), payable to stockholders of record of Common Stock, restricted stock and restricted stock units on March ~~18, 2013~~.17, 2014. The ~~$916~~total dividend and dividend equivalent of $910 was paid on April ~~10, 2013~~.9, 2014.

On ~~March 1, 2012~~,February 28, 2013, the Board of Directors declared a dividend and dividend equivalent of $0.05 per share of the Company’s Common Stock, ~~no par value,~~ payable to stockholders of record of Common Stock, restricted stock and restricted stock units on March ~~22, 2012~~.18, 2013. The ~~$914~~total dividend and dividend equivalent of $916 was paid on April ~~19, 2012~~.10, 2013.

Line of Credit

On November 2, 2012, wethe Company entered into an Amended and Restated Credit Agreement, and ancillary documents with Wells Fargo (the “Credit Agreement”). On February 12, 2014, the Company entered into Amendment No. 1 to Credit Agreement ("First Amendment"). The First Amendment amended and restated the definition of the term EBITDA to add back (to the Company's consolidated net earnings (or loss)) governance expenses relating to the shareholder litigation and incurred prior to December 31, 2013, in an aggregate amount not in excess of $5,500. For the twelve months ended March 31, 2014, the Company incurred $5,465 of such expenses. As of and for the quarter ended March 31, 2014, the Company was in compliance with the Credit Agreement’s financial covenants and other restrictions.

The amount of borrowings which wethe Company may make is subject to borrowing base limitations. As of ~~September 30, 2013~~March 31, 2014, ~~our~~the Company's outstanding borrowings under this facility were $~~24,867~~18,455, leaving $~~19,463~~20,936 available for additional borrowings after giving effect to a $2,000 outstanding letter of credit that ~~we have~~the Company has with one of ~~our~~its vendors.

New Accounting Pronouncement

AsIn July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. When a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available, or the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and ~~for the year to date period ended~~ ~~September 30, 2013, we are in compliance~~should not be combined with ~~the Credit Agreement’s~~deferred tax assets. The Company adopted this standard effective January 1, 2014. The adoption of these amendments did not have a material impact on our consolidated results of operations, financial ~~covenants and other restrictions.~~condition or cash flows.

Note 2. Equity Method Investments.

As of ~~September 30, 2013~~March 31, 2014, the Company’s investments accounted for on the equity method of accounting consist of the following: (1) 30 percent interest in ICP, which manufactures alcohol for fuel, industrial and beverage applications, and (2) 50 percent interest in D.M. Ingredients, GmbH, (“DMI”), which produces certain specialty starch and protein ingredients.

Processing completed a series of related transactions on November 20, 2009 pursuant to which Processing contributed its Pekin plant and certain maintenance and repair materials to a newly-formed company, ICP, and then sold ~~50 percent~~ ~~of the membership interest in ICP to Illinois Corn Processing Holdings (“ICP Holdings”), an affiliate of SEACOR Energy Inc.~~

On ~~February 1, 2012, ICP Holdings exercised its option to purchase an additional~~ ~~20 percent~~ ~~of the membership interest in ICP. The sales price was~~ ~~$9,103~~ ~~and was determined in accordance with the LLC Interest Purchase Agreement. Following its exercise, ICP Holdings owns~~ ~~70 percent~~ ~~of ICP, is entitled to name~~ 4 ~~of ICP’s~~ 6 ~~advisory board members, and generally has control of ICP’s day to day operations. Processing owns~~ ~~30 percent~~ ~~of ICP and is entitled to name~~ 2 ~~of ICP’s~~ 6 ~~advisory board members.~~

Under a marketing agreement between ICP and the Company, (the “Marketing Agreement”), ICP manufactured and supplied food grade and industrial-use alcohol products for the Company, and the Company purchased, marketed and sold such products for a marketing fee. Effective January 1, 2013, the Marketing Agreement expired. The Company ~~has sourced minimal~~continues to source product from ~~ICP since~~ ~~April 2013~~.ICP.

ICP’s term loan and revolving credit agreement with an affiliate of SEACOR ~~Energy Inc.~~ expired as of December 31, 2012 and has not been renewed. The Company has no further funding requirement to ICP.

The ICP Limited Liability Company Agreement gives the Company and its joint venture partner, ICP Holdings, certain rights to ~~shut down~~shutdown the Pekin plant if ICP operates at an EBITDA loss of $500 in any quarter. Such rights are conditional in certain instances, but are certain if EBITDA losses aggregate $1,500 over any three consecutive quarters or if ICP’s net working capital is less than $2,500. For the quarter ended March 31, 2013, ICP experienced an EBITDA loss in excess of the $500 threshold. Such shutdown notice was provided by the Company on April 18, 2013 under the terms of the ICP Limited Liability Company Agreement, and such notice was rejected by ICP Holdings. The Company ~~has not withdrawn~~withdrew its election ~~as of~~to shutdown the ~~date of this filing.~~Pekin plant on March 31, 2014.

The ICP Limited Liability Company Agreement provides for a new allocation of profit and loss when notice of shutdown is rejected by ICP Holdings. From an accounting perspective, the Company will continue to allocate profit and loss ~~30 percent~~ ~~to the Company and~~ ~~70 percent~~ ~~to ICP Holdings in accordance with U.S. generally accepted accounting principles.~~

~~Summary Financial Information~~

~~Condensed unaudited financial information related to the Company’s non-consolidated equity method investment in ICP is shown below.~~

Quarter Ended Year to Date Ended
September 30,
2013 September 30,
2012 September 30,
2013 September 30,
2012
ICP’s Operating results:
Net sales (a) $ 52,580
$ 47,813
$ 146,807
$ 164,804
Gross profit 148
45
(900 ) 2,075
Net income (loss) $ (585 ) $ (448 ) $ (3,472 ) $ 311


~~(a)~~	~~Includes related party sales to MGPI of~~ ~~$110~~ ~~and~~ ~~$9,697~~ ~~for the quarters ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively, and~~ ~~$3,510~~ ~~and~~ ~~$40,331~~ ~~for the year to date periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively.~~

The Company’s equity inmethod investment earnings (loss) of ~~Joint Ventures~~joint ventures based on unaudited financial statements is as follows:

Quarter Ended Year to Date Ended
September 30,
2013 September 30,
2012 September 30,
2013 September 30,
2012
ICP (30% interest) (a) $ (135 ) $ (134 ) $ (1,042 ) $ 229
DMI (50% interest) 44
4
80
(65 )
$ (91 ) $ (130 ) $ (962 ) $ 164


~~(a)~~	~~The Company’s ownership percentage of ICP was~~ ~~50 percent~~ ~~through~~ ~~February 1, 2012, when the Company sold~~ ~~20 percent~~ ~~of its investment. From February 2, 2012 through~~ ~~September 30, 2013, the Company’s ownership percentage in ICP and accounting profit and loss was~~ ~~30 percent~~.



	Quarter Ended
	March 31, 2014		March 31, 2013
ICP (30% interest)	$	3,246	$	(969	)
DMI (50% interest)	88		27
	$	3,334	$	(942	)

The Company’s investment in joint ventures is as follows:


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
ICP (30% interest)	$	5,856	$	6,898	$	9,899	$	6,653
DMI (50% interest)	496		403		559		470
	$	6,352	$	7,301	$	10,458	$	7,123

1211

Note 3. Earnings ~~(Loss)~~ per Share.

The computations of basic and diluted earnings ~~(loss)~~ per share from continuing and discontinued operations are as follows:


	Quarter Ended					Year to Date Ended					Quarter Ended
	September 30, 2013			September 30, 2012		September 30, 2013			September 30, 2012		March 31, 2014		March 31, 2013
Continuing Operations:
Net income (loss) from continuing operations attributable to shareholders	$	(6,325	)	$	418	$	(5,974	)	$	1,444
Net income from continuing operations attributable to shareholders											$	4,785	$	71
Less: Amounts allocated to participating securities (nonvested shares and units)⁽ⁱ⁾	—			26		—			91		257		(5		)
Net income (loss) from continuing operations attributable to common shareholders	$	(6,325	)	$	392	$	(5,974	)	$	1,353
Net income from continuing operations attributable to common shareholders											$	4,528	$	66

Discontinued Operations:
Discontinued operations attributable to shareholders	$	—		$	—	$	1,406		$	—	$	—	$	1,406
Less: Amounts allocated to participating securities (nonvested shares and units)⁽ⁱ⁾	—			—		—			—		—		(103		)
Discontinued operations attributable to common shareholders	$	—		$	—	$	1,406		$	—	$	—	$	1,303

Share information:
Basic weighted average common shares⁽ⁱⁱ⁾	17,127,523			16,976,054		17,045,001			16,936,366		17,246,251		16,999,146
Potential dilutive securities⁽ⁱⁱⁱ⁾	—			66		—			313		—		—
Diluted weighted average common shares	17,127,523			16,976,120		17,045,001			16,936,679		17,246,251		16,999,146
Basic earnings (loss) per share
Income (loss) from continuing operations	$	(0.37	)	$	0.02	$	(0.35	)	$	0.08

Basic earnings per share
Income from continuing operations											$	0.26	$	—
Income from discontinued operations	—			—		0.08			—		—		0.08
Net income (loss)	$	(0.37	)	$	0.02	$	(0.27	)	$	0.08
Diluted earnings (loss) per share
Income (loss) from continuing operations	$	(0.37	)	$	0.02	$	(0.35	)	$	0.08
Net income											$	0.26	$	0.08

Diluted earnings per share
Income from continuing operations											$	0.26	$	—
Income from discontinued operations	—			—		0.08			—		—		0.08
Net income (loss)	$	(0.37	)	$	0.02	$	(0.27	)	$	0.08
Net income											$	0.26	$	0.08

⁽ⁱ⁾

Participating securities include ~~699,612~~457,064 and ~~956,207~~917,372 nonvested restricted shares for the quarters ~~and year to date periods ended~~ ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively, as well as ~~413,764~~492,360 and ~~196,264~~421,014 restricted share units for the quarters ~~and year to date periods~~ ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively. Participating securities do not receive an allocation in periods when a loss is experienced.


⁽ⁱⁱ⁾	Under the two-class method, basic weighted average common shares exclude outstanding nonvested participating securities consisting of restricted share awards of 457,064 and 917,372 for the quarters ended ~~699,612~~March 31, 2014 and ~~956,207~~ ~~for the quarters and year to date periods ended~~ ~~September 30,~~ 2013 ~~and~~ ~~2012~~, respectively.

⁽ⁱⁱⁱ⁾

Anti-dilutive shares related to stock options totaled ~~18,000~~10,000 and ~~30,000~~20,000 for the quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012, respectively, and~~ ~~18,667~~ ~~and~~ ~~22,667~~ ~~for the year to date periods ended~~ ~~September 30,~~ 2013 ~~and~~ ~~2012~~, respectively. ~~Potential dilutive securities have not been included in the earnings (loss) per share computation in a period when a loss is experienced.~~

1312

Note 4. Commitments and Contingencies.

Commitments

The Company has grain supply agreements ~~with a single supplier~~ to purchase its corn ~~requirements.~~requirements for each of its Indiana plant and Atchison plant through a single supplier. These grain supply agreements expire December 31, 2014. At ~~September 30, 2013~~March 31, 2014, the Company had commitments to purchase corn to be used in operations through ~~December 2014~~June 2015 totaling ~~$31,687~~.$40,892.

The Company has commitments to purchase natural gas needed in production at fixed prices at various dates through ~~March~~November 2014. The commitment for these contracts at ~~September 30, 2013~~March 31, 2014 totaled ~~$3,498~~.$6,892.

The Company ~~has~~entered into a supply contract for flour for use in the production of protein and starch ingredients. The initial term of the agreement, as amended, expires October 23, 2015. At ~~September 30, 2013~~March 31, 2014, the Company had purchase commitments aggregating ~~$11,986~~$9,117 through ~~March 2014~~.December 2014.

As of ~~September 30, 2013~~March 31, 2014, the Company had contracts of approximately ~~$842~~$614 to acquire capital assets.

At ~~September 30, 2013~~March 31, 2014, the Company had $$2,000 outstanding on a letter of credit for a vendor, which reduced the amount available to the Company under its revolving line of credit.

Contingencies

During fiscal 2013, pursuant to the Settlement Agreement and Mutual Release (the "Settlement Agreement"), the Company entered into a Settlement Agreement and Mutual Release (the "Settlement Agreement") with Cloud L. Cray, Jr., Karen Seaberg and Thomas M. Cray (collectively, the "Cray Group") and Timothy W. Newkirk, the Company's former CEO, and all other members of the Board of Directors. In connection with the Settlement Agreement, the Company agreed to reimburse the members of the Cray Group for all reasonable legal fees and out-of-pocket costs and expenses incurred in connection with the matters related to the proxy contest, up to an aggregate maximum cap of $1,775. The Cray Group submitted reimbursement requests for $1,764, which the Company fully accrued at December 31, 2013. Such costs were included in the caption Accounts Payable to Affiliate, net on the Consolidated Balance Sheets. The Company paid $1,764 to the Cray Group during the quarter ended March 31, 2014, leaving no payable at March 31, 2014.

There are various legal proceedings involving the Company and its subsidiaries. Management believes that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position or overall trends in results of operations of the Company.

~~On June 14, 2013,~~

During January 2014, the Company ~~filed~~experienced a ~~petition for declaratory judgment~~small fire at its Indiana plant. The fire damaged equipment in the ~~District Court~~feed dryer house and caused a temporary loss of ~~Johnson County, Kansas, against Richard B. Cray, Thomas Cray, Cloud L. Cray Jr., Karen Seaberg, Laidacker M. Seaberg,~~production in late January. The fire did not impact the Company's or customer owned warehoused inventory. The Indiana plant is back in operation and ~~Timothy Newkirk, as co-trustees~~by the end of ~~either MGP Ingredients Inc. Voting Trust or the Cray Family Trust.~~February was at its pre-fire production capacity. The Company ~~has requested a declaratory judgment determining~~is currently working with its insurance carrier to determine the ~~parties’ legal rights~~coverage for equipment damage and obligations in the context of proxies for the Annual Meeting and the status of the Voting Trust. The petition alleges that the co-trustees may be unqualified to serve as co-trustees and asks the Court to resolve the resulting controversy. The defendants filed a Motion to Dismiss on August 1, 2013. On October 2, 2013, the Court dismissed all allegations by the Company and Mr. Newkirk to the extent they implicate any standing to challenge the conduct of the Voting Trust directly. On October 16, 2013, the Company filed a motion to amend the October 2, 2013 order on defendants’ motion to dismiss in order to include findings allowing interlocutory appeal, or, in the alternative, to enter a journal entry of final judgment as to petitioner. The Hearing is set for November 18, 2013. On October 21, 2013, the defendants filed a motion for summary judgment on the cross-claim of Mr. Newkirk,business interruption losses. Production volume variances, as well as a motion to dismiss cross-claim of Mr. Newkirk for lack of standing and subject matter jurisdiction due to termination of the trusts. Hearing date for these two motions is December 3, 2013. In its additional definitive proxy soliciting materials filed on October 18, 2013, the Cray Group disclosed that on September 26, 2013, a majority of the trustees of the Cray Family Trust took action to terminate the Cray Family Trust and to distribute its assets upon terminationout-of-pocket costs incurred through March 31, 2014 related to the three beneficial owners, The Foundation of the Atchison Family YMCA (the “YMCA”), the University of Kansas Endowment Association and Cloud L. Cray, Jr. In connection with the termination of the Cray Family Trust, on September 23, 2013, Karen Seaberg entered into an option to purchase the Voting Trust Certificates distributed to the YMCA and exercised the option on October 16, 2013.

On July 10, 2013, Cloud L. Cray, Jr. and Karen Seaberg filed a petition for inspection of corporate records pursuant to K.S.A. §17-6510 by a shareholder in the District Court of Atchison County. The plaintiffs as shareholders of the Company made demand to inspect corporate records pursuant to K.S.A §17-6510. The Company did not produce some of the records requested by the plaintiffs. The plaintiffs filed the petition to compel the production of the remaining records. On July 26, 2013, the Atchison County District Court granted the plaintiffs’ petition and ordered the Company to produce the remaining records. The Company complied with the Court order. The Court also ordered the plaintiffs to submit their request for attorney fees and expenses. A separate hearing will be held to determine whether the plaintiffs should be awarded attorney fees and expenses in connection with the request of corporate records. This amount has notfire have been reflected in ~~the Company’s financial statements as the amount of plaintiff attorney fees is estimated to be immaterial to the Company’s financial statements.~~

On July 11, 2013, Cloud L. Cray, Jr. and Karen Seaberg filed a petition for an order requiring the Company to conduct the Annual Meeting in the District Court of Atchison County, Kansas. On July 26, 2013, the Atchison County District Court granted the plaintiffs’ petition and ordered the Company to hold the Annual Meeting on or before August 26, 2013 at 9 a.m. The Court also ordered the plaintiffs to submit their request for attorney fees and expenses. A separate hearing will be held to determine whether the plaintiffs should be awarded attorney fees and expenses in connection with the litigation concerning the holding of our Annual Meeting. This amount has not been reflected in the Company’s financial statements as the amount of plaintiff attorney fees is estimated to be immaterial to the Company’s financial statements. On August 1, 2013, the Company and the defendants filed separate motions to amend and or modify the July 26 Order with respect to the record date and after a telephone hearing on August 2, the Court ordered that the Annual Meeting was to reconvene on or before August 26, 2013.

On August 1, 2013, Cloud L. Cray, Jr. and Karen Seaberg filed a petition against the Company and the Board of Directors, for a temporary injunction pursuant to K.S.A. § 60-901 et seq. requesting the Court to enter a temporary injunction (i) prohibiting the Company and the board members from continuing to utilize, meet as, or act as the Special Committee that was appointed on May 23, 2013; (ii) prohibiting defendants from excluding plaintiffs from discussions and deliberations of the Special Committee or any other committee concerning any review of strategic alternativesnet income for the Company on which plaintiffs have no conflict of interest; (iii) prohibiting defendants from refusing to provide plaintiffs with all information conveyed to other directors through or by the Special Committee about the exploration of strategic alternatives for the Company; and (iv) requiring defendants to immediately provide to plaintiffs all past, present and future information conveyed to other directors through or by the Special Committee about the exploration of strategic alternatives for the Company. After a hearing on August 13, 2013 and on August 20, 2013, the Court denied in part and granted in part the plaintiff’s petition. After negotiations between the parties, the parties agreed to continue with the injunction in place and stay the matter for 180 days. At the conclusion of the 180 day period, the parties will advise the Court if any additional proceedings are necessary.

On August 9, 2013, the Company appealed the July 26 Order in Kansas Court of Appeals. On August 22, 2013, the Appeals Court granted the motion in part for a 60-day stay for the Annual Meeting. Following the dismissal on October 2, 2013 of the Company in the District Court of Johnson County case, the Appeals Court granted the motion to discontinue the stay after October 21, 2013.

In its proxy statement filed with the SEC on July 10, 2013, the Cray Group has disclosed that it will seek reimbursement for the costs and expenses associated with the proxy solicitation in the event that any of the Cray Group’s director nominees are elected to the Board of Directors of MGP, and intends to submit the issue of reimbursement to a vote of security holders. The Cray Group has estimated the total expenditures in furtherance of, or in connection with, the solicitation of proxies by the Cray Group to be approximately $650. This amount, inclusive of the above-mentioned attorneys fees and expenses, has not been reflected in the Company’s financial statements as we do not believe reimbursement is probable in occurrence.

quarter ended March 31, 2014.

1513

Note 5. Derivative Instruments.

~~The~~Certain commodities the Company ~~purchases and~~ uses ~~certain commodities that~~in its production process are ~~subject to price volatility. The Company has historically used financial derivative instruments to reduce exposure~~exposed to market price risk in commodity prices, primarily corn, through a combination of forward purchases, long-term contracts with suppliers and exchange traded commodity futures and option contracts. Specifically, the Company sold put options on commodity futures at exercise prices that were deemed attractivedue to ~~the Company and used the premiums received to reduce the overall cost of inputs utilized~~volatility in the ~~production process. Between July 2011 and February 2012, management elected to apply hedge accounting~~prices for ~~qualifying derivative contracts.~~

those commodities. During 2012, the Company entered into a grain supply contract for its Indiana and Atchison facilities that permits the Company to purchase corn for delivery up to 12 months in into the future, at negotiated prices. The pricing for these contracts is ~~fixed~~ based on a formula using several factors. The Company has determined that the firm commitments to purchase corn under the terms of these new contracts meet the normal purchases and sales exception as defined under ASC 815, Derivatives and Hedging, and has excluded the fair value of these commitments from recognition within its condensed consolidated financial statements until the actual contracts are physically settled. Accordingly, given the supply contract to purchase corn, in February 2012, the Company made the decision to close out of the corn futures contracts designated as cash flow hedges prior to their scheduled delivery and simultaneously de-designated ~~100 percent~~ ~~of these cash flow hedges at that time. As of~~ ~~September 30, 2013, the Company has~~ no ~~derivative contracts designated as cash flow hedges.~~

~~Derivatives Designated as Cash Flow Hedges~~

Amounts of Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivatives
Quarter Ended Year to Date Ended
Derivatives
in Cash Flow Hedging
Relationship
September 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012
Commodity derivatives $ —
$ —
$ —
$ (286 )

Amounts of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Earnings
Quarter Ended Year to Date Ended
Location of Losses Reclassified from AOCI into Income September 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012
Cost of Sales $ —
$ —
$ —
$ (413 )

The Company’s production process also involves the use of flour and natural ~~gas and flour.~~gas. The contracts for flour and natural gas range from monthly contracts to multi-year supply arrangements; however, because the quantities involved have always been for amounts to be consumed within the normal production process, the Company has determined that these contracts meet the normal purchases and sales exception and have excluded the fair value of these commitments from recognition within its condensed consolidated financial statements until the actual contracts are physically settled. See Note 4. Commitments and Contingencies for discussion on the Company’s corn, flour and natural gas purchase commitments.

The following table provides the gain or (loss) for the Company’s commodity derivatives not designated as hedging instruments and where it was recognized in the Condensed Consolidated Statements of Comprehensive ~~Income (Loss).~~Income.

Quarter Ended Year to Date Ended

Classified
September 30,
2013 September 30,
2012 September 30, 2013 September 30, 2012
Commodity derivatives Cost of sales $ —
$ 2,670
$ —
$ 2,204



		Quarter Ended
	Classified	March 31, 2014		March 31, 2013
Commodity derivatives	Cost of sales	$	—	$	63

Note 6. Operating Segments.

The Company’s operations ~~are~~have been historically classified into three reportable segments: distillery products, ingredient solutions and other. On February 8, 2013, the Company sold all of the assets included in its other segment, or its bioplastics manufacturing business, including all of the Company’s assets at its bioplastics manufacturing facility in Onaga, Kansas and certain assets of the Company’s extruder bio-resin laboratory located in Atchison, Kansas. The sales price totaled $2,797 and resulted in a gain, net of tax, of approximately $1,406 that was recognized as a gain on sale of discontinued operations for the quarter ended March 31, 2013. The remaining income statement activity for the quarter ended March 31, 2013 is not presented as discontinued operations due to their immateriality relative to the condensed consolidated financial statements as a whole.

The distillery products segment consists of food grade alcohol, along with fuel grade alcohol and distillers feed, which are co-products of the Company’s distillery operations. Ingredient solutions consist of specialty starches and proteins, commodity starch, and vital wheat gluten (commodity protein). The other segment products ~~are comprised of~~included plant-based polymers and composite resins manufactured through the further processing of certain of the Company’s proteins and starches and wood. ~~As further discussed~~The two reportable segments remaining in ~~Note 9. Sale of Bioplastics Manufacturing Business, on February 8, 2013,~~2014 are the ~~Company sold this business through a sale of assets included in the other segment.~~distillery products and ingredient solutions segments.

~~Operating~~The following table provides operating profit (loss) for each segment is based on net sales less identifiable operating expenses. Non-direct selling, general and administrative, interest expense, investment income and other general miscellaneous expenses have been excluded from segment operations and classified as Corporate. The Company’s management reporting does not assign or allocate special charges to the Company’s operating segments. Receivables, inventories and equipment have been identified with the segments to which they relate. All other assets are considered as Corporate.


	Quarter Ended						Year to Date Ended						Quarter Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012			March 31, 2014			March 31, 2013
Net Sales to Customers
Distillery products	$	66,059		$	61,513		$	200,775		$	205,194		$	64,932		$	70,804
Ingredient solutions	14,112			14,184			44,997			41,852			14,064			15,402
Other(i)	—			410			198			939						198
Total	80,171			76,107			245,970			247,985			78,996			86,404
Depreciation and Amortization
Distillery products	2,064			1,433			6,102			4,201			2,089			2,001
Ingredient solutions	572			567			1,742			1,863			583			585
Other	—			61			21			183
Other ⁽ⁱ⁾																20
Corporate	368			776			1,090			2,433			370			362
Total	3,004			2,837			8,955			8,680			3,042			2,968
Income (Loss) from Continuing Operations before Income Taxes
Distillery products	(1,647		)	3,513			5,836			9,960			5,452			4,318
Ingredient solutions	1,279			2,184			3,944			4,760			299			1,572
Other	—			(85		)	(90		)	(332		)
Other ⁽ⁱ⁾																(90		)
Corporate	(5,938		)	(5,094		)	(15,620		)	(16,847		)	(885		)	(5,729		)
Gain on sale of assets and joint venture interest(i)	—			—			—			4,055
Total	$	(6,306	)	$	518		$	(5,930	)	$	1,596		$	4,866		$	71

~~(i)~~

The Company’s management reporting does not assign or allocate special charges to the Company’s operating segments. For purposes of comparative analysis, the gain on sale of joint venture interest for the year to date period ended ~~September 30, 2012~~ ~~has been excluded from the Company’s segments.~~

⁽ⁱ⁾Significant assets from this segment were sold February 8, 2013, as previously described, and two

reportable segments remain in 2014.

The following table allocates total assets to each segment:


	As of September 30, 2013		As of December 31, 2012		As of March 31, 2014		As of December 31, 2013
Identifiable Assets
Distillery products	$	101,519	$	107,140	$	104,381	$	97,875
Ingredient solutions	27,616		27,038		26,924		24,954
Other(i)	—		1,247				—
Corporate	26,080		27,746		18,597		28,500
Total	$	155,215	$	163,171	$	149,902	$	151,329

⁽ⁱ⁾Significant assets from this segment were sold February 8, 2013, as previously described, and two reportable

segments remain in 2014.

1715

Note 7. Employee and Non-Employee Benefit Plans.

Post Retirement Benefits. The Company and its subsidiaries provide certain post-retirement health care and life insurance benefits to certain retired employees. The liability for such benefits is unfunded.

The components of the Net Periodic Benefit Cost/Income for the ~~quarter and year to date periods~~quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively, are as follows:


	Quarter Ended						Year to Date Ended						Quarter Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012			March 31, 2014			March 31, 2013
Service cost	$	32		$	48		$	96		$	159		$	28		$	33
Interest cost	41			52			123			169			47			43
Amortization of prior service cost	(162		)	(57		)	(485		)	(65		)	(155		)	(167		)
Amortization of net actuarial loss	7			(79		)	21			(79		)	—			8
Total post-retirement benefit cost / (income)	$	(82	)	$	(36	)	$	(245	)	$	184		$	(80	)	$	(83	)

The Company disclosed in its financial statements for the year ended December 31, ~~2012,~~2013, amounts expected to be paid to plan participants. There have been no revisions to these estimates and there have been no changes in the estimate of total employer contributions expected to be made for the year ended December 31, ~~2013.~~2014. The Company reclassified $155 of prior service cost from accumulated other comprehensive loss into post-retirement benefit income for the quarter ended March 31, 2014 and $~~464~~159 of prior service cost and net actuarial loss from accumulated other comprehensive ~~income (loss)~~loss into post-retirement benefit income for the prior year ~~to date period~~quarter ended ~~September 30, 2013~~.March 31, 2013.

Total employer contributions accrued for the quarter ended ~~September 30, 2013~~March 31, 2014 were $0.

Pension Benefits. The Company and its subsidiaries also provide defined retirement benefits to certain employees covered under collective bargaining agreements. Under the collective bargaining agreements, the Company’s pension funding contributions are determined as a percentage of wages paid. The funding is divided between the defined benefit plans and a union 401(k) plan. It has been management’s policy to fund the defined benefit plans in accordance with the collective bargaining agreements. The collective bargaining agreements allow the plans’ trustees to develop changes to the pension plan to allow benefits to match funding, including reductions in benefits. The benefits under these pension plans are based upon years of qualified credited service; however, benefit accruals under the defined benefit plans were frozen in 2009.

The components of the Net Periodic Benefit Cost/~~(Income)~~Income for the ~~quarter periods~~quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively, are as follows:


	Quarter Ended						Year to Date Ended						Quarter Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012			March 31, 2014			March 31, 2013
Interest cost	$	21		$	51		$	62		$	153		$	22		$	21
Expected return on plan assets	(29		)	(57		)	(86		)	(171		)	(26		)	(29		)
Amortization of net actuarial loss	17			28			50			84			5			17
Total pension benefit cost / (income)	$	9		$	22		$	26		$	66
Total pension benefit cost/(income)													$	1		$	9

The Company reclassified ~~$50~~$5 and $17 of net actuarial loss from accumulated other comprehensive ~~income (loss)~~loss into pension benefit income for the ~~year to date period~~quarters ended ~~September 30,~~March 31, 2014 and March 31, 2013,. respectively.

The Company previously disclosed in its financial statements for the year ended December 31, ~~2012~~2013, the assumptions used to determine accumulated benefit obligation.

The Company has made employer contributions to its pension plan and union 401(k) during the quarter ended ~~September 30, 2013~~March 31, 2014, of $0.$411.

1816

Equity-Based Compensation Plans. The Company’s equity based compensation plans provide for the awarding of stock options, stock appreciation rights, and shares of restricted common stock (“restricted stock”) for senior executives and salaried employees as well as outside directors. As of ~~September 30, 2013~~March 31, 2014, ~~1,113,376~~949,424 shares of restricted common stock and restricted stock units (net of forfeitures) were outstanding under the Company’s long-term incentive plans. Compensation expense related to these awards is based on the market price of the stock on the date the Board of Directors approved the grant and is amortized over the vesting period of the restricted stock award.

As of ~~September 30, 2013~~March 31, 2014, the Company was authorized to issue 40,000,000 shares of Common Stock. In connection with the Reorganization, ~~described in~~ ~~Note 1~~, the Company retired its treasury stock, which had historically been used for issuance of Common Stock under the Company’s equity-based compensation plans. With the retirement of these treasury shares, the Company reserved certain authorized shares for issuance of Common Stock under its equity-based compensation plans. Reserved shares of Common Stock at ~~September 30, 2013~~March 31, 2014 were as follows:



Stock options granted but not exercised	~~20,000~~10,000
Restricted stock to non-employees (authorized but not granted)	~~39,797~~13,383
Restricted stock to employees and executives (authorized but not granted)	~~1,338,012~~1,170,404
Total	~~1,397,809~~1,193,787

Non-Employee Directors' Plan. On March 14, 2014 the Company’s Board of Directors, upon the recommendation of the Human Resources and Compensation Committee, approved Amendment No. 1 to the MGP Ingredients, Inc. Non-Employee Directors’ Restricted Stock and Restricted Stock Unit Plan, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1 and incorporated herein by reference. The amendment modified the criteria applicable to vesting of awards and forfeiture of awards upon various vesting events, including upon retirement of a director.

Note 8. Industrial Revenue Bond.

On December 28, 2006, the Company engaged in an industrial revenue bond transaction with the City of Atchison, Kansas (the “City”) in order to receive ten-year real property tax abatement on its newly constructed office building and technical center in Atchison, Kansas. At the time of this transaction, the facilities were substantially completed and had been financed with internally-generated cash flow. The Company recorded the office building and technical center assets as property and equipment on the consolidated balance sheets. Pursuant to this transaction, the City issued $7,000 principal amount of bonds to the Company and then the City used the proceeds to purchase the office building and technical center from the Company. The City then leased the facilities back to the Company under a capital lease, the terms of which provide for the payment of basic rent in an amount sufficient to pay interest at a rate 4.9 percent on the bonds, payable annually on December 1^st of each year. A balloon payment of $7,000 will be due upon maturity on December 1, 2016. The Company’s obligation to pay rent under the lease provides for the both the same interest and balloon payment amounts and the same due dates as the City’s obligation to pay debt service on the bonds, which the Company holds. The lease permits the Company to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be cancelled. The Company does not intend to do this until their maturity date on December 1, 2016, at which time the Company may elect to purchase the facilities for $100. Because the Company owns all the outstanding bonds, management considers the debt ~~de-facto~~ cancelled and, accordingly, no investment or related obligation under the capital lease is reflected on our balance sheet. In connection with this transaction, the Company agreed to pay the ~~city~~City an administrative fee of $50, which is payable over 10 years. If the Company were to present the bonds for cancellation prior to maturity, the $50 fee would be accelerated.

Below is a summary of the financial asset and liability that are offset at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively.


	(i)			(ii)			(iii) = (i) - (ii)		(i)			(ii)			(iii) = (i) - (ii)
Description	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts offset in the Balance Sheet			Net Amounts of Assets (Liabilities) presented in the Balance Sheet		Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts offset in the Balance Sheet			Net Amounts of Assets (Liabilities) presented in the Balance Sheet

September 30, 2013
March 31, 2014
Investment in bonds	$	7,000		$	7,000		$	—	$	7,000		$	7,000		$	—
Capital lease obligation	$	(7,000	)	$	(7,000	)	$	—	$	(7,000	)	$	(7,000	)	$	—

December 31, 2012
December 31, 2013
Investment in bonds	$	7,000		$	7,000		$	—	$	7,000		$	7,000		$	—
Capital lease obligation	$	(7,000	)	$	(7,000	)	$	—	$	(7,000	)	$	(7,000	)	$	—

Note 9. Severance Costs

On December 3, 2013, the Company entered into a Settlement and Mutual Release Agreement (“Settlement Agreement”), pursuant to which the Company terminated its Chief Executive Officer and President, Timothy W. Newkirk. In connection with the Settlement Agreement, the Company agreed to pay Mr. Newkirk severance costs totaling $714. The Company also entered into a Transition Services Agreement (the “Services Agreement”), which obliges the Company to pay Mr. Newkirk up to $201, exclusive of out-of-pocket expenses. All such costs were expensed and accrued during 2013. Severance payments have been and are being made to Mr. Newkirk periodically per his Settlement Agreement in 2013 and 2014.

Certain other members of management were also terminated in fiscal 2013 and in January of 2014. All such costs totaling $716 were expensed and accrued during 2013 and first quarter 2014, and are being paid in 2014.

Activity related to severance costs was as follows:



	Quarter Ended
	March 31, 2014			March 31, 2013
Balance at beginning of year	$	1,142		$	126
Provision for additional expense	129			—
Payments and adjustments	(572		)	(27		)
Balance at end of period	$	699		$	99

Severance costs are included in Selling, General and Administrative Expenses on the Consolidated Statement of Operations and the related accrual is included in Accrued Expenses on the Condensed Consolidated Balance Sheets.

1918

~~Note 9. Sale of Bioplastics Manufacturing Business.~~

On ~~February 8, 2013~~, the Company sold its bioplastics manufacturing business through a sale of substantially all of the assets included in its other segment, including all of the Company’s assets at its bioplastics manufacturing facility in Onaga, Kansas and certain assets of the Company’s extruder bio-resin laboratory located in Atchison, Kansas. These net assets had a net book value of ~~$1,344. The sales price totaled~~ ~~$2,797~~ ~~and resulted in a gain, net of~~ ~~$47~~ ~~of taxes, of~~ ~~$1,406~~ ~~that was recognized as a gain on sale of discontinued operations in the quarter ended~~ ~~March 31, 2013~~.

~~The remaining income statement activity for the quarter and year to date periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012~~ ~~are not presented as discontinued operations due to their immateriality relative to the consolidated financial statements as a whole.~~

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

(Dollar amounts in thousands, unless otherwise noted)

MGP Ingredients, Inc. (“Company”) is a Kansas corporation headquartered in Atchison, Kansas. It was incorporated in 2011 and is a holding company with no operations of its own. Its principal directly-owned operating subsidiaries are MGPI Processing, Inc. (“Processing”) and MGPI of Indiana, LLC (“MGPI-I”). Processing was incorporated in Kansas in 1957 and is the successor to a business founded in 1941 by Cloud L. Cray, Sr. On January 3, 2012, MGP Ingredients, Inc. reorganized into a holding company structure (the “Reorganization”) through a series of steps involving various legal entities. Prior to the Reorganization, Processing was named MGP Ingredients, Inc.

MGPI-I acquired substantially all the beverage alcohol distillery assets of Lawrenceburg Distillers Indiana, LLC (“LDI”) at its Lawrenceburg and Greendale, Indiana distillery (“Indiana Distillery”) on ~~December 27, 2011~~.

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, 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 Form 10-K for the year ended December 31, ~~2012~~2013.

RECENT ACTIVITIES

~~ICP Matters~~Termination of Executives

~~ICP’s revolving credit agreement with an affiliate~~Donald G. Coffey, Ph.D (Vice President, Research, Development and Innovation) and Scott B. Phillips (Vice President, Supply Chain Operations) left the Company on January 3, 2014 and January 6, 2014, respectively. The associated severance costs of ~~SEACOR Energy Inc. expired as of~~$587 were recorded in 2013. See ~~December 31, 2012~~Note 9: Restructuring and ~~has not been renewed.~~ Severance Costs.

Under a marketing agreement, ICP manufactured and supplied food grade and industrial-use alcohol products for us and we purchased, marketed and sold such products for a marketing fee (the “Marketing Agreement”). Effective ~~January 1, 2013, the Marketing Agreement expired. We have sourced minimal product from ICP since~~ ~~April 2013~~.Business Interruption

~~Rights granted to us under the ICP Limited Liability Company Agreement allow us to shut down the plant if ICP experiences an EBITDA~~During January 2014, we experienced a small fire at our Indiana plant. The fire damaged equipment in our feed dryer house and caused a temporary loss of ~~$500~~production in ~~a quarter. ICP experienced an EBITDA loss~~late January. The fire did not impact our warehoused inventory or our customer-owned warehoused inventory. By the end of February our plant was at pre-fire production capacity. We are currently working with our insurance carrier to determine the coverage for equipment damage and business interruption losses. Production volume variances, as well as out-of-pocket costs incurred through March 31, 2014 related to the fire have been reflected in ~~excess of the~~ ~~$500~~ ~~threshold~~net income for the quarter ended March 31, 2014.

Proxy Contest and Related Matters

The proxy contest and related matters are described more fully in our Form 10-K for the year end December 31, 2013.

On December 3, 2013,~~. Such shutdown notice~~ the Company and each of the directors at that time entered into a Settlement Agreement and Mutual Release Agreement (“Settlement Agreement”) with certain common and preferred shareholders ("the Cray Group"), which provided for the dismissal with prejudice of all claims brought by any party and the termination without cause of Mr. Newkirk’s employment as CEO, and established a date to reconvene the Annual Meeting, among other matters described therein. The Company incurred $3,701 of expenses related to these related matters. The Cray Group was ~~provided on~~ ~~April 18, 2013~~also entitled to reimbursement of reasonable out-of-pocket expenses up to a cap of $1,775 as further described in ~~under~~Note 4: Commitments and Contingencies. The Company paid $1,764 to the Cray group during the quarter ended March 31, 2014. Pursuant to the terms of ~~the ICP Limited Liability Company~~Mr. Newkirk’s Employment Agreement and ~~such notice was rejected by ICP Holdings.~~a Transition Services Agreement, $915 of severance and fees are due to the Company's terminated Chief Executive Officer, Mr. Newkirk, as further described in Note 9: Restructuring and Severance Costs. The Company ~~has not withdrawn its election~~paid $197 to Mr Newkirk during the quarter ended March 31, 2014.

RESULTS OF OPERATIONS

Consolidated earnings for the quarter ended March 31, 2014 increased compared to the same period a year ago, with net income of $4,785 on consolidated net sales of $78,996 versus net income of $1,477 on consolidated net sales of $86,404 in the quarter ended March 31, 2013. Our combined earnings before income taxes for the distillery products segment, ingredient solutions and other segment decreased to $5,751 for the quarter ended March 31, 2014 from $5,800 for the quarter ended March 31, 2013. Our equity method investment earnings increased $4,276 from a loss of $942 for the quarter ended March 31, 2013 to earnings of $3,334 for the quarter ended March 31, 2014. This significant quarter-versus-quarter increase in equity method investment earnings was due primarily to our investment in ICP, which experienced much improved margins in the production of fuel grade alcohol. The improved margins were driven primarily by a low current supply and strong demand for fuel grade alcohol. ICP also recorded higher sales volumes compared to the same period a year ago. Our discontinued operations decreased quarter-versus-quarter due to the $1,406 gain (net of tax) recognized on the sale of our bioplastics manufacturing business during the quarter ended March 31, 2013.

NET SALES

Each of our segments had a quarter-versus-quarter decrease in net sales, aggregating to a net decrease of $7,408, or 8.6 percent. Net sales in the distillery products segment as a whole decreased primarily as a result of lower average pricing partially offset by increased volume of food grade alcohol. Net sales in the ingredient solutions segment as a whole decreased due to volume and average pricing decreases. Net sales in the other segment decreased due to the sale of the ~~date of this filing.~~bioplastics manufacturing business on February 8, 2013.

~~The ICP Limited Liability Company Agreement provides~~COST OF SALES

For the quarter ended March 31, 2014, cost of sales decreased $6,980, or 8.8 percent, compared to the quarter ended March 31, 2013. For the quarter ended March 31, 2014, cost of sales was 91.4 percent of net sales, which generated a gross margin of 8.6 percent. For the quarter ended March 31, 2013, cost of sales was 91.6 percent of net sales, which generated a gross profit margin of 8.4 percent.

Our lower overall costs were primarily the result of lower costs for ~~a new allocation formula for profit~~corn and ~~loss when notice~~flour partially offset by increased volume in our distillery products segment. We saw decreases in the per-bushel cost of ~~shutdown is rejected by~~corn and the per-pound cost of flour, which averaged 39.5 percent and 10.9 percent lower, respectively, than the quarter ended March 31, 2013. On the other ~~joint venture partner. From an accounting perspective, we will continue to allocate profit and loss~~ 30hand, the per-million cubic foot cost of natural gas increased by 8.0 percent compared to the ~~Company and~~ ~~70 percent~~ ~~to ICP Holdings in accordance with U.S. generally accepted accounting principles.~~quarter ended March 31, 2013.

~~Sale~~SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the quarter ended March 31, 2014 decreased by $803, or 13.7 percent, compared to the quarter ended March 31, 2013. This decrease was primarily due to reduced personnel costs for salaries, wages and bonuses related to the loss of ~~Bioplastics Business~~our CEO and certain other management positions.

INTEREST EXPENSE

Interest expense for the quarter period ended March 31, 2014 decreased $86 compared to the same period ended March 31, 2013. This decrease was primarily the result of lower average daily balance and interest rate on our line of credit compared to the same period a year ago.

EQUITY IN EARNINGS (LOSS) OF JOINT VENTURES

ICP

For the quarter ended March 31, 2014, ICP generated earnings of $10,822. As a 30 percent owner for the quarter ended March 31, 2014, our portion of the earnings was $3,246. For the quarter ended March 31, 2013, ICP incurred a loss of $3,230. As a 30 percent owner for the quarter ended March 31, 2013, our portion of the loss was $969. The significant quarter-versus-quarter increase in earnings was due to much improved margins in the production of fuel grade alcohol. The improved margins were driven primarily by a low current supply and strong demand for fuel grade alcohol. ICP also recorded higher sales volumes compared to the same period a year ago.

D.M. Ingredients, GmbH (“DMI”)

For the quarters ended March 31, 2014 and 2013, DMI had earnings of $176 and $55, respectively. As a 50 percent joint venture holder, our equity in earnings was $88 and $27 for the quarters ended March 31, 2014 and 2013, respectively.

DISCONTINUED OPERATIONS, NET OF TAX

On February 8, 2013,, we sold the assets at our bioplastics manufacturing facility in Onaga, Kansas and certain assets of our extruder bio-resin laboratory located in Atchison, Kansas. The sales price totaled ~~$2,797~~$2,797 and resulted in a ~~gain,~~ net of tax gain of ~~$1,406~~$1,406 that was recognized as discontinued operations in the quarter ended March 31, ~~2013~~.

~~RESULTS OF OPERATIONS~~

~~Consolidated results for the quarter ended~~ ~~September 30, 2013~~ ~~decreased compared to the same period a year ago, with a net loss of~~ ~~$6,325~~ ~~on consolidated net sales of~~ ~~$80,171~~ ~~versus net income of~~ ~~$418~~ ~~on consolidated net sales of~~ ~~$76,107~~ ~~in the quarter ended~~ ~~September 30, 2012. We generated a loss from operations of~~ ~~$5,946~~ ~~for the quarter ended~~ ~~September 30, 2013, compared to income from operations of~~ ~~$874~~ ~~for the quarter ended~~ ~~September 30, 2012~~.

~~Our net sales for the quarter ended~~ ~~September 30, 2013~~ ~~increased~~ ~~$4,064, or~~ ~~5.3~~ ~~percent, compared to the quarter ended~~ ~~September 30, 2012~~ ~~primarily due to improved pricing in our distillery products segment. Our quarter-versus-quarter earnings decreased for the quarter ended~~ ~~September 30, 2013~~ ~~primarily due to:~~

▪~~lower gross margins as further discussed in "-Cost of Sales"~~;


▪	~~a $889 gain on asset sale recorded during the quarter ended September 30, 2012, which we did not have this quarter; and~~


▪	~~increased selling, general and administrative expenses for the~~ ~~September 30, 2013~~ ~~primarily related to increased professional fees related to the corporate proxy dispute, which we did not have the same period a year ago.~~

In our distillery products segment, we experienced an increase in unit volume and a decrease in per unit pricing compared to the same period a year ago. The distillery products segment sales were also impacted by the sales price decline of our distillers feed by-product and significantly lower industrial alcohol sales volume. The unit volume increase was primarily in our distillers feed partially offset by a decrease in our high quality food grade alcohol, which was primarily driven by a 99 percent ~~reduction in the supply of industrial alcohol from ICP compared to the same period a year ago. Our return on sales percentage in the~~ ~~distillery product segment decreased from 5.7 percent for the quarter ended~~ ~~September 30, 2012~~ ~~to a negative 2.5 percent for the quarter ended~~ ~~September 30, 2013~~, primarily due to a quarter-versus-quarter unfavorable impact to sales from the price decline of our distillers feed, further impacted by significantly lower sales from industrial alcohol. In addition, the year ago quarter had a sizable hedging gain of $1.8 million. In our ingredient solutions segment we experienced a decrease in volume partially offset by improved pricing. Our return on sales percentage in the ingredient solutions segment remained the same at 9.1 percent quarter-versus-quarter due to improved sales mix, despite our pricing increases being outpaced by increased commodity costs. We had no sales in our other segment due to the sale of the bioplastics manufacturing business on ~~February 8, 2013~~.

~~Consolidated results for the year to date period ended~~ ~~September 30, 2013~~ ~~decreased compared to the same period a year ago, with a net loss of~~ ~~$4,568~~ ~~on consolidated net sales of~~ ~~$245,970~~ ~~versus net income of~~ ~~$1,444~~ ~~on consolidated net sales of~~ ~~$247,985~~ ~~in the year to date period ended~~ ~~September 30, 2012. We generated a loss from operations of~~ ~~$4,139~~ ~~for the year to date period ended~~ ~~September 30, 2013, compared to loss from operations of~~ ~~$1,914~~ ~~for the year to date period ended~~ ~~September 30, 2012~~.

~~The decrease in net sales for the year to date period ended~~ ~~September 30, 2013~~ ~~compared to~~ ~~September 30, 2012~~ ~~was primarily the result of our decreased total alcohol sales volume in the distillery products segment. Our net income decreased for the year to date period primarily due to:~~

▪~~lower gross margins as further discussed in~~ ~~"-Cost of Sales"~~;


▪	~~an $841 gain recorded during the year to date period ended September 30, 2012, which we did not have in the current period;~~


▪	~~an unfavorable period-versus-period change in earnings from our equity method investments; and~~


▪	~~a $4,055 gain recorded related to the sale of a 20 percent interest in our joint venture, ICP, during the year to date period ended September 30, 2012, which we did not have this period.~~

~~These decreases to net income were partially offset by a~~ ~~$1,406~~ ~~gain on sale of the bioplastics business, which was treated as discontinued operations and decreased selling, general and administrative expenses for the year to date period ended~~ ~~September 30, 2013. See "-Selling, General and Administrative Expenses"~~ ~~for additional information.~~

In our distillery products segment, we experienced a decrease in per unit pricing and an increase in unit volume compared to the same period a year ago. Distillery products segment sales were also impacted by significantly lower industrial alcohol sales for the year to date period ended ~~September 30, 2013. The volume decrease in our high quality food grade alcohol was primarily driven by an 90 percent~~ ~~reduction in the supply of industrial alcohol from ICP compared to the same period a year ago.~~ ~~A decrease in sales in our distillery products segment, additional product cost items for the quarter ended~~ ~~September 30, 2013, and the increased cash costs for corn led to a decrease in our return on sales from 4.9 percent for the year to date period ended~~ ~~September 30, 2012, to 2.9 percent for the year to date period ended~~ ~~September 30, 2013~~. The cash cost for corn increased in the wake of last year's drought. In our ingredient solutions segment we experienced increases in volume and pricing. These increases were out-paced by the increased price of flour, which led to a decrease in ingredient solutions return on sales from 9.4 percent for the year to date period ended ~~September 30, 2012, to 8.8 percent for the year to date period ended~~ ~~September 30, 2013. Other segment sales declined due to the sale of the bioplastics manufacturing business on~~ ~~February 8, 2013~~.

~~NET SALES~~

~~Net sales for the quarter ended~~ ~~September 30, 2013~~ ~~increased~~ ~~$4,064, or~~ ~~5.3~~ ~~percent, compared to the quarter ended~~ ~~September 30, 2012~~. This increase was attributable to an increase in distillery product sales partially offset by decreased net sales in the ingredient solutions segment and the other segment. Net sales in the distillery products segment as a whole increased primarily as a result of sales mix, partially offset by lower food grade alcohol volumes and by-product prices. The lower volumes of food grade alcohol sales were primarily driven by a 99 percent ~~reduction in the sourcing of industrial alcohol from ICP to be sold by the Company. N~~et sales in the ingredient solutions segment as a whole decreased primarily as a result of lower volumes partially offset by higher pricing. We had no net sales in the other segment due to the sale of the bioplastics manufacturing business on ~~February 8, 2013~~.

~~Net sales for the year to date period ended~~ ~~September 30, 2013~~ ~~decreased~~ ~~$2,015, or~~ ~~0.8~~ ~~percent, compared to the year to date period ended~~ ~~September 30, 2012~~. This decrease was primarily attributable to a decrease in net sales in the distillery products and other segments partially offset by increased net sales in the ingredient solutions segment. Net sales in the distillery products segment as a whole decreased primarily as a result of 90 percent lower ~~supply of industrial alcohol from ICP to be sold by the Company,~~ partially offset by improved pricing. The increase in net sales in the ingredient solutions segment was due to both increased volume and improved pricing. Our other segment experienced a decrease in net sales due to the sale of the bioplastics manufacturing business on ~~February 8, 2013~~.

~~COST OF SALES~~

~~For the quarter ended~~ ~~September 30, 2013, cost of sales increased~~ ~~$9,309, or~~ ~~13.3~~ ~~percent, compared to the quarter ended~~ ~~September 30, 2012. For the quarter ended~~ ~~September 30, 2013, cost of sales was~~ ~~99.0~~ ~~percent of net sales, which generated a gross profit margin of~~ ~~1.0~~ ~~percent. For the quarter ended~~ ~~September 30, 2012, cost of sales was~~ ~~92.0~~ ~~percent of net sales, which generated a gross margin of~~ ~~8.0~~ ~~percent. Our higher overall total cost of sales was primarily the result of higher product costs across all segments. In our distillery segment we saw a~~ ~~$7,200~~ ~~increase in cost of sales related to:~~

~~a sales price decline in distillers feed by-product, and~~

~~a year-ago quarter hedging gain compared to no hedging impact to cost of sales in the current period.~~

These cost increases were partially offset by sales volume decrease related to the ingredient products segment and other segment. We saw increases in the per-pound cost of flour and the per-million cubic foot cost of natural gas of 13.9 percent and 4.1 percent, respectively, compared to the quarter ended ~~September 30, 2012~~. In addition, we saw an increase in the per-bushel cost of corn (inclusive of the effect of an update in our standard product costs and exclusive of the impact related to the accounting for open commodity contracts), of approximately 0.1 percent higher than the same period a year ago.

~~For the year to date period ended~~ ~~September 30, 2013, cost of sales increased~~ ~~$2,263, or~~ ~~1.0~~ ~~percent, compared to the year to date period ended~~ ~~September 30, 2012. For the year to date period ended~~ ~~September 30, 2013, cost of sales was~~ ~~94.6~~ ~~percent of net sales, which generated a gross profit margin of~~ ~~5.4~~ ~~percent. For the year to date period ended~~ ~~September 30, 2012, cost of sales was~~ ~~92.9~~ ~~percent of net sales, which generated a gross profit margin of~~ ~~7.1~~ ~~percent. Our higher overall total cost of sales was primarily due to an increase in the cost of natural gas and increases in certain other product costs in our distillery products segment including:~~

~~higher corn costs;~~

~~a significant change in sales mix and the associated costs of these sales; and~~

~~a year-ago hedging gain compared to no hedging impact to cost of sales in current year to date period.~~

We saw an increase in the per-bushel cost of corn (inclusive of the effect of an update in our standard product costs and exclusive of the impact related to the accounting for open commodity contracts), the per-pound cost of flour, and the per-million cubic foot cost of natural gas, which averaged approximately 10.2 percent, 19.0 percent and 2.8 percent higher, respectively, than the year to date period ended ~~September 30, 2012. During the year to date period ended~~ ~~September 30, 2013~~, the Company experienced unanticipated operational issues, including incoming power supply interruptions in Atchison, KS, on three different days, which negatively impacted manufacturing output compared to the same period a year ago.

~~SELLING, GENERAL AND ADMINISTRATIVE EXPENSES~~

~~Selling, general and administrative expenses for the quarter ended~~ ~~September 30, 2013~~ ~~increased by~~ ~~$723, or~~ ~~12.0~~ ~~percent, compared to the quarter ended~~ ~~September 30, 2012~~. This increase was primarily due to bonus accrual over the same period a year ago, as well as increased professional fee expenses related to the dissident shareholder matter, which we did not have in the same period a year ago.

~~Selling, general and administrative expenses for the year to date period ended~~ ~~September 30, 2013~~ ~~decreased by~~ ~~$2,665, or~~ ~~13.3~~ ~~percent, compared to the year to date period ended~~ ~~September 30, 2012~~. This decrease was primarily due to a reduction in accruals associated with our incentive program, synergies in the management of the Lawrenceburg plant and a decrease in professional fees. This overall decrease in professional fees was partially offset by increased professional fee accruals for year to date period ended ~~September 30, 2013~~ ~~related to the dissident shareholder matter.~~

~~GAIN ON SALE OF JOINT VENTURE INTEREST~~

~~On February 1, 2012, ICP Holdings exercised its option to purchase from the Company an additional~~ ~~20 percent~~ ~~of the membership interest in ICP. The sales price was~~ ~~$9,103~~ ~~and the transaction resulted in a pre-tax gain of~~ ~~$4,055~~ ~~for the period ended~~ ~~September 30, 2012~~.

~~INTEREST EXPENSE~~

~~Interest expense for the quarter and year to date periods ended~~ ~~September 30, 2013~~ ~~increased~~ ~~$43~~ ~~and~~ ~~$120~~ ~~respectively, compared to the same periods ended~~ ~~September 30, 2012. These increases were primarily the result of higher average daily revolving credit facility balance and interest rate thereon compared to the same period a year ago.~~

~~EQUITY IN EARNINGS (LOSS) OF JOINT VENTURES~~

~~ICP~~

~~For the quarter ended~~ ~~September 30, 2013, ICP experienced net loss of~~ ~~$585. With a~~ ~~30 percent~~ ~~allocation of net loss for the quarter ended~~ ~~September 30, 2013, our portion (including a year-to-date adjustment) of the net loss was~~ ~~$135. For the quarter ended~~ ~~September 30, 2012, ICP had a loss of~~ ~~$448. As a~~ ~~30 percent~~ ~~owner, our portion of the loss was~~ ~~$134~~.

~~For the year to date periods ended~~ ~~September 30, 2013, ICP had a loss of~~ ~~$3,472. With an~~ ~~30 percent~~ ~~allocation of net loss for the year to date period ended~~ ~~September 30, 2013, our portion of the net loss was~~ ~~$1,042. For the year to date period ended~~ ~~September 30, 2012, ICP had net income of~~ ~~$311. As a~~ ~~50 percent~~ ~~owner for the month of January 2012 and a~~ ~~30 percent~~ ~~owner for the months of February through June 2012, our portion of the net income was~~ ~~$229~~.

~~As previously discussed in "--Recent Activities~~," the ICP Limited Liability Company Agreement provides for a new allocation formula for profit and loss when notice of shutdown is rejected by the other joint venture partner. From an accounting perspective, we will continue to allocate profit and loss ~~30 percent~~ ~~to the Company and~~ ~~70 percent~~ ~~to ICP Holdings in accordance with U.S. generally accepted accounting principles.~~

~~D.M. Ingredients, GmbH (“DMI”)~~

~~For the quarters ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, DMI had net income of~~ ~~$88~~ ~~and~~ $7~~, respectively. As a~~ ~~50 percent~~ ~~joint venture holder, our equity in net income (loss) was~~ ~~$44~~ ~~and~~ $4 ~~for the quarters ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively.~~

~~For the year to date periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, DMI had net income (loss) of~~ ~~$159~~ ~~and~~ ~~$(130), respectively. As a~~ ~~50 percent~~ ~~joint venture holder, our equity in net income (loss) was~~ ~~$80~~ ~~and~~ ~~$(65)~~ ~~for the year to date periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively.~~

~~DISCONTINUED OPERATIONS, NET OF TAX~~

On ~~February 8, 2013, we sold the assets at our bioplastics manufacturing facility in Onaga, Kansas and certain assets of our extruder bio-resin laboratory located in Atchison, Kansas. The sales price totaled~~ ~~$2,797~~ ~~and resulted in a net of tax gain of~~ ~~$1,406~~ ~~that was recognized as discontinued operations in the quarter ended~~ ~~March 31, 2013~~.2013.

NET INCOME ~~(LOSS)~~

As the result of the factors outlined above, we ~~experienced a~~generated net ~~loss~~income of ~~$6,325~~ ~~and~~ ~~$4,568~~ in$4,785 for the quarter ~~and year to date periods~~ ended ~~September 30, 2013, respectively,~~March 31, 2014 compared to net income of ~~$418~~ ~~and~~ ~~$1,444~~$1,477 in the quarter ~~and year to date periods~~ ended ~~September 30, 2012, respectively.~~ March 31, 2013.

SEGMENT RESULTS

The following is a summary of revenues and pre-tax profit / (loss) attributed to each reportable operating segment for the ~~quarter and year to date periods~~quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013. For additional information regarding our operating segments, see Note 6. Operating Segments of this Form 10-Q.


	Quarter Ended						Year to Date Ended						Quarter Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012			March 31, 2014		March 31, 2013
Distillery products
Distillery Products
Net Sales	$	66,059		$	61,513		$	200,775		$	205,194		$	64,932	$	70,804
Pre-Tax Income/(Loss)	(1,647		)	3,513			5,836			9,960			5,452		4,318
Ingredient solutions
Ingredient Solutions
Net Sales	14,112			14,184			44,997			41,852			14,064		15,402
Pre-Tax Income	1,279			2,184			3,944			4,760			299		1,572
Other
Net Sales	—			410			198			939					198
Pre-Tax Loss	—			(85		)	(90		)	(332		)			(90		)

DISTILLERY PRODUCTS

Total distillery products net sales for the quarter ended ~~September 30, 2013~~ ~~increased~~ ~~$4,546~~,March 31, 2014 decreased $5,872, or ~~7.4~~8.3 percent, compared to the quarter ended ~~September 30, 2012~~.March 31, 2013. This ~~increase~~overall decrease was primarily attributable to a ~~7.7 percent increase~~$4,974 decrease in net sales of high quality food grade alcohol, which was due to a ~~15.8~~19.1 percent ~~increase~~decrease in ~~per unit~~average pricing partially offset by a ~~6.9~~12.5 percent ~~decrease~~increase in volume ~~compared to the same period a year ago. The volume decrease in our high quality food grade alcohol was primarily driven by a 99 percent reduction in the supply of industrial alcohol from ICP~~ compared to the same period a year ago. Also contributing to the ~~increase in distillery products~~overall net sales ~~were increases of $395 and $373~~decrease was a $2,974 quarter-versus-quarter decrease in distillers feed and ~~warehousing revenue, respectively, for~~related co-products. These decreases in the ~~quarter ended~~ ~~September 30, 2013, compared to the quarter ended~~ ~~September 30, 2012. Despite~~overall distillery segment were partially offset by quarter-versus-quarter increases in ~~volume in our overall~~fuel grade alcohol and warehouse net sales of $1,805 and $271, respectively. While the distillery products segment we experienced a decrease of 11.5 percent in ~~return on sales which was impacted by the~~ ~~$7,200~~ ~~unfavorable~~average pricing quarter-versus-quarter, ~~cost of sales impact as previously described in~~ ~~"--Cost of Sales."~~ ~~For the quarter ended~~ ~~September 30, 2013~~, the per-bushel cost of corn ~~averaged approximately 0.1~~decreased 39.5 percent ~~higher (inclusive of~~quarter-versus-quarter. This led to an increase in the ~~effect of an update in our standard product costs and exclusive of the impact related~~return on net sales to ~~the accounting~~8.4 percent for ~~open commodity contracts) than~~ the quarter ended ~~September 30, 2012~~.

~~Total distillery products sales revenue~~March 31, 2014 compared to 6.1 percent for the ~~year to date period~~quarter ended ~~September 30, 2013~~ ~~decreased~~ ~~$4,419, or~~ ~~2.2 percent, compared to the year to date period ended~~ ~~September 30, 2012~~. This decrease was primarily attributable to a decrease in sales of high quality food grade alcohol of 6.4 percent, which was due to a 21.2 percent decrease in volume partially offset by a 18.8 percent increase in per unit pricing compared to the same period a year ago.March 31, 2013. The volume decrease in our high quality food grade alcohol was primarily driven by a 90 percent reduction in the supply of industrial alcohol from ICP compared to the same period a year ago. The decrease in distillery products sales revenue was partially offset by increases of $5,461 and $1,054 in distillers feed and warehousing revenue, respectively, earned at our Indiana Distillery for the year to date period ended ~~September 30, 2013~~ compared to the prior year to date period. The increase in net sales of distillers feed was due to a 9.2 percent increase in per unit pricing and a 9.0 percent increase in volume compared to the same period a year ago. Despite increases in volume in our overall distillery products segment, we experienced a decrease in return on sales which was impacted by the increase in the cost of natural gas and increases in certain other product costs period-versus-period as previously described in ~~"--Cost of Sales."~~ Our overall distillery segment pricing was out-paced by increased costs for corn, which rose in the wake of last year's drought, as well as increased costs for natural gas. For the year to date period ended ~~September 30, 2013~~, the per-bushel cost of corn (inclusive of the effect of an update in our standard product costs and exclusive of the impact related to the accounting for open commodity contracts) and the per millionper-million cubic foot cost of natural gas averaged ~~10.2 percent and 2.8~~nearly 8.0 percent higher ~~respectively,~~ than the same period a year ~~to date period ended~~ ~~September 30, 2012~~.ago.

INGREDIENT SOLUTIONS

Total ingredient solutions net sales for the quarter ended ~~September 30, 2013~~March 31, 2014 decreased by ~~$72~~,$1,338, or ~~0.5~~8.7 percent,, compared to the quarter ended ~~September 30, 2012. For~~March 31, 2013. Net sales for specialty wheat proteins for the ~~segment as~~quarter ended March 31, 2014 decreased $842 compared to the quarter ended March 31, 2013 due to a ~~whole, we~~volume decrease along with flat average pricing. Specialty wheat starches saw a ~~6.5 percent~~$368 decrease in ~~volume, partially offset by a 6.4 percent increase in average price per unit, including product mix effects. There were no significant~~net sales ~~changes in various product lines. As previously discussed in “-Results of Operations”,~~ our return on sales percentage in the ingredient solutions segment remained the same quarter-versus-quarter due to improved sales mix, despite our pricing increases being outpaced by increased commodity costs. Offsetting this decrease to gross margins were improved mix of sales. Flour costs averaged approximately 13.9 percent higher per pound compared to the same ~~quarter~~period a year ~~ago.~~

~~Total ingredient solutions sales revenue for the year~~ago due to ~~date period ended~~ ~~September 30, 2013~~ ~~increased~~lower pricing partially offset by ~~$3,145, or~~ ~~7.5 percent, compared to the year to date period ended~~ ~~September 30, 2012. Specialty starches~~an increase in volume. Commodity wheat starch saw a ~~7.3~~7.1 percent increase in ~~revenues~~net sales compared to the same period a year ago due to a volume increase ~~along with an increase in per unit pricing. Revenues for specialty proteins for the year to date period ended~~ ~~September 30, 2013~~ ~~increased 2.2 percent compared to the year to date period ended~~ ~~September 30, 2012~~ ~~due to an increase in per unit pricing~~ partially offset by a decrease in ~~volume.~~ Commodity protein saw an 931.4 percent increase in revenues compared the same period a year ago due to a significant volume increase partially along with an increase in per unit pricing, as tight market conditions for vital wheat gluten created a temporary selling opportunity. Commodity starch saw an 7.7 percent decrease in revenues compared the same period a year ago due to a volume decrease partially offset an increase in per unit pricing. ~~Revenues for commodity starches and proteins totaled 19.0 percent and 17.2 percent of total segment sales for the year to date periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively.~~ While we experienced a ~~period-versus-period~~quarter-versus-quarter increase in our commodity products as a percentage of total segment net sales, our focus remains on the production and commercialization of specialty ~~ingredients, which accounted for over 80% of our sales.~~ingredients. Our return on net sales ~~percentage in~~decreased from 10.2 percent for the ~~ingredient solutions segment decreased~~quarter ended March 31, 2013 to 2.1 percent for the quarter ended March 31, 2014. This decrease was driven primarily by mix of sales during the ~~year to date period~~quarter ended ~~September 30, 2013~~March 31, 2014 compared to the ~~year to date period~~quarter ended ~~September 30, 2012. This was principally due to higher raw material cost for flour outpacing our pricing increases. Similar to commodity cost pressures experienced in our distillery products segment,~~March 31, 2013. While the ~~commodity costs in our ingredient~~ingredients solutions segment ~~also increased. Flour costs~~as a whole experienced a 7.6 percent quarter-versus-quarter decrease in average pricing, we saw a decrease in the per-pound cost of flour, which averaged ~~approximately 19.0~~10.9 percent ~~higher per pound~~lower than the quarter ended March 31, 2013. On the other hand, the per-million cubic foot cost of natural gas increases by 8.0 percent compared to the ~~same period a year ago.~~quarter ended March 31, 2013.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

Our principal uses of cash in the ordinary course are for the cost of raw materials and energy used in our production processes, salaries, and capital expenditures. Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels. Our principal sources of cash are product sales and borrowing on our revolving credit facility. At ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, our cash balance was $0 and $2,857, respectively, and we have used our revolving credit facility for liquidity purposes, with $~~19,463~~20,936 remaining for additional borrowings at ~~September 30, 2013~~March 31, 2014. Historically, we also have used cash for acquisitions and received cash from investment or asset dispositions and tax refunds.

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

On ~~February 1, 2012, we sold a~~ ~~20 percent~~ ~~interest in ICP to ICP Holdings for~~ ~~$9,103. The sale resulted when ICP Holdings exercised an option it acquired from the Company when ICP Holdings purchased its existing interest in ICP in 2009.~~$2,797.

~~As we purchase corn for future delivery under grain supply agreements, we no longer~~We have ~~any open corn futures or options at~~ ~~September 30, 2013~~ ~~and our need for restricted cash is minimal.~~

~~During August 2012, we amended our agreements~~an agreement with the third-party logistics company that contracts on our behalf with transportation companies ~~in order~~ that ~~invoices from the logistics company for fees would be submitted to~~provides us ~~on a weekly basis~~ with 90 days to pay each invoice. In conjunction with this ~~amendment,~~agreement, we established a $2,000 letter of credit.

On February 28, ~~2013~~,2014, the Board of Directors declared a five (5) cent dividend and dividend equivalent per share of the Company’s common stock, no par value (the “Common Stock”). The ~~$916~~total dividend and dividend equivalent of $910 was paid on April ~~10, 2013~~,9, 2014, to stockholders of record of Common Stock, restricted stock and restricted stock units on March ~~18,~~17, 2014.

On February 28, 2013,~~. On~~ ~~March 1, 2012~~, the Board of Directors declared a five (5) cent dividend and dividend equivalent per share of the Company’s Common Stock. The ~~$914~~total dividend and dividend equivalent of $916 was paid on April ~~19, 2012~~10, 2013, to stockholders of record of Common Stock, restricted stock and restricted stock units on March ~~22, 2012~~.18, 2013.

We expect ~~$8,000~~$4,000 to ~~$10,000~~$6,000 in routine capital expenditures over the twelve month period ending ~~September 30, 2014~~March 31, 2015, related to ~~other~~ improvements in and replacements of existing plant and equipment. The cost to repair or replace equipment ~~and information technology.~~damaged in the January 2014 fire at the Lawrenceburg plant will be in addition to this number, but has not yet been determined. We anticipate these expenditures will be largely covered by insurance claim collections. As of ~~September 30, 2013~~March 31, 2014, we had contracts to acquire approximately ~~$842~~$614 of capital assets.

As previously discussed, we had significant professional fees and severance costs accrued at December 31, 2013 related to the proxy contest. $2,213 of these accruals were paid during the quarter ended March 31, 2014. The balance of the proxy-related accruals of $293 is expected to be paid over the remainder of this calendar year.

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

The following table is presented as a measure of our liquidity and financial condition:



	March 31, 2014		December 31, 2013
Cash and cash equivalents	$	—	$	2,857
Working capital	39,276		37,736
Credit facility, notes payable and long-term debt outstanding	23,239		23,168
Amounts available under lines of credit	20,936		23,920
Stockholders’ equity	85,351		81,603



	Quarter Ended
	March 31, 2014			March 31, 2013
Depreciation and amortization	$	3,042		$	2,968
Capital expenditures	(2,182		)	(798		)
Cash flows from operations	(642		)	2,554

September 30,
2013 December 31,
2012
Cash and cash equivalents $ —
$ —
Working capital 47,501
48,320
Credit facility, notes payable and long-term debt outstanding 30,430
32,744
Amounts available under lines of credit 19,463
18,381
Stockholders’ equity 81,462
86,827

Year to Date Periods
September 30, 2013 September 30, 2012
Depreciation and amortization $ 8,955
$ 8,680
Capital expenditures (3,571 ) (7,712 )
Cash flows from operations 4,004
(7,453 )

2723

CASH FLOW INFORMATION

~~Summary cash flow information follows for the year to date periods ended ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively:~~

Year to Date Periods
September 30, 2013 September 30, 2012
Cash flows provided by (used for):
Operating activities $ 4,004
$ (7,453 )
Investing activities (774 ) 4,106
Financing activities (3,230 ) 2,964
Decrease in cash and cash equivalents —
$ (383 )
Cash and cash equivalents at beginning of year —
383
Cash and cash equivalents at end of period $ —
$ —

~~During the year to date period ended~~ ~~September 30, 2013, our consolidated cash remained~~ $0 ~~compared to the year to date period ended~~ ~~September 30, 2012, in which there was a~~ ~~$383~~ decrease. Increased operating cash flow resulted primarily from a decrease in receivables, a smaller period-versus-period increase in inventory and a smaller period-versus-period decrease in accounts payable. These increases to operating cash flow were partially offset by a period-versus-period change in the derivative valuation, a decrease in restricted cash and a decrease in net income (after giving effect to non-cash gains of ~~$1,453~~ ~~and~~ ~~$4,055~~ ~~in the periods~~ ~~September 30, 2013~~ ~~and~~ ~~2012, respectively, and equity in loss of~~ ~~$962~~ ~~for the year to date period ended~~ ~~September 30, 2013~~ ~~compared to equity earnings of~~ ~~$164~~ ~~for the year to date period ended~~ ~~September 30, 2012). Cash outflows related to capital expenditures during the year to date period ended~~ ~~September 30, 2013~~ ~~decreased compared to the year to date period ended~~ ~~September 30, 2012, and proceeds from the disposition of property decreased (including sales of bioplastics manufacturing business in the year to date period ended~~ ~~September 30, 2013~~ ~~and our sale of a 20 percent interest in ICP for the year to date period ended~~ ~~September 30, 2012) decreased. During the year to date period ended~~ ~~September 30, 2013, net debt declined by $2,314 as compared to the year to date period ended~~ ~~September 30, 2012, in which borrowings on debt exceeded payments on debt by $3,978.~~

Operating Cash Flows. Summary operating cash flow information for the ~~year to date periods~~quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, respectively, is as follows:


	Year to Date Period Ended						Quarter Ended
	September 30, 2013			September 30, 2012			March 31, 2014			March 31, 2013
Cash Flows from Operating Activities
Net income (loss)	$	(4,568	)	$	1,444
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income							$	4,785		$	1,477
Adjustments to reconcile net incometo net cash provided by (used in) operating activities:
Depreciation and amortization	8,955			8,680			3,042			2,968
Gain on sale of bioplastics manufacturing business	(1,453		)	—			—			(1,453		)
Gain on sale of joint venture interest	—			(4,055		)
Loss on sale of assets	—			(841		)
Loss on damaged equipment							—			—
Share based compensation	970			628			149			353
Equity in (earnings) loss	962			(164		)
Equity method investment (earnings) loss							(3,334		)	942
Changes in operating assets and liabilities:
Restricted cash	12			7,476			—			12
Receivables, net	3,529			(2,490		)	(4,050		)	980
Inventory	(342		)	(3,423		)	4,042			(2,539		)
Prepaid expenses	(541		)	(621		)	(942		)	(654		)
Refundable income taxes	16			152			208			(38		)
Accounts payable	(509		)	(8,031		)	(3,352		)	3,603
Accounts payable to affiliate, net	(3,491		)	(3,595		)	1,360			(3,287		)
Accrued expenses	1,478			1,311			(1,951		)	529
Change in derivatives	—			(2,492		)
Deferred credit	(340		)	(448		)	(155		)	(97		)
Accrued retirement health and life insurance benefits and other noncurrent liabilities	(680		)	(826		)	(214		)	(242		)
Other							(230		)	—
Net cash provided by (used in) operating activities	$	4,004		$	(7,453	)	$	(642	)	$	2,554

Cash flow from operations for the ~~year to date period~~quarter ended ~~September 30, 2013~~ ~~improved~~ ~~$11,457~~ to ~~$4,004~~,March 31, 2014 decreased $3,196 from ~~a use of cash by operations of~~ ~~$(7,453)~~$2,554 for the ~~year~~quarter ended March 31, 2013 to ~~date period~~$(642) for the quarter ended ~~September 30, 2012~~.March 31, 2014. This ~~improvement~~decrease in operating cash flow was primarily the result of a decrease in ~~receivables, a smaller period-versus-period~~accounts payable, an increase in ~~inventory~~receivables and ~~smaller period-versus-period~~a decrease in ~~accounts payable. Receivables~~accrued expenses. Accounts payable decreased ~~$3,529~~$3,352 for ~~the year to date period~~quarter ended ~~September 30, 2013~~March 31, 2014 compared to an increase of ~~$2,490~~$3,603 for the ~~year~~quarter ended March 31, 2013, with the resulting change due primarily to ~~date period~~timing of cash disbursements. Receivables increased $4,050 for the quarter ended ~~September 30, 2012~~.March 31, 2014 compared to a decrease of $980 for the quarter ended March 31, 2013. The ~~decrease~~increase in receivables was due to the timing of cash ~~receipts and a reduction in volumes, especially related to reduced 2013 sales activity sourced from ICP. The increase in receivables at~~ ~~September 30, 2012~~ ~~was directly related to our acquisition of the Indiana Distillery on December 27, 2011, which caused an increase in sales and associated receivables. Inventory increased~~ ~~$342~~receipts. Accrued expenses decreased $1,951 for the ~~year to date period~~quarter ended ~~September 30, 2013~~March 31, 2014 compared to an increase of ~~$3,423~~$529 for the ~~year to date period~~quarter ended ~~September 30, 2012, with a resulting change primarily~~March 31, 2013. The decrease in accrued liabilities was due to timing of cash ~~disbursements. Accounts payable decreased~~ ~~$509~~ ~~for year~~disbursements related to ~~date period ended~~ ~~September 30,~~ 2013 ~~compared to a decrease of~~ ~~$8,031~~ ~~for the year to date period ended~~ ~~September 30, 2012, with a resulting change due primarily to timing of cash disbursements.~~ bonus accruals.

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

•An increase in net income (after giving effect to non-cash gains of ~~$1,453~~ ~~and~~ ~~$4,055~~ in$1,453 for the ~~periods~~ ~~September 30,~~quarter March 31, 2013 ~~and~~ ~~2012, respectively,~~ and equity inmethod investment earnings of $3,334 for the quarter ended March 31, 2014 compared to a loss of $942 for the quarter ended March 31, 2013); and

•For the quarter ended March 31, 2014, inventory decreased by $4,042 compared to an increase of $2,539 for the quarter ended March 31, 2013, with the resulting change primarily due to timing of cash disbursements.

•For the quarter ended March 31, 2014, accounts payable to affiliate, net increased $~~962~~1,360 compared to a decrease of $3,287 for the quarter ended March 31, 2013, with the resulting change primarily due to timing of payments as well as less purchases from ICP the same period a year ~~to date period ended~~ ago.~~September 30, 2013~~ ~~compared to equity earnings of~~ ~~$164~~ ~~for the year to date period ended~~ ~~September 30, 2012) and a reduction in restricted cash. For the year to date period ended~~ ~~September 30, 2013, our pledge requirement decreased~~ ~~$12, given that we no longer have any open market positions. This compares to an decrease in the pledge requirement of~~ ~~$7,476~~ ~~for the year to date period ended~~ ~~September 30, 2012~~.

2924

Investing Cash Flows. Net investing cash flow for the ~~year to date period~~quarter ended ~~September 30, 2013~~March 31, 2014 was ~~$(774)~~$(2,182) compared to ~~$4,106~~$1,999 for the ~~year to date period~~quarter ended ~~September 30, 2012~~.March 31, 2013. During the ~~year to date period~~quarter ended ~~September 30,~~March 31, 2014, we made capital investments of $2,182. During the quarter ended March 31, 2013,, we received proceeds of ~~$2,797~~$2,797 from the sale of our bioplastics manufacturing business and we made capital investments of ~~$3,571. During the year to date period ended~~ ~~September 30, 2012, we received proceeds from the disposition of property and equipment of~~ ~~$3,215, and we also received proceeds of~~ ~~$9,103~~ ~~related to the sale of a~~ ~~20 percent~~ ~~interest in ICP. During the year to date period ended~~ ~~September 30, 2012, we made capital investments of~~ ~~$7,712~~ ~~and we we also made a~~ ~~$500~~ ~~expenditure to fund our portion of the capital improvements at ICP.~~$798.

Financing Cash Flows. Net financing cash flow for the ~~year to date period~~quarter ended ~~September 30, 2013~~March 31, 2014 was ~~$(3,230) thousand~~$(33) compared to ~~$2,964~~$(4,553) for the ~~year to date period~~quarter ended ~~September 30, 2012~~,March 31, 2013, for a net ~~decrease~~improvement in financing cash flow of ~~$6,194~~.$4,520. During the ~~year to date period~~quarter ended ~~September 30, 2013~~,March 31, 2014, we had net ~~payments~~borrowings of ~~$1,026 under~~$455 from our ~~operating~~ line of credit compared to net ~~borrowings~~payments of ~~$5,226~~$4,127 for the ~~year to date period~~quarter ended ~~September 30, 2012~~.March 31, 2013. Our payments on long-term debt totaled ~~$1,288~~$384 and $426 for the ~~year~~quarters ended March 31, 2014 and 2013, respectively. We purchased shares of stock from terminated employees during the quarter ended March 31, 2014 in the amount of the withholding taxes on the pro-rata vesting of their restricted stock at termination. These stock purchases added 19,382 shares, or $104, to ~~date period ended~~ ~~September 30, 2013~~ ~~compared to payments of~~ ~~$1,248~~ ~~for the year to date period ended~~ ~~September 30, 2012~~.our treasury stock.

CAPITAL EXPENDITURES

For the year to date period ended ~~September 30, 2013~~March 31, 2014, we made ~~$4,909~~$2,655 of capital investments, of which $~~3,571~~2,182 was a use of cash and ~~$1,338~~$473 remained payable at ~~September 30, 2013~~March 31, 2014. The capital investments related primarily to facility improvements and upgrades.

LINE OF CREDIT

On November 2, 2012, we entered into an Amended and Restated Credit Agreement, and ancillary documents with Wells Fargo (the “Credit Agreement”). On February 12, 2014, we entered into Amendment No. 1 to Credit Agreement ("First Amendment"). The First Amendment amended and restated the definition of the term EBITDA to add back (to the Company's consolidated net earnings (or loss)) governance expenses relating to the shareholder litigation and incurred prior to December 31, 2013, in an aggregate amount not in excess of $5,500. For the twelve months ended March 31, 2014, we incurred $5,465 of such expenses. As of and for the year to date period ended March 31, 2014, we were in compliance with the Credit Agreement’s financial covenants and other restrictions.

The amount of borrowings which we may make is subject to borrowing base limitations. As of ~~September 30, 2013~~March 31, 2014, our outstanding borrowings under this facility were $~~24,867~~$18,455, leaving $~~19,463~~20,936 available for additional borrowings after giving effect to a $2,000 outstanding letter of credit ~~that we have with one of our vendors.~~issued to a vendor.

~~As of and for the year to date period ended~~ ~~September 30, 2013, we are in compliance with the Credit Agreement’s financial covenants and other restrictions.~~

WORKING CAPITAL

COMPARISON TO DECEMBER 31, ~~2012~~2013

Our working capital ~~decreased~~increased $~~819~~1,540 from December 31, ~~2012~~2013 to ~~September 30, 2013~~March 31, 2014. This ~~decrease~~increase was primarily the result of ~~decreases~~an increase in receivables and ~~an increase~~a decrease in ~~accrued expenses and~~ accounts payable. These ~~decreases~~increases to working capital were partially offset by ~~increases~~decreases in ~~deferred tax assets,~~inventory and ~~a decrease~~an increase in accounts payable to affiliate.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, we are not required to provide Item 3 ~~disclosure~~disclosures in this Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of disclosure controls and procedures.

As of the end of the quarter ended ~~September 30, 2013~~March 31, 2014, our ~~Chief~~Interim Co-Chief Executive ~~Officer and~~Officers (one of which is also the Company's Chief Financial ~~Officer~~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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the ~~Chief~~Interim Co-Chief Executive ~~Officer and Chief Financial Officer~~Officers have each concluded that our current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the ~~Chief~~Interim Co-Chief Executive ~~Officer and Chief Financial Officer,~~Officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in ~~Internal Controls.~~internal controls.

There has been no change in the Company’s internal control over financial reporting required by Exchange Act Rule 13a-15 that occurred during the fiscal quarter ended ~~September 30, 2013~~March 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to Part I, Item 3, Legal Proceedings of our Report on Form 10-K for the year ended December 31, ~~2012~~2013 and Note 4. Commitments and Contingencies for information on certain proceedings to which we are subject.

On June 14, 2013, the Company filed a petition for declaratory judgment in the District Court of Johnson County, Kansas, against Richard B. Cray, Thomas Cray, Cloud L. Cray Jr., Karen Seaberg, Laidacker M. Seaberg, and Timothy Newkirk, as co-trustees of either MGP Ingredients Inc. Voting Trust or the Cray Family Trust. The Company has requested a declaratory judgment determining the parties’ legal rights and obligations in the context of proxies for the Annual Meeting and the status of the Voting Trust. The petition alleges that the co-trustees may be unqualified to serve as co-trustees and asks the Court to resolve the resulting controversy. The defendants filed a Motion to Dismiss on August 1, 2013. On October 2, 2013, the Court dismissed all allegations by the Company and Mr. Newkirk to the extent they implicate any standing to challenge the conduct of the Voting Trust directly. On October 16, 2013, the Company filed a motion to amend the October 2, 2013 order on defendants’ motion to dismiss in order to include findings allowing interlocutory appeal, or, in the alternative, to enter a journal entry of final judgment as to petitioner. The Hearing is set for November 18, 2013. On October 21, 2013, the defendants filed a motion for summary judgment on the cross-claim of Mr. Newkirk, as well as a motion to dismiss cross-claim of Mr. Newkirk for lack of standing and subject matter jurisdiction due to termination of the trusts. Hearing date for these two motions is December 3, 2013. In its additional definitive proxy soliciting materials filed on October 18, 2013, the Cray Group disclosed that on September 26, 2013, a majority of the trustees of the Cray Family Trust took action to terminate the Cray Family Trust and to distribute its assets upon termination to the three beneficial owners, The Foundation of the Atchison Family YMCA (the “YMCA”), the University of Kansas Endowment Association and Cloud L. Cray, Jr. In connection with the termination of the Cray Family Trust, on September 23, 2013, Karen Seaberg entered into an option to purchase the Voting Trust Certificates distributed to the YMCA and exercised the option on October 16, 2013.

On July 10, 2013, Cloud L. Cray, Jr. and Karen Seaberg filed a petition for inspection of corporate records pursuant to K.S.A. §17-6510 by a shareholder in the District Court of Atchison County. The plaintiffs as shareholders of the Company made demand to inspect corporate records pursuant to K.S.A §17-6510. The Company did not produce some of the records requested by the plaintiffs. The plaintiffs filed the petition to compel the production of the remaining records. On July 26, 2013, the Atchison County District Court granted the plaintiffs’ petition and ordered the Company to produce the remaining records. The Company complied with the Court order. The Court also ordered the plaintiffs to submit their request for attorney fees and expenses. A separate hearing will be held to determine whether the plaintiffs should be awarded attorney fees and expenses in connection with the request of corporate records. This amount has not been reflected in the Company’s financial statements as the amount of plaintiff attorney fees is estimated to be immaterial to the Company’s financial statements.

On August 1, 2013, Cloud L. Cray, Jr. and Karen Seaberg filed a petition against the Company and the Board of Directors, for a temporary injunction pursuant to K.S.A. § 60-901 et seq. requesting the Court to enter a temporary injunction (i) prohibiting the Company and the board members from continuing to utilize, meet as, or act as the Special Committee that was appointed on May 23, 2013; (ii) prohibiting defendants from excluding plaintiffs from discussions and deliberations of the Special Committee or any other committee concerning any review of strategic alternatives for the Company on which plaintiffs have no conflict of interest; (iii) prohibiting defendants from refusing to provide plaintiffs with all information conveyed to other directors through or by the Special Committee about the exploration of strategic alternatives for the Company; and (iv) requiring defendants to immediately provide to plaintiffs all past, present and future information conveyed to other directors through or by the Special Committee about the exploration of strategic alternatives for the Company. After a hearing on August 13, 2013 and on August 20, 2013, the Court denied in part and granted in part the plaintiff’s petition. After negotiations between the parties, the parties agreed to continue with the injunction in place and stay the matter for 180 days. At the conclusion of the 180 day period, the parties will advise the Court if any additional proceedings are necessary.

We are a party to various other legal proceedings in the ordinary course of business, none of which is expected to have a material adverse effect on us.

ITEM 1A. RISK FACTORS

Risk Factors are described in “Item 1A. Risk Factors” of the Company’s Report on Form 10-K for the year ended December 31, ~~2012~~2013 and, except where indicated below, there have been no material changes thereto. The Company has supplemented its disclosure of risk factors by ~~adding~~amending the ~~following:~~text of the following risk factors originally appearing in the Company’s Report on Form 10-K for the year ended December 31, 2013.

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

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

We hold a ~~dissident shareholder group~~substantial amount of inventory of aged whiskeys and bourbons at our Indiana plant. If there were a catastrophic event at our Indiana plant, our business could be adversely affected. The loss of a significant amount of aged inventory - through fire, natural disaster, or otherwise - could result in a significant reduction in supply of the affected product or products and could result in customer claims against us.

We source certain high quality products and fuel grade ethanol from Illinois Corn Processing, LLC. Moreover our minority ownership position in ICP has recently had a significant positive impact on our earnings and we expect that to continue through 2014. An interruption in or loss of operations at ICP’s Pekin, Illinois facility could have a material adverse effect on our business, results of operations and/or financial condition.

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

During January 2014, the ~~potential~~Company experienced a small fire at our Indiana plant. The fire damaged equipment in the Company’s feed dryer house, and caused a temporary loss of production in January. The fire did not impact the Company’s warehoused inventory or its customer-owned warehoused inventory. By the end of February the plant was at pre-fire production capacity. The Company is currently working with its insurance carrier to determine the coverage for equipment damage and business interruption losses. Production volume variances, as well as out-of-pocket costs incurred through March 31, 2014 related to the fire have been reflected in net income for the quarter ended March 31, 2014.

Our unionized workforce could cause interruptions in the Company’s operations.

As of December 31, 2013, approximately 145 of our 268 employees were members of a union. Although our relations with our two relevant unions are stable and our labor contracts do not expire until December 2017 and August 2019, there is no assurance that we will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and results of operations and adversely affect our ~~business, operations and profitability, as well as the rights of common stockholders.~~

~~In connection~~relationships with our 2013 Annual Meeting of Stockholders, the Company is engaged in a proxy contest with an activist stockholder group comprised of Karen Seaberg, Laidacker M. Seaberg, Cloud L. Cray, Jr., Cray Family Management LLC, and Cray MGP Holdings LP (the “Cray Group”). The Cray Group is proposing to: (1) elect as directors the Cray Group’s own nominees, (2) amend the Company’s Bylaws to provide for confidential voting at the stockholder meetings; (3) amend the Company’s Articles of Incorporation to de-stagger the Board, which would have the effect of requiring the annual election of all directors, and to allow any director to be removed with or without cause; (4) amend the Company’s Bylaws to permit stockholders holding 10% or more of the outstanding common stock or outstanding preferred stock to call a special meeting of stockholders; (5) amend the Company’s Bylaws to require that any vacancies on the Board be filled only by the stockholders and not by the Board; and (6) repeal any provisions of or amendments to the Bylaws adopted by the Board without stockholder approval after April 3, 2013 and on or before the date of the reconvened 2013 Annual Meeting. The Cray Group has advocated for the removal of the Company’s Chief Executive Officer, Chairman of the Board and Chairman of the Audit Committee. On July 26, the Atchison (KS) County court ruled that the Company must hold its annual meeting on or before August 26, 2013. On August 22, 2013, the Kansas Court of Appeals stayed the annual meeting for 60 days. On October 15, 2013, the Court of Appeals discontinued the stay after October 21, 2013.

Court orders in the various legal proceedings involving the Company and the Cray Group allowed for consideration of payment of the Cray Group’s legal costs in connection with the legal proceedings. These amounts have not been reflected in the Company’s financial statements as the amount of the legal costs is estimated to be immaterial to the Company’s financial statements.

~~The Company’s business, operating results or financial condition could be adversely affected by the proxy contest because, among other things:~~

Considering and responding to the proxy contest is costly and time-consuming, and a significant distraction for the Company’s Board, management and employees. Increased expense for legal fees, insurance, administrative and associated costs incurred in connection with responding to proxy contests and any related litigation are substantial;

Uncertainties as to the Company’s future direction, ability to execute, or changes to the composition of the Board or senior management team may result in the loss of potential business opportunities, and could make it more difficult to attract, retain or motivate qualified personnel;

~~Such potential uncertainties or changes may also be exploited by our competitors or cause concern to our current or potential customers and suppliers;~~

If the Cray Group’s nominees are elected to the Company’s Board of Directors and the Company’s Chief Executive Officer or other senior executives are removed, it may reduce or delay the Company’s ability to effectively execute its business strategy and to implement new strategies;

The actions taken by the Cray Group have created an environment conducive to litigation, which serves as a further distraction to the Company’s management and employees and requires the Company to incur significant costs.

In addition, the future trading price of the Company’s common stock could be subject to fluctuation based on the uncertainties above, the outcome of the proxy contest, or a threat of future stockholder activism.customers.

3327

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

We are subject to a broad range of federal, state, local and foreign laws and regulations relating to protect public health and the ~~Cray Group is unsuccessful in its proxy contest, it or~~environment. Our operations are also subject to regulation by various federal agencies, including TTB, the Occupational Safety and Health Administration, the Food and Drug Administration, and the USEPA, and by various state and local authorities. Such regulations cover virtually every aspect of our operations, including production facilities, marketing, pricing, labeling, packaging, advertising, water usage, waste water discharge, disposal of hazardous wastes and emissions and other ~~stockholders~~matters. Violations of any of these laws and regulations may ~~pursue similar goals at the Company’s future stockholder or Board of Director meetings, or by means of a proxy contest, which could~~ result in administrative, civil or criminal fines or penalties being levied against us, including temporary or prolonged cessation of production, revocation or modification of permits, performance of environmental investigatory or remedial activities, voluntary or involuntary product recalls, or a cease and desist order against operations that are not in compliance. These laws and regulations may change in the future and we may incur material costs in our efforts to comply with current or future laws and regulations or to effect any product recalls. These matters may have a material adverse ~~effects similar to those described above.~~effect on our business.

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

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

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

~~On June 14, 2013, the Company filed a petition for declaratory judgment in the District Court~~reduction of ~~Johnson County, Kansas, against Richard B. Cray, Karen Seaberg, Laidacker M. Seaberg, Thomas Cray, Cloud L. Cray Jr.~~overall consumption and ~~Timothy Newkirk, in various capacities as co-trustees or purported co-trustees~~by encouraging consumers to switch to lower-taxed categories of either the MGP Ingredients, Inc. Voting Trust or the Cray Family Trust. The Company requested a declaratory judgment determining the parties’ legal rights and obligations in the context of proxies for the 2013 Annual Meeting and the status of the Voting Trust. Two of the Company’s directors and its Chief Executive Officer are respondents in the litigation, which may cause concern of confusion among the Company’s partners, employees, and stockholders. The litigation may be costly and time-consuming. The outcome of the litigation may affect how and when the 2013 Annual Meeting is conducted, the voting procedures at the meeting, and how the Company’s preferred stock is voted. The uncertainty of the outcome or effects of the litigation may cause the trading price of the Company’s common stock to fluctuate.

On July 11, 2013, Cloud L. Cray, Jr. and Karen Seaberg filed a petition for an order requiring the Company to conduct the Annual Meeting on or before August 12, 2013 in the District Court of Atchison County, Kansas. On July 26, 2013, the Atchison County District Court granted the plaintiffs’ petition and ordered the Company to hold the Annual Meeting on or before August 26, 2013 at 9 a.m. The Court of Appeals stayed the Annual Meeting for 60 days, but on October 15, 2013, granted the motion to discontinue the stay after October 21, 2013. The development and the outcome of this litigation may affect how and when the 2013 Annual Meeting is conducted. The litigation may be costly and time-consuming, and the uncertainty of its outcome or effects may cause the trading price of the Company’s common stock to fluctuate.beverage alcohol.

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

There was no sale of equity securities during the quarter ended ~~September 30, 2013~~March 31, 2014.

ISSUER PURCHASES OF EQUITY SECURITIES

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

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

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

(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
July 1, 2013 through July 30, 2013 —
—
$ —
August 1, 2013 through August 31, 2013 —
—

September 1, 2013 through September 30, 2013 —
(1) $ —
(1) —

Total —
—



	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)			(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2014 through January 31, 2014	19,382	(1)	$	5.37	(1)	—	$	—
February 1, 2014 through February 28, 2014	—					—
March 1, 2014 through March 31, 2014	—					—
Total	19,382					—


(1)	Aggregate number of shares repurchased to satisfy withholding tax obligations under restricted stock that vested during the month.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~On March 14, 2014 the Company’s Board of Directors, upon the recommendation of the Human Resources and Compensation Committee, approved Amendment No. 1 to the MGP Ingredients, Inc. Non-Employee Directors’ Restricted Stock and Restricted Stock Unit Plan, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1 and incorporated herein by reference. The amendment modified the criteria applicable to vesting of awards and forfeiture of awards upon various vesting events, including upon retirement of a director.

3529

ITEM 6. EXHIBITS



Exhibit Number	Description of Exhibit
2.1	Agreement of Merger and Plan of Reorganization, dated as of January 3, 2012, by and among MGPI Processing, Inc. (formerly MGP Ingredients, Inc.), MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.) and MGPI Merger Sub, Inc. (Incorporated by reference to Exhibit 2 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
3.1	Articles of Incorporation of MGP Ingredients, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed January 5, 2012) (File number 000-17196))
3.2	Certificate of Amendment to Articles of Incorporation of MGP Ingredients, Inc. (Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
3.3	Bylaws of MGP Ingredients, Inc. (Incorporated by reference to Exhibit ~~3.3~~3.2 of the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K for the year ended December 31, 2013 filed ~~January 5, 2012~~March 13, 2014 (File number 000-17196))
*10.1	Amendment 1 to Non-Employee Directors’ Restricted Stock and Restricted Stock Unit Plan dated as of March 14, 2014
*31.1	Interim Co-CEO Certification ~~of Chief Executive Officer~~ pursuant to Rule 13a-14(a)
*31.2	Interim Co-CEO Certification ~~of Chief Financial Officer~~pursuant to Rule 13a-14(a)
*31.3	CFO Certification pursuant to Rule 13a-14(a)
*32.1	Interim Co-CEO Certification ~~of Chief Executive Officer~~ furnished pursuant to Rule 13a-14(b) and 18 U.S.C. 1350
*32.2	Interim Co-CEO Certification ~~of Chief Financial Officer~~furnished pursuant to Rule 13a-14(b) and 18 U.S.C. 1350
*32.3	CFO Certification furnished pursuant to Rule 13a-4(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, 2013,~~March 31, 2014, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of ~~September 30, 2013,~~March 31, 2014, and December 31, ~~2012,~~2013, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the ~~nine~~three months ended March 31, 2014 and ~~year to date ended September 30,~~ 2013, ~~and 2012,~~ (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2014, and 2013, ~~and 2012,~~ (iv) Condensed Consolidated Statement of Changes in Stockholders' Equity, and (v) the Notes to Condensed Consolidated Financial Statements.

*Filed herewith

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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 13, 2013~~May 8, 2014	By	/s/ ~~Timothy W. Newkirk~~Donald P. Tracy
			~~Timothy W. Newkirk,~~ Donald P. Tracy, Interim Co-Chief Executive Officer and Vice President, Finance and Chief ~~Executive~~Financial Officer

Date:	~~November 13, 2013~~May 8, 2014	By	/s/ ~~Don Tracy~~Randy M. Schrick
			~~Don Tracy~~ Randy M. Schrick, Interim Co-Chief Executive Officer and Vice President, ~~and Chief Financial~~ ~~Officer (Principal Financial and~~ ~~Accounting Officer)~~ Engineering

3731

Exhibit Index



Exhibit Number	Description of Exhibit
2.1	Agreement of Merger and Plan of Reorganization, dated as of January 3, 2012, by and among MGPI Processing, Inc. (formerly MGP Ingredients, Inc.), MGP Ingredients, Inc. (formerly MGPI Holdings, Inc.) and MGPI Merger Sub, Inc. (Incorporated by reference to Exhibit 2 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
3.1	Articles of Incorporation of MGP Ingredients, Inc. (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed January 5, 2012) (File number 000-17196))
3.2	Certificate of Amendment to Articles of Incorporation of MGP Ingredients, Inc. (Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed January 5, 2012 (File number 000-17196))
3.3	Bylaws of MGP Ingredients, Inc. (Incorporated by reference to Exhibit ~~3.3~~3.2 of the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K for the year ended December 31, 2013 filed ~~January 5, 2012~~March 13, 2014 (File number 000-17196))
*10.1	Amendment 1 to Non-Employee Directors’ Restricted Stock and Restricted Stock Unit Plan dated as of March 14, 2014
*31.1	Interim Co-CEO Certification ~~of Chief Executive Officer~~ pursuant to Rule 13a-14(a)
*31.2	Interim Co-CEO Certification ~~of Chief Financial Officer~~pursuant to Rule 13a-14(a)
*31.3	CFO Certification pursuant to Rule 13a-14(a)
*32.1	Interim Co-CEO Certification ~~of Chief Executive Officer~~ furnished pursuant to Rule 13a-14(b) and 18 U.S.C. 1350
*32.2	Interim Co-CEO Certification ~~of Chief Financial Officer~~furnished pursuant to Rule 13a-14(b) and 18 U.S.C. 1350
*32.3	CFO Certification furnished pursuant to Rule 13a-4(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, 2013,~~March 31, 2014, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of ~~September 30, 2013,~~March 31, 2014, and December 31, ~~2012,~~2013, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the ~~nine~~three months ended March 31, 2014 and ~~year to date ended September 30,~~ 2013, ~~and 2012,~~ (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2014, and 2013, ~~and 2012,~~ (iv) Condensed Consolidated Statement of Changes in Stockholders' Equity, and (v) the Notes to Condensed Consolidated Financial Statements.

*Filed herewith

3832



	Year to Date Periods
	September 30, 2013			September 30, 2012
Depreciation and amortization	$	8,955		$	8,680
Capital expenditures	(3,571		)	(7,712		)
Cash flows from operations	4,004			(7,453		)