UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to _________________________________
Commission File Number: 0-17196
MGP INGREDIENTS, INC.
(Exact name of registrant as specified in its charter) | | | | | |
Kansas | 45-4082531 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
| |
| |
| | | | | | | | |
100 Commercial Street | |
Atchison, | Kansas | 66002 |
(Address of principal executive offices) | (Zip Code) |
(913) 367-1480
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, no par value | MGPI | NASDAQ Global Select Market |
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emergingemerging growth company.” See definitionthe definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
x Large accelerated filer ☐ Accelerated filer
☐ Non-accelerated filer ☐ Smaller Reporting Companyreporting company
☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
21,994,03622,015,196 shares of Common Stock, no par value, as of OctoberJuly 28, 20222023
INDEX
METHOD OF PRESENTATION
Throughout this Quarterly Report on Form 10-Q (this “Report”), when we refer to “the Company,the “Company,” “MGP,” “we,” “us,” “our,” and words of similar import, we are referring to the combined business of MGP Ingredients, Inc. and its consolidated subsidiaries, except to the extent that the context otherwise indicates. In this document,Report, for any references to Note 1 through Note 11, refer to the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1.
All amounts in this report,Report, except for share, par values, bushels, gallons, pounds, mmbtu, proof gallons, 9-liter cases, per share, per bushel, per gallon, per proof gallon, per 9-liter case, and percentage amounts, are shown in thousands unless otherwise noted.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except share and per share amounts)
| | | Quarter Ended September 30, | | Year to Date Ended September 30, | | Quarter Ended June 30, | | Year to Date Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Sales | Sales | $ | 201,146 | | | $ | 176,611 | | | $ | 591,363 | | | $ | 459,873 | | Sales | $ | 209,001 | | | $ | 194,982 | | | $ | 410,011 | | | $ | 390,217 | |
Cost of sales | Cost of sales | 142,098 | | | 119,525 | | | 401,270 | | | 313,661 | | Cost of sales | 132,706 | | | 135,758 | | | 263,892 | | | 259,172 | |
Gross profit | Gross profit | 59,048 | | | 57,086 | | | 190,093 | | | 146,212 | | Gross profit | 76,295 | | | 59,224 | | | 146,119 | | | 131,045 | |
Advertising and promotion expenses | Advertising and promotion expenses | 7,279 | | | 5,664 | | | 18,848 | | | 9,888 | | Advertising and promotion expenses | 8,639 | | | 6,065 | | | 16,372 | | | 11,569 | |
Selling, general and administrative expenses | 17,904 | | | 18,527 | | | 52,029 | | | 55,266 | | |
Other operating (income) expense, net | 1 | | | 11 | | | (34) | | | 11 | | |
Selling, general, and administrative expenses | | Selling, general, and administrative expenses | 23,513 | | | 17,853 | | | 44,045 | | | 34,090 | |
| Operating income | Operating income | 33,864 | | | 32,884 | | | 119,250 | | | 81,047 | | Operating income | 44,143 | | | 35,306 | | | 85,702 | | | 85,386 | |
Interest expense, net | Interest expense, net | (1,350) | | | (1,116) | | | (4,491) | | | (2,708) | | Interest expense, net | (1,282) | | | (1,543) | | | (2,277) | | | (3,141) | |
Other income (expense), net | Other income (expense), net | (1,353) | | | (421) | | | (2,361) | | | (479) | | Other income (expense), net | (93) | | | (1,062) | | | 30 | | | (1,008) | |
Income before income taxes | Income before income taxes | 31,161 | | | 31,347 | | | 112,398 | | | 77,860 | | Income before income taxes | 42,768 | | | 32,701 | | | 83,455 | | | 81,237 | |
Income tax expense | Income tax expense | 7,533 | | | 7,674 | | | 26,037 | | | 18,701 | | Income tax expense | 10,804 | | | 7,339 | | | 20,459 | | | 18,504 | |
Net income | Net income | 23,628 | | | 23,673 | | | 86,361 | | | 59,159 | | Net income | 31,964 | | | 25,362 | | | 62,996 | | | 62,733 | |
Net (income) loss attributable to noncontrolling interest | 180 | | | 203 | | | 444 | | | 279 | | |
Net loss attributable to noncontrolling interest | | Net loss attributable to noncontrolling interest | 162 | | | 198 | | | 201 | | | 264 | |
Net income attributable to MGP Ingredients, Inc. | Net income attributable to MGP Ingredients, Inc. | 23,808 | | | 23,876 | | | 86,805 | | | 59,438 | | Net income attributable to MGP Ingredients, Inc. | 32,126 | | | 25,560 | | | 63,197 | | | 62,997 | |
Income attributable to participating securities | Income attributable to participating securities | (188) | | | (175) | | | (688) | | | (471) | | Income attributable to participating securities | (324) | | | (217) | | | (633) | | | (535) | |
| Net income used in Earnings Per Common Share calculation | $ | 23,620 | | | $ | 23,701 | | | $ | 86,117 | | | $ | 58,967 | | |
Net income used in earnings per common share calculation | | Net income used in earnings per common share calculation | $ | 31,802 | | | $ | 25,343 | | | $ | 62,564 | | | $ | 62,462 | |
| Share information: | | |
Basic weighted average common shares | 22,008,381 | | | 21,981,201 | | | 22,000,026 | | | 20,293,818 | | |
Diluted weighted average common shares | 22,228,814 | | | 21,981,201 | | | 22,000,026 | | | 20,293,818 | | |
Weighted average common shares | | Weighted average common shares | |
Basic | | Basic | 22,062,142 | | | 22,002,385 | | | 22,051,244 | | | 21,995,779 | |
Diluted | | Diluted | 22,139,663 | | | 22,002,385 | | | 22,106,113 | | | 21,995,779 | |
| Basic Earnings Per Common Share | $ | 1.07 | | | $ | 1.08 | | | $ | 3.91 | | | $ | 2.91 | | |
Diluted Earnings Per Common Share | $ | 1.06 | | | $ | 1.08 | | | $ | 3.91 | | | $ | 2.91 | | |
Earnings per common share | | Earnings per common share | |
Basic | | Basic | $ | 1.44 | | | $ | 1.15 | | | $ | 2.84 | | | $ | 2.84 | |
Diluted | | Diluted | $ | 1.44 | | | $ | 1.15 | | | $ | 2.83 | | | $ | 2.84 | |
See accompanying notes to unaudited condensed consolidated financial statements
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
| | | Quarter Ended September 30, | | Year to Date Ended September 30, | | Quarter Ended June 30, | | Year to Date Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income attributable to MGP Ingredients, Inc. | Net income attributable to MGP Ingredients, Inc. | $ | 23,808 | | | $ | 23,876 | | | $ | 86,805 | | | $ | 59,438 | | Net income attributable to MGP Ingredients, Inc. | $ | 32,126 | | | $ | 25,560 | | | $ | 63,197 | | | $ | 62,997 | |
Other comprehensive loss, net of tax: | | |
Unrealized loss on foreign currency translation adjustment | (467) | | | (141) | | | (1,116) | | | (134) | | |
Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
Unrealized gain (loss) on foreign currency translation adjustment | | Unrealized gain (loss) on foreign currency translation adjustment | 136 | | | (430) | | | 311 | | | (649) | |
Change in Company-sponsored post-employment benefit plan | Change in Company-sponsored post-employment benefit plan | (76) | | | (89) | | | (102) | | | (40) | | Change in Company-sponsored post-employment benefit plan | (69) | | | (13) | | | (176) | | | (26) | |
Other comprehensive loss | (543) | | | (230) | | | (1,218) | | | (174) | | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | 67 | | | (443) | | | 135 | | | (675) | |
| Comprehensive income attributable to MGP Ingredients, Inc. | Comprehensive income attributable to MGP Ingredients, Inc. | 23,265 | | | 23,646 | | | 85,587 | | | 59,264 | | Comprehensive income attributable to MGP Ingredients, Inc. | 32,193 | | | 25,117 | | | 63,332 | | | 62,322 | |
| Comprehensive loss attributable to noncontrolling interest | Comprehensive loss attributable to noncontrolling interest | (180) | | | (203) | | | (444) | | | (279) | | Comprehensive loss attributable to noncontrolling interest | (162) | | | (198) | | | (201) | | | (264) | |
Comprehensive income | Comprehensive income | $ | 23,085 | | | $ | 23,443 | | | $ | 85,143 | | | $ | 58,985 | | Comprehensive income | $ | 32,031 | | | $ | 24,919 | | | $ | 63,131 | | | $ | 62,058 | |
See accompanying notes to unaudited condensed consolidated financial statements
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars (Dollars in thousands) | | | | September 30, 2022 | | December 31, 2021 | | | June 30, 2023 | | December 31, 2022 |
Current Assets | Current Assets | | | | | Current Assets | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 50,674 | | | $ | 21,568 | | Cash and cash equivalents | | $ | 21,959 | | | $ | 47,889 | |
Receivables (less allowance for credit loss, $175 and $150 at September 30, 2022, and December 31, 2021, respectively) | | 107,653 | | | 92,537 | | |
Receivables (less allowance for credit loss, $1,475 at both June 30, 2023, and December 31, 2022) | | Receivables (less allowance for credit loss, $1,475 at both June 30, 2023, and December 31, 2022) | | 147,570 | | | 109,267 | |
Inventory | Inventory | | 275,478 | | | 245,944 | | Inventory | | 343,826 | | | 289,722 | |
Prepaid expenses | Prepaid expenses | | 5,833 | | | 1,510 | | Prepaid expenses | | 5,177 | | | 2,957 | |
Refundable income taxes | Refundable income taxes | | 1,006 | | | 5,539 | | Refundable income taxes | | 2,317 | | | 4,327 | |
Total current assets | Total current assets | | 440,644 | | | 367,098 | | Total current assets | | 520,849 | | | 454,162 | |
Property, plant, and equipment | Property, plant, and equipment | | 430,945 | | | 404,149 | | Property, plant, and equipment | | 475,472 | | | 450,800 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | | (210,254) | | | (196,863) | | Less accumulated depreciation and amortization | | (224,823) | | | (215,168) | |
Property, plant, and equipment, net | Property, plant, and equipment, net | | 220,691 | | | 207,286 | | Property, plant, and equipment, net | | 250,649 | | | 235,632 | |
Operating lease right-of-use assets, net | Operating lease right-of-use assets, net | | 14,516 | | | 9,671 | | Operating lease right-of-use assets, net | | 17,122 | | | 15,042 | |
Investment in joint ventures | Investment in joint ventures | | 6,140 | | | 4,944 | | Investment in joint ventures | | 4,955 | | | 5,534 | |
Intangible assets, net | Intangible assets, net | | 217,285 | | | 218,838 | | Intangible assets, net | | 271,440 | | | 216,768 | |
Goodwill | Goodwill | | 226,294 | | | 226,294 | | Goodwill | | 325,713 | | | 226,294 | |
Other assets | Other assets | | 6,505 | | | 7,336 | | Other assets | | 4,401 | | | 4,779 | |
Total assets | Total assets | | $ | 1,132,075 | | | $ | 1,041,467 | | Total assets | | $ | 1,395,129 | | | $ | 1,158,211 | |
Current Liabilities | Current Liabilities | | | | | Current Liabilities | | | | |
Current maturities of long-term debt | Current maturities of long-term debt | | $ | 4,800 | | | $ | 3,227 | | Current maturities of long-term debt | | $ | 6,400 | | | $ | 5,600 | |
Accounts payable | Accounts payable | | 64,858 | | | 53,712 | | Accounts payable | | 84,921 | | | 66,432 | |
Federal and state excise taxes payable | Federal and state excise taxes payable | | 4,713 | | | 6,992 | | Federal and state excise taxes payable | | 5,946 | | | 4,627 | |
| Accrued expenses and other | Accrued expenses and other | | 26,420 | | | 24,869 | | Accrued expenses and other | | 21,384 | | | 28,716 | |
| Total current liabilities | Total current liabilities | | 100,791 | | | 88,800 | | Total current liabilities | | 118,651 | | | 105,375 | |
Long-term debt, less current maturities | Long-term debt, less current maturities | | 31,105 | | | 35,266 | | Long-term debt, less current maturities | | 123,319 | | | 29,510 | |
Convertible senior notes | Convertible senior notes | | 195,146 | | | 194,906 | | Convertible senior notes | | 195,385 | | | 195,225 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | | 11,327 | | | 6,997 | | Long-term operating lease liabilities | | 13,568 | | | 11,622 | |
| Contingent consideration | | Contingent consideration | | 63,900 | | | — | |
Other noncurrent liabilities | Other noncurrent liabilities | | 4,047 | | | 5,132 | | Other noncurrent liabilities | | 3,943 | | | 3,723 | |
Deferred income taxes | Deferred income taxes | | 65,799 | | | 66,101 | | Deferred income taxes | | 69,241 | | | 67,112 | |
Total liabilities | Total liabilities | | 408,215 | | | 397,202 | | Total liabilities | | 588,007 | | | 412,567 | |
Commitments and Contingencies (Note 8) | Commitments and Contingencies (Note 8) | | | | | Commitments and Contingencies (Note 8) | | | | |
Stockholders’ Equity | Stockholders’ Equity | | | | | Stockholders’ Equity | | | | |
Capital stock | Capital stock | | | | | Capital stock | | | | |
Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares | Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares | | 4 | | | 4 | | Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares | | 4 | | | 4 | |
Common stock | Common stock | | | | | Common stock | | | | |
No par value; authorized 40,000,000 shares; issued 23,125,166 shares at September 30, 2022 and December 31, 2021; and 21,993,355 and 21,964,314 shares outstanding at September 30, 2022 and December 31, 2021, respectively | | 6,715 | | | 6,715 | | |
No par value; authorized 40,000,000 shares; issued 23,125,166 shares at June 30, 2023 and December 31, 2022; and 22,014,374 and 21,994,042 shares outstanding at June 30, 2023 and December 31, 2022, respectively | | No par value; authorized 40,000,000 shares; issued 23,125,166 shares at June 30, 2023 and December 31, 2022; and 22,014,374 and 21,994,042 shares outstanding at June 30, 2023 and December 31, 2022, respectively | | 6,715 | | | 6,715 | |
Additional paid-in capital | Additional paid-in capital | | 317,541 | | | 315,802 | | Additional paid-in capital | | 322,267 | | | 318,839 | |
Retained earnings | Retained earnings | | 423,063 | | | 344,237 | | Retained earnings | | 500,933 | | | 443,061 | |
Accumulated other comprehensive income | | (864) | | | 354 | | |
Treasury stock, at cost, 1,131,811 and 1,160,852 shares at September 30, 2022 and December 31, 2021, respectively | | (21,665) | | | (22,357) | | |
Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | | (169) | | | (304) | |
Treasury stock, at cost, 1,110,792 and 1,131,124 shares at June 30, 2023 and December 31, 2022, respectively | | Treasury stock, at cost, 1,110,792 and 1,131,124 shares at June 30, 2023 and December 31, 2022, respectively | | (21,347) | | | (21,591) | |
Total MGP Ingredients, Inc. stockholders’ equity | Total MGP Ingredients, Inc. stockholders’ equity | | 724,794 | | | 644,755 | | Total MGP Ingredients, Inc. stockholders’ equity | | 808,403 | | | 746,724 | |
Noncontrolling interest | Noncontrolling interest | | (934) | | | (490) | | Noncontrolling interest | | (1,281) | | | (1,080) | |
Total equity | Total equity | | 723,860 | | | 644,265 | | Total equity | | 807,122 | | | 745,644 | |
Total liabilities and equity | Total liabilities and equity | | $ | 1,132,075 | | | $ | 1,041,467 | | Total liabilities and equity | | $ | 1,395,129 | | | $ | 1,158,211 | |
See accompanying notes to unaudited condensed consolidated financial statements
5
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands) | | | Year to Date Ended September 30, | | Year to Date Ended June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | Cash Flows from Operating Activities | | | |
Net income | Net income | $ | 86,361 | | | $ | 59,159 | | Net income | $ | 62,996 | | | $ | 62,733 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | Depreciation and amortization | 16,257 | | | 13,668 | | Depreciation and amortization | 10,490 | | | 10,924 | |
| Share-based compensation | Share-based compensation | 3,086 | | | 5,247 | | Share-based compensation | 3,637 | | | 2,131 | |
| Equity method investment loss | | Equity method investment loss | 579 | | | 180 | |
Deferred income taxes, including change in valuation allowance | Deferred income taxes, including change in valuation allowance | (302) | | | 465 | | Deferred income taxes, including change in valuation allowance | 2,129 | | | 125 | |
Other, net | Other, net | 1,462 | | | (231) | | Other, net | 206 | | | (98) | |
Changes in operating assets and liabilities, net of effects of acquisition: | Changes in operating assets and liabilities, net of effects of acquisition: | | | | Changes in operating assets and liabilities, net of effects of acquisition: | | | |
Receivables, net | Receivables, net | (15,582) | | | (5,593) | | Receivables, net | (35,833) | | | (13,142) | |
Inventory | Inventory | (30,599) | | | (7,588) | | Inventory | (41,020) | | | (27,508) | |
Prepaid expenses | Prepaid expenses | 1,165 | | | 1,206 | | Prepaid expenses | (2,076) | | | 266 | |
Refundable income taxes | (1,006) | | | (2,086) | | |
Income taxes payable (refundable) | | Income taxes payable (refundable) | 2,010 | | | 141 | |
Accounts payable | Accounts payable | 12,613 | | | (6,678) | | Accounts payable | 22,328 | | | 11,438 | |
Accrued expenses and other | Accrued expenses and other | 1,220 | | | 15,859 | | Accrued expenses and other | (7,048) | | | (4,791) | |
Federal and state excise taxes payable | Federal and state excise taxes payable | (2,279) | | | (1,961) | | Federal and state excise taxes payable | 1,319 | | | 681 | |
| Other, net | Other, net | (143) | | | (682) | | Other, net | 439 | | | (61) | |
Net cash provided by operating activities | Net cash provided by operating activities | 72,253 | | | 70,785 | | Net cash provided by operating activities | 20,156 | | | 43,019 | |
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | Cash Flows from Investing Activities | | | |
Additions to property, plant, and equipment | Additions to property, plant, and equipment | (29,217) | | | (37,257) | | Additions to property, plant, and equipment | (30,055) | | | (18,087) | |
| Purchase of business, net of cash acquired | Purchase of business, net of cash acquired | — | | | (149,613) | | Purchase of business, net of cash acquired | (104,398) | | | — | |
Contributions to equity method investment | Contributions to equity method investment | (2,232) | | | (988) | | Contributions to equity method investment | — | | | (1,028) | |
| Other, net | Other, net | (315) | | | (1,308) | | Other, net | (1,136) | | | (369) | |
Net cash used in investing activities | Net cash used in investing activities | (31,764) | | | (189,166) | | Net cash used in investing activities | (135,589) | | | (19,484) | |
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | Cash Flows from Financing Activities | | | |
Payment of dividends and dividend equivalents | Payment of dividends and dividend equivalents | (7,984) | | | (7,362) | | Payment of dividends and dividend equivalents | (5,337) | | | (5,322) | |
Purchase of treasury stock | Purchase of treasury stock | (714) | | | (767) | | Purchase of treasury stock | (801) | | | (713) | |
Loan fees paid related to borrowings | — | | | (666) | | |
| Proceeds from long-term debt | | Proceeds from long-term debt | 105,000 | | | — | |
Principal payments on long-term debt | Principal payments on long-term debt | (2,603) | | | (813) | | Principal payments on long-term debt | (9,400) | | | (1,614) | |
Proceeds from credit agreement - revolver | — | | | 242,300 | | |
Payments on credit agreement - revolver | — | | | (32,300) | | |
Payment on assumed debt as part of the Merger | — | | | (87,509) | | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | (11,301) | | | 112,883 | | Net cash provided by (used in) financing activities | 89,462 | | | (7,649) | |
| Effect of exchange rate changes on cash | (82) | | | (2) | | |
Effect of exchange rate changes on cash and cash equivalents | | Effect of exchange rate changes on cash and cash equivalents | 41 | | | (39) | |
Increase (decrease) in cash and cash equivalents | Increase (decrease) in cash and cash equivalents | 29,106 | | | (5,500) | | Increase (decrease) in cash and cash equivalents | (25,930) | | | 15,847 | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 21,568 | | | 21,662 | | Cash and cash equivalents, beginning of period | 47,889 | | | 21,568 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 50,674 | | | $ | 16,162 | | Cash and cash equivalents, end of period | $ | 21,959 | | | $ | 37,415 | |
See accompanying notes to unaudited condensed consolidated financial statements
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For Year to Date Ended SeptemberJune 30, 20222023
(Unaudited)
(Dollars in thousands) | | | Capital Stock Preferred | | Issued Common | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Treasury Stock | | Non-controlling Interest | | Total | | Capital Stock Preferred | | Issued Common | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (loss) | | Treasury Stock | | Non-controlling Interest | | Total |
Balance, December 31, 2021 | | $ | 4 | | | $ | 6,715 | | | $ | 315,802 | | | $ | 344,237 | | | $ | 354 | | | $ | (22,357) | | | $ | (490) | | | $ | 644,265 | | |
Balance, December 31, 2022 | | Balance, December 31, 2022 | | $ | 4 | | | $ | 6,715 | | | $ | 318,839 | | | $ | 443,061 | | | $ | (304) | | | $ | (21,591) | | | $ | (1,080) | | | $ | 745,644 | |
Comprehensive income: | Comprehensive income: | | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | | |
Net income (loss) | Net income (loss) | | — | | | — | | | — | | | 37,437 | | | — | | | — | | | (66) | | | 37,371 | | Net income (loss) | | — | | | — | | | — | | | 31,071 | | | — | | | — | | | (39) | | | 31,032 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (232) | | | — | | | — | | | (232) | | |
Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | — | | | 68 | | | — | | | — | | | 68 | |
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,661) | | | — | | | — | | | — | | | (2,661) | | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,661) | | | — | | | — | | | — | | | (2,661) | |
Share-based compensation | Share-based compensation | | — | | | — | | | 1,373 | | | — | | | — | | | — | | | — | | | 1,373 | | Share-based compensation | | — | | | — | | | 2,665 | | | — | | | — | | | — | | | — | | | 2,665 | |
Stock shares awarded, forfeited or vested | Stock shares awarded, forfeited or vested | | — | | | — | | | (604) | | | — | | | — | | | 604 | | | — | | | — | | Stock shares awarded, forfeited or vested | | — | | | — | | | (507) | | | — | | | — | | | 507 | | | — | | | — | |
Stock shares repurchased | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (711) | | | — | | | (711) | | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (801) | | | — | | | (801) | |
Balance, March 31, 2022 | | 4 | | | 6,715 | | | 316,571 | | | 379,013 | | | 122 | | | (22,464) | | | (556) | | | 679,405 | | |
Balance, March 31, 2023 | | Balance, March 31, 2023 | | 4 | | | 6,715 | | | 320,997 | | | 471,471 | | | (236) | | | (21,885) | | | (1,119) | | | 775,947 | |
Comprehensive income: | Comprehensive income: | | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | | |
Net income (loss) | Net income (loss) | | — | | | — | | | — | | | 25,560 | | | — | | | — | | | (198) | | | 25,362 | | Net income (loss) | | — | | | — | | | — | | | 32,126 | | | — | | | — | | | (162) | | | 31,964 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (443) | | | — | | | — | | | (443) | | |
Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | — | | | 67 | | | — | | | — | | | 67 | |
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,658) | | | — | | | — | | | — | | | (2,658) | | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,664) | | | — | | | — | | | — | | | (2,664) | |
Share-based compensation | Share-based compensation | | — | | | — | | | 1,409 | | | — | | | — | | | — | | | — | | | 1,409 | | Share-based compensation | | — | | | — | | | 1,808 | | | — | | | — | | | — | | | — | | | 1,808 | |
Stock shares awarded, forfeited or vested | Stock shares awarded, forfeited or vested | | — | | | — | | | (740) | | | — | | | — | | | 740 | | | — | | | — | | Stock shares awarded, forfeited or vested | | — | | | — | | | (538) | | | — | | | — | | | 538 | | | — | | | — | |
Stock shares repurchased | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (2) | | | — | | | (2) | | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance, June 30, 2022 | | 4 | | | 6,715 | | | 317,240 | | | 401,915 | | | (321) | | | (21,726) | | | (754) | | | 703,073 | | |
Comprehensive income: | | | | | | | | | | | | | | | | | |
Net income (loss) | | — | | | — | | | — | | | 23,808 | | | — | | | (180) | | | 23,628 | | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (543) | | | — | | | (543) | | |
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,660) | | | — | | | — | | | — | | | (2,660) | | |
Share-based compensation | | — | | | — | | | 363 | | | — | | | — | | | — | | | — | | | 363 | | |
Stock shares awarded, forfeited, or vested | | — | | | — | | | (62) | | | — | | | — | | | 62 | | | — | | | — | | |
Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | | |
Balance, June 30, 2023 | | Balance, June 30, 2023 | | $ | 4 | | | $ | 6,715 | | | $ | 322,267 | | | $ | 500,933 | | | $ | (169) | | | $ | (21,347) | | | $ | (1,281) | | | $ | 807,122 | |
| Balance, September 30, 2022 | | $ | 4 | | | $ | 6,715 | | | $ | 317,541 | | | $ | 423,063 | | | $ | (864) | | | $ | (21,665) | | | $ | (934) | | | $ | 723,860 | | |
| |
See accompanying notes to unaudited condensed consolidated financial statements
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For Year to Date Ended SeptemberJune 30, 20212022
(Unaudited)
(Dollars in thousands)
| | | Capital Stock Preferred | | Issued Common | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Treasury Stock | | Non-controlling Interest | | Total | | Capital Stock Preferred | | Issued Common | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (loss) | | Treasury Stock | | Non-controlling Interest | | Total |
Balance, December 31, 2020 | | $ | 4 | | | $ | 6,715 | | | $ | 15,503 | | | $ | 262,943 | | | $ | 486 | | | $ | (23,125) | | | $ | — | | | $ | 262,526 | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | | $ | 4 | | | $ | 6,715 | | | $ | 315,802 | | | $ | 344,237 | | | $ | 354 | | | $ | (22,357) | | | $ | (490) | | | $ | 644,265 | |
Comprehensive income: | Comprehensive income: | | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | 15,427 | | | — | | | — | | | — | | | 15,427 | | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 55 | | | — | | | — | | | 55 | | |
Net income (loss) | | Net income (loss) | | — | | | — | | | — | | | 37,437 | | | — | | | — | | | (66) | | | 37,371 | |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (232) | | | — | | | — | | | (232) | |
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,052) | | | — | | | — | | | — | | | (2,052) | | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,661) | | | — | | | — | | | — | | | (2,661) | |
Share-based compensation | Share-based compensation | | — | | | — | | | 3,229 | | | — | | | — | | | — | | | — | | | 3,229 | | Share-based compensation | | — | | | — | | | 1,373 | | | — | | | — | | | — | | | — | | | 1,373 | |
Stock shares awarded, forfeited or vested | Stock shares awarded, forfeited or vested | | — | | | — | | | (716) | | | — | | | — | | | 716 | | | — | | | — | | Stock shares awarded, forfeited or vested | | — | | | — | | | (604) | | | — | | | — | | | 604 | | | — | | | — | |
Stock shares repurchased | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (674) | | | — | | | (674) | | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (711) | | | — | | | (711) | |
Balance, March 31, 2021 | | 4 | | | 6,715 | | | 18,016 | | | 276,318 | | | 541 | | | (23,083) | | | — | | | 278,511 | | |
Comprehensive income: | | | | | | | | | | | | | | | | | |
Net income (loss) | | — | | | — | | | — | | | 20,135 | | | — | | | — | | | (76) | | | 20,059 | | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | | |
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,653) | | | — | | | — | | | — | | | (2,653) | | |
Share-based compensation | | — | | | — | | | 1,538 | | | — | | | — | | | — | | | — | | | 1,538 | | |
Stock shares awarded, forfeited, or vested | | — | | | — | | | (705) | | | — | | | — | | | 705 | | | — | | | — | | |
Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (91) | | | — | | | (91) | | |
Equity consideration for Merger | | — | | | — | | | 296,213 | | | — | | | — | | | — | | | — | | | 296,213 | | |
Balance, June 30, 2021 | | 4 | | | 6,715 | | | 315,062 | | | 293,800 | | | 542 | | | (22,469) | | | (76) | | | 593,578 | | |
Balance, March 31, 2022 | | Balance, March 31, 2022 | | 4 | | | 6,715 | | | 316,571 | | | 379,013 | | | 122 | | | (22,464) | | | (556) | | | 679,405 | |
Comprehensive income: | Comprehensive income: | | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | | |
Net income (loss) | Net income (loss) | | — | | | — | | | — | | | 23,876 | | | — | | | — | | | (203) | | | 23,673 | | Net income (loss) | | — | | | — | | | — | | | 25,560 | | | — | | | — | | | (198) | | | 25,362 | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | (230) | | | — | | | — | | | (230) | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (443) | | | — | | | — | | | (443) | |
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,654) | | | — | | | — | | | — | | | (2,654) | | Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures | | — | | | — | | | — | | | (2,658) | | | — | | | — | | | — | | | (2,658) | |
Share-based compensation | Share-based compensation | | — | | | — | | | 480 | | | — | | | — | | | — | | | — | | | 480 | | Share-based compensation | | — | | | — | | | 1,409 | | | — | | | — | | | — | | | — | | | 1,409 | |
Stock shares awarded, forfeited, or vested | Stock shares awarded, forfeited, or vested | | — | | | — | | | (64) | | | — | | | — | | | 64 | | | — | | | — | | Stock shares awarded, forfeited, or vested | | — | | | — | | | (740) | | | — | | | — | | | 740 | | | — | | | — | |
Stock shares repurchased | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | | Stock shares repurchased | | — | | | — | | | — | | | — | | | — | | | (2) | | | — | | | (2) | |
Equity consideration for Merger | | — | | | — | | | 65 | | | — | | | — | | | — | | | — | | | 65 | | |
Balance, September 30, 2021 | | $ | 4 | | | $ | 6,715 | | | $ | 315,543 | | | $ | 315,022 | | | $ | 312 | | | $ | (22,406) | | | $ | (279) | | | $ | 614,911 | | |
| Balance, June 30, 2022 | | Balance, June 30, 2022 | | $ | 4 | | | $ | 6,715 | | | $ | 317,240 | | | $ | 401,915 | | | $ | (321) | | | $ | (21,726) | | | $ | (754) | | | $ | 703,073 | |
|
See accompanying notes to unaudited condensed consolidated financial statements
MGP INGREDIENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise noted)
Note 1. Accounting Policies and Basis of Presentation
The Company. MGP Ingredients, Inc. (“the Company,”(the “Company” or “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits, branded spirits, and food ingredients. Distilled spirits include premium bourbon, rye, and ryeother whiskeys and grain neutral spirits (“GNS”), including vodka and gin. The Company’s distilled spirits are either packaged and sold under its own brands to distributors, sold directly or indirectly to manufacturers of other branded spirits, or direct to consumer.spirits. MGP is also a top producer of high-quality,high quality industrial alcohol for use in both food and non-food applications. The Company has a portfolio of its own high quality branded spirits which are produced through its distilleries and bottling facilities and sold to distributors. The Company’s branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end American whiskey, tequila, and gin. The Company’s protein and starch food ingredients provide a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the consumer packaged goods industry. The Company’s industrial alcohol and ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries. The Company’s distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and milo), and its ingredient products are derived primarily from wheat flour.
On AprilJune 1, 2021,2023, the Company acquired Luxco, Inc. and its affiliated companiesPenelope Bourbon LLC (“Luxco”Penelope”), which, isprior to the Company’s acquisition, was a leading branded beverage alcoholfamily and founder-owned and operated American whiskey company across various categories, with a more than 60-year business heritage.Luxco’s operations predominately involvediverse portfolio of high-quality whiskeys in the producing, importing, bottling and rectifying of distilled spirits.premium plus price tiers. See Note 3, Business Combination, for further details.
The Company reports three operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. During 2022, the Company changed the name of its Distillery Products segment to Distilling Solutions. Certain amounts in the 20212022 consolidated financial statements have been reclassified to conform to the 20222023 presentation.
Basis of Presentation and Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements as of and for the quarter and year to date ended SeptemberJune 30, 2022,2023, should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the Securities and Exchange Commission (“SEC”(the “SEC”). The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal and recurring adjustments) necessary to fairly present the results for interim periods in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to the rules and regulations of the SEC, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted.
The Company holds a 60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The Company consolidated Dos Primos’ activity on the financial statements and presented the 40 percent non-controlling interest portion on a separate line.
Use of Estimates. The financial reporting policies of the Company conform to GAAP. The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The application of certain of these policies places demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain, inclusive of the effects related to the COVID-19 pandemic.uncertain. For all of these policies, management cautions that future events rarelymay not develop as forecast, and estimates routinely require adjustment and may require material adjustment.
Immaterial Correction to Prior Period Financial Statements. During the year to date ended September 30, 2022, the Company identified an immaterial correction related to gross amounts of Property, plant and equipment and Accumulated depreciation and amortization in the Condensed Consolidated Balance Sheet as of December 31, 2021. The Company performed a materiality assessment, considering both quantitative and qualitative factors, which resulted in the determination that the correction to the financial statements was immaterial. As such, the Company corrected the December 31, 2021 gross balances for Property, plant, and equipment and Accumulated depreciation and amortization on the Condensed Consolidated Balance Sheet reported in this Form 10-Q by equal and offsetting amounts, which resulted in no change to the balance of Property, plant, and equipment, net.
Inventory. Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process as well as bottles, caps, and labels used in the bottling process, and certain maintenance and repair items. Bourbons, ryes, and other whiskeys included in inventory are normally aged in barrels for several years, following industry practice; allpractice. All barreled bourbon, rye, and whiskey isother whiskeys are classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs.
Inventories are stated at the lower of cost or net realizable value on the first-in, first-out, or FIFO, method. Inventory valuations are impacted by constantly changing prices paid for key materials.materials, primarily corn. Inventory consists of the following:
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
Finished goods | Finished goods | | $ | 49,008 | | | $ | 35,362 | | Finished goods | | $ | 56,807 | | | $ | 47,073 | |
Barreled distillate (bourbons and whiskeys) | | 185,681 | | | 174,080 | | |
Barreled distillate (bourbons and other whiskeys) | | Barreled distillate (bourbons and other whiskeys) | | 234,566 | | | 199,040 | |
Raw materials | Raw materials | | 27,496 | | | 24,981 | | Raw materials | | 37,200 | | | 29,931 | |
Work in process | Work in process | | 1,581 | | | 1,261 | | Work in process | | 1,625 | | | 1,645 | |
Maintenance materials | Maintenance materials | | 10,020 | | | 9,179 | | Maintenance materials | | 10,861 | | | 9,931 | |
Other | Other | | 1,692 | | | 1,081 | | Other | | 2,767 | | | 2,102 | |
Total | Total | | $ | 275,478 | | | $ | 245,944 | | Total | | $ | 343,826 | | | $ | 289,722 | |
Revenue Recognition. Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration itthe Company expects to be entitled to receive in exchange for the performance obligations. The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is generally one year or less.
Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms. This is a faithful depiction of the satisfaction of the performance obligation because, at the point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has a present obligation to pay.
The Company’s Distilling Solutions segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers. Even though the aged and unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product. Control is transferred to the customer in bill and hold transactions when:when the customer acceptance specifications have been met, legal title has transferred, the customer has a present obligation to pay for the product, and the risk and rewards of ownership have transferred to the customer. Additionally, all of the following bill and hold criteria have to be met in order for control to be transferred to the customer: the reason for the bill and hold arrangement is substantive, - the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer.
Warehouse services revenue is recognized over the time that warehouse services are rendered and as they are rendered. This is a faithful depiction of the satisfaction of the performance obligation because control of the aging products has already passed to the customer and there are no additional performance activities required by the Company, except as requested by the customer. The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized. Contract bottling is recognized over the time contract bottling services are rendered and as they are rendered.
Sales in the Branded Spirits segment reflect reductions attributable to consideration given to customers in incentive programs, including discounts and allowances for certain volume targets. These allowances and discounts are not for distinct goods and are paid only when the depletion volume targets are achieved by the customer. The amounts reimbursed to customers are determined based on agreed-upon amounts and are recorded as a reduction of revenue.
Excise Taxes. The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau
of the U.S. Treasury Department (the “TTB”) regulations, which includesinclude making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual U.S. states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its FederalU.S. federal and state excise tax expense based upon units shipped and on its understanding of the applicable excise tax laws. laws. Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from revenue.revenue and expense.
Income Taxes. The Company accounts for income taxes using an asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized if it is “moremore likely than not”not that at least some portion of the deferred tax asset will not be realized.
Earnings Per Common Share (“EPS”). Basic and diluted EPS is computed using the two-class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings. Basic EPS amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each period. Diluted EPS is computed using the if-converted method by dividing the net income attributable to common shareholders by the weighted average shares outstanding, inclusive of the impact of the Convertible Senior Notes, except for where the result would be anti-dilutive as of the balance sheet date.
Translation of Foreign Currencies. Assets and liabilities of Niche Drinks Co., Ltd. (“Niche”), a wholly owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the condensed consolidated balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included as a component of Accumulatedaccumulated other comprehensive incomeincome..The Company maintains a U.S. bank account denominated in British pound sterling, which is adjusted for the market exchange rate at the reporting period-end. Any impact of the adjustment for the exchange rate applied to the financial asset is reported in other income (expense), net on the Condensed Consolidated Statements of Income.
Business Combinations. Assets acquired and liabilities assumed during a business combination are generally recorded at fair market value as of the acquisition date. Goodwill is recognized to the extent that the purchase consideration, including contingent consideration, exceeds the value of the assets acquired and liabilities assumed. The Company uses its best estimateinternal estimates and third party valuation specialists to determine the fair value of the assets acquired and liabilities assumed. During the measurement period,periods, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill.
Goodwill and Indefinite-LivedOther Intangible Assets. The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company evaluates goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value. To the extent that the carrying amountvalue exceeds fair value, an impairment of goodwill is recognized. Judgment is required in the determination of reporting units, the assignment of assets and liabilities to reporting units, including goodwill, and the determination of fair value of the reporting units. The Company separately evaluates indefinite-lived intangible assets for impairment. As of SeptemberJune 30, 2022,2023, the Company determined that goodwill and indefinite-lived intangible assets were not impaired.
Fair Value of Financial Instruments. The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.
The Company’s short-term financial instruments include cash and cash equivalents, accounts receivablesreceivable and accounts payable. The carrying value of the short-term financial instruments approximates the fair value due to their short-term nature. These financial instruments have no stated maturities or the financial instruments have short-term maturities that approximate market.
The fair value of the Company’s debt is estimated based on current market interest rates for debt with similar maturities and credit quality. TheExcluding the impact of the conversion feature of the Convertible Senior Notes, the fair value of the Company’s debt was $178,062$235,270 and $272,971$150,249 at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The financial statement carrying value of total debt was $231,051 (including(net of unamortized loan fees) was $325,104 and $233,399 (including unamortized loan fees)$230,335 at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. These fair values are considered Level 2 under the fair value hierarchy.
The fair value calculation of contingent consideration associated with the acquisition of Penelope uses unobservable inputs, such as estimated net sales over the term of the earn-out period, discount rates, and volatility rates. The contingent consideration is measured using the Monte Carlo simulation approach. The inputs used in the calculation of the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity. See Note 3, Business Combinations, for more information.
Fair value disclosure for deferred compensation plan investments is included in Note 9, Employee and Non-Employee Benefit Plans. See Note 3, Business Combination, for discussion related to the fair value of tangible and intangible assets acquired and liabilities assumed as part of the merger with Luxco.
Equity Method Investments. The Company holds 50 percent interests in DGL Destiladores, S.de R.L. de C.V. (“DGL”) and Agricola LG, S.de R.L. de C.V. (“Agricola”) (combined and together with DGL, “LMX”), which are accounted for as equity method investments since the date of acquisition and are considered affiliates of the Company. The investment in LMX, which is recorded in Investmentinvestment in joint ventures on the Condensed Consolidated Balance Sheet,Sheets, was $6,140$4,955 and $4,944$5,534 at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. During the quarterquarters ended SeptemberJune 30, 20222023 and 2021,2022, the Company recorded a loss of $856$319 and $405$574, respectively, from ourits equity method investments, and during the year to date ended June 30, 2023 and 2022, the Company recorded a loss of $579 and $180, respectively, which is recorded in Otherother income (expense), net on the Condensed Consolidated Statement of Income. During the year to date ended September 30, 2022 and 2021, the Company recorded a loss of $1,036 and $739 from our equity method investments, respectively, which is recorded in Other (income) expense, net on the Condensed Consolidated StatementStatements of Income. During the quarter and year to date ended SeptemberJune 30, 2022,2023, the Company purchased $8,265$11,538 and $28,194,$19,955, respectively, of finished goods from LMX and bulk beverage alcohol from LMX, and duringthe other 50 percent owner of DGL. During the quarter and year to date ended SeptemberJune 30, 2021,2022, the Company purchased $8,052$11,538 and $19,724,$19,929, respectively, of finished goods from LMX and bulk beverage alcohol from LMX.the other 50 percent owner of DGL.
Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended SeptemberJune 30, 2022.2023.
Note 2. Revenue
The Company generates revenuesrevenue from the Distilling Solutions segment by the sale of products and by providing warehouse services related to the storage and aging of customer products. The Company generates revenuesrevenue from the Branded Spirits segment by the sale of products and by providing contract bottling services. The Company generates revenuesrevenue from the Ingredient Solutions segment by the sale of products. Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services and contract bottling services is recognized over time. Contracts with customers include a single performance obligation (either the sale of products, the provision of warehouse services, or contract bottling services).
Disaggregation of Sales.The following table presents the Company’s sales by segment and major products and services:
| | | Quarter Ended September 30, | | Year to Date Ended September 30, | | Quarter Ended June 30, | | Year to Date Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Distilling Solutions | Distilling Solutions | | | | | | | | Distilling Solutions | | | | | | | |
Brown goods | Brown goods | $ | 57,423 | | | $ | 42,793 | | | $ | 175,899 | | | $ | 129,600 | | Brown goods | $ | 73,124 | | | $ | 56,331 | | | $ | 141,448 | | | $ | 118,476 | |
White goods | White goods | 20,469 | | | 21,187 | | | 57,996 | | | 56,049 | | White goods | 16,816 | | | 17,441 | | | 32,770 | | | 37,527 | |
Premium beverage alcohol | Premium beverage alcohol | 77,892 | | | 63,980 | | | 233,895 | | | 185,649 | | Premium beverage alcohol | 89,940 | | | 73,772 | | | 174,218 | | | 156,003 | |
Industrial alcohol | Industrial alcohol | 10,761 | | | 14,790 | | | 35,141 | | | 46,896 | | Industrial alcohol | 10,065 | | | 12,885 | | | 20,504 | | | 24,380 | |
Food grade alcohol | Food grade alcohol | 88,653 | | | 78,770 | | | 269,036 | | | 232,545 | | Food grade alcohol | 100,005 | | | 86,657 | | | 194,722 | | | 180,383 | |
Fuel grade alcohol | Fuel grade alcohol | 3,713 | | | 3,592 | | | 10,307 | | | 10,862 | | Fuel grade alcohol | 1,898 | | | 3,312 | | | 4,454 | | | 6,594 | |
Distillers feed and related co-products | Distillers feed and related co-products | 9,943 | | | 4,016 | | | 30,127 | | | 13,660 | | Distillers feed and related co-products | 8,215 | | | 11,267 | | | 17,307 | | | 20,184 | |
Warehouse services | Warehouse services | 6,335 | | | 4,666 | | | 17,821 | | | 12,949 | | Warehouse services | 6,747 | | | 5,902 | | | 13,605 | | | 11,486 | |
Total Distilling Solutions | Total Distilling Solutions | 108,644 | | | 91,044 | | | 327,291 | | | 270,016 | | Total Distilling Solutions | 116,865 | | | 107,138 | | | 230,088 | | | 218,647 | |
| Branded Spirits | Branded Spirits | | Branded Spirits | |
Ultra premium | Ultra premium | 13,804 | | | 11,363 | | | 35,836 | | | 19,491 | | Ultra premium | 14,372 | | | 9,435 | | | 23,487 | | | 22,032 | |
Super premium | Super premium | 3,350 | | | 2,798 | | | 9,522 | | | 6,393 | | Super premium | 3,130 | | | 3,226 | | | 5,977 | | | 6,172 | |
Premium | Premium | 6,013 | | | 5,683 | | | 17,928 | | | 11,012 | | Premium | 6,261 | | | 5,775 | | | 13,045 | | | 11,915 | |
Premium plus | | Premium plus | 23,763 | | | 18,436 | | | 42,509 | | | 40,119 | |
Mid | Mid | 20,834 | | | 22,992 | | | 63,408 | | | 48,399 | | Mid | 17,090 | | | 23,301 | | | 37,925 | | | 42,574 | |
Value | Value | 12,097 | | | 12,756 | | | 36,304 | | | 25,984 | | Value | 11,578 | | | 12,908 | | | 24,999 | | | 24,207 | |
Other | Other | 6,663 | | | 5,969 | | | 14,080 | | | 11,278 | | Other | 5,185 | | | 3,921 | | | 9,066 | | | 7,417 | |
Total Branded Spirits | Total Branded Spirits | 62,761 | | | 61,561 | | | 177,078 | | | 122,557 | | Total Branded Spirits | 57,616 | | | 58,566 | | | 114,499 | | | 114,317 | |
| Ingredient Solutions | Ingredient Solutions | | Ingredient Solutions | |
Specialty wheat starches | Specialty wheat starches | 16,241 | | | 12,231 | | | 47,445 | | | 35,051 | | Specialty wheat starches | 17,095 | | | 16,001 | | | 31,781 | | | 31,204 | |
Specialty wheat proteins | Specialty wheat proteins | 9,697 | | | 8,901 | | | 29,225 | | | 23,299 | | Specialty wheat proteins | 12,588 | | | 10,109 | | | 24,478 | | | 19,528 | |
Commodity wheat starches | Commodity wheat starches | 3,803 | | | 2,626 | | | 10,286 | | | 7,572 | | Commodity wheat starches | 4,837 | | | 3,130 | | | 8,644 | | | 6,483 | |
Commodity wheat proteins | Commodity wheat proteins | — | | | 248 | | | 38 | | | 1,378 | | Commodity wheat proteins | — | | | 38 | | | 521 | | | 38 | |
Total Ingredient Solutions | Total Ingredient Solutions | 29,741 | | | 24,006 | | | 86,994 | | | 67,300 | | Total Ingredient Solutions | 34,520 | | | 29,278 | | | 65,424 | | | 57,253 | |
| Total sales | Total sales | $ | 201,146 | | | $ | 176,611 | | | $ | 591,363 | | | $ | 459,873 | | Total sales | $ | 209,001 | | | $ | 194,982 | | | $ | 410,011 | | | $ | 390,217 | |
Note 3. Business Combination
Description of the Transaction. On January 22, 2021,May 8, 2023, the Company entered into a definitive agreement to acquire Luxco,100 percent of the equity of Penelope, and subsequently completed the mergeracquisition on AprilJune 1, 20212023 (the “Merger”“Acquisition”). Luxco isPenelope, prior to the Acquisition, was a leading branded beverage alcoholfamily and founder-owned and operated American whiskey company across various categories, with a more than 60-year business heritage.diverse portfolio of high-quality whiskeys in the premium plus price tiers. As a result of the Merger, MGP increasedAcquisition, the Company enhances its scale and market positionpresence in the branded-spirits sectorgrowing American whiskey category and believes it strengthenedexpands its platform for future growthportfolio of higher valued-added products.premium plus price tier brands.
Following the Merger, LuxcoAcquisition, Penelope became a wholly owned subsidiary of MGPthe Company and isits financial results are included within the Branded Spirits segment. The aggregate consideration paid by the Company in connection with the MergerAcquisition was $237,500$105,000 in cash (less assumed indebtedness) and 5,007,833 sharespaid at closing, with further additional potential earn-out consideration of common stockup to a maximum cash payout of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”).$110,800 if certain performance conditions, measured through December 31, 2025, are met. The Company Shares were valued at $296,213 and represented approximately 22.8 percent of the Company’s outstanding common stock immediately following the closing of the Merger. The Merger Consideration wasconsideration is subject to customary purchase price adjustments related to, among other things, net working capital and acquired cash and assumed debt.cash. The consideration paid at closing included a preliminary estimated purchase price adjustment. In September 2021, the parties finalized the purchase price adjustment which decreased the cash consideration paid by approximately $608 and increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.
of $324. The cash portion of the Merger Consideration, the repayment of assumed debt,consideration and transaction-related expenses were financed withpaid using both cash on hand and borrowings under the Company’s existing Credit Agreement which was drawn down on April 1, 2021.credit agreement. See Note 5, Corporate Borrowings, for further details.
For tax purposes, the transactionAcquisition was structured partially as a tax-free reorganization and partially as a taxable acquisition, as defined in the Internal Revenue Code. The amount transferred in a tax deferred manner, under the tax-free reorganization rules, did not create additional tax basis for the Company. The taxable component of the transactionan asset purchase which created additional tax basis in the assets acquired as
a result of valuing the assets at fair market value and a corresponding futurethe purchase price will be accounted for in accordance with U.S. federal tax deductionlaw. Indefinite-lived intangible assets and goodwill is expected to be deductible for the Company.U.S. income tax purposes.
Purchase Price Allocation. The MergerAcquisition was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such,. The fair value of the assets acquired and liabilities assumed are based upon a preliminary assessment of fair value and consideration transferred were recorded at their estimated fair values onmay change as valuations for certain tangible assets, intangible assets, and contingent liabilities are finalized and the associated income tax impacts are determined. The Company expects to finalize the purchase price allocation as soon as practicable, but no longer than one year from the acquisition date.
Purchase Price Allocation. The following table summarizes the preliminary allocation of the consideration paid for LuxcoPenelope to the preliminary estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.
| | | | | |
Consideration: | |
Cash net of assumed debt | $ | 149,484105,324 | |
Value of MGP Common Stock issued at closeContingent consideration (a)
| 296,27963,900 | |
Fair value of total consideration transferred | $ | 445,763169,224 | |
| |
Recognized amounts of identifiable assets acquired and liabilities assumed: | |
Cash | $ | 479926 | |
Receivables | 29,6752,242 | |
Inventory | 90,85412,783 | |
Prepaid expenses and other assets | 1,45484 | |
Property, plant and equipment, net | 41,279 | |
Investments in joint ventures | 5,085253 | |
Intangible assets (b)(a) | 219,50055,800 | |
Operating lease right-of-use assets, net | 426 | |
Other assets | 4,25744 | |
Total assets | 392,583 | |
Current maturities of long-term debt (c)
| 87,50972,558 | |
Accounts payable | 14,453 | |
Federal and state excise taxes payable | 8,3522,324 | |
Accrued expenses and other | 2,832161 | |
Other noncurrentLong-term operating lease liabilities | 196 | |
Deferred income taxes | 57,034268 | |
Total liabilities | 170,3762,753 | |
Goodwill | 223,55699,419 | |
Total | $ | 445,763169,224 | |
(a)On April 1, 2021, the Company issued 5,007,833 shares of MGP Common Stock which was valued at $59.15 per share. In September 2021, the parties finalized the purchase price adjustments which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.
(b) Intangible assets acquired included trade names with an estimated fair value of $178,100$33,700 and distributor relationships with an estimated fair value of $41,400.
(c) The fair value of Luxco’s debt that was assumed by MGP in the transaction and repaid on the closing date.$22,100.
In accordance with ASC 805 assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisitionAcquisition date. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates, and market comparables, among others. The fair value of work-in-process and finished goods inventory was determined using the comparative sales method and raw materials was determined using the replacement cost method. The fair value of personal property assets was determined using the market approach and the indirect and direct method of the cost approach, and the fair value of real property was determined using the
cost approach and the sales comparison approach.
Goodwill of $223,556, none$99,419, all of which is expected to be deductible for tax purposes, represents the excess of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed. The Intangible assets acquired included indefinite-lived intangible assets, trade names, withwhich have an estimated fair value of $178,100$33,700, and definite-lived intangible assets, distributor relationships, withwhich have an estimated fair value of $41,400$22,100 and a useful life of 20 years. The trade names and distributor relationships acquired by the Company have been recorded at the estimated fair values using the relief from royalty method and multi-period excess earnings method, respectively. Management engaged a third party valuation specialist to assist in the valuation analysis of certain acquired assets including trade names and distributor relationships.
Pro Forma Information. The following table summarizes the unaudited pro forma financial results for the quarter and year to date ended September 30, 2021, as if the Merger had occurred on January 1, 2020:
| | | | | | | | | | | |
| Pro Forma Financial Information |
| Quarter Ended September 30, | | Year to Date Ended September 30, |
| 2021 | | 2021 |
Sales | $ | 176,611 | | | $ | 504,243 | |
Net income | 23,673 | | | 68,934 | |
Basic and diluted earnings per common share | 1.08 | | | 3.38 | |
The operating results of Penelope have been included in the Company’s condensed consolidated financial statements since the June 1, 2023 acquisition date. The operating results and pro forma results are adjusted for items that are non-recurring in nature and directly attributablenot disclosed due to the Merger, includingimmaterial impact to the income tax effectCompany’s Condensed Consolidated Statements of Income.
During the quarter ended June 30, 2023, the Company incurred $1,500 of acquisition related costs for the Acquisition, which are included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Income.
Contingent Consideration. The estimated fair value of the adjustments. Merger related costs incurred bycontingent consideration obligation at the Companyacquisition date was $63,900, which was determined using a Monte Carlo simulation approach. This approach requires significant assumptions, including projected net sales, discount rates, and volatility rates. The inputs used in the calculation of $294the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity. The contingent consideration liability is measured on a quarterly basis and $8,922 forrecorded at fair value. The changes in fair value of the quarter
obligation result from changes in the key assumptions, such as projected net sales, discount rates, and year to date ended September 30, 2021, respectively,volatility rates. There were excluded and $7,032 is assumed to have been incurred on January 1, 2020. Merger related costs incurred by Luxcono changes in the fair value measurement of $3,132 were excluded from the year to date ended September 30, 2021 pro forma results. A non-recurring expense of $2,529contingent consideration obligation for the quarter and year to date ended SeptemberJune 30, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed. Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives.
2023. The summary pro forma financial information is for informational purposes only,amount payable is based on estimates and assumptions, and does not purport to represent whatupon achievement of certain net sales targets between the Company’s consolidated results of operations actually would have been if the Merger had occurred at an earlieracquisition date and such data does not purportDecember 31, 2025. The possible payments range from zero to project the Company’s resultsa maximum payout of operations for any future period. The basic and diluted shares outstanding used to calculate the pro forma net income per share amounts presented above have been adjusted to assume shares issued at the closing of the Merger were outstanding since January 1, 2020.$110,800.
Note 4. Goodwill and Intangible Assets
Definite-Lived Intangible Assets. The Company has aacquired definite-lived intangible asset which was acquired as a resultassets in connection with various acquisitions of the Merger.businesses. The distributor relationships have a carrying value of $38,295,$58,750, net of accumulated amortization of $3,105.$4,750. The distributor relationships have a useful life of 20 years. The amortization expense for the quarter and year to date ended SeptemberJune 30, 20222023 was $518$610 and $1,553, respectively, and the$1,128, respectively. The amortization expense for the quarter and year to date ended SeptemberJune 30, 20212022 was $517 and $1,035, respectively.
As of SeptemberJune 30, 2022,2023, the expected future amortization expense related to definite-lived intangible assets areis as follows:
| Remainder of 2022 | $ | 517 | | |
2023 | 2,070 | | |
Remainder of 2023 | | Remainder of 2023 | $ | 1,587 | |
2024 | 2024 | 2,070 | | 2024 | 3,175 | |
2025 | 2025 | 2,070 | | 2025 | 3,175 | |
2026 | 2026 | 2,070 | | 2026 | 3,175 | |
2027 | | 2027 | 3,175 | |
Thereafter | Thereafter | 29,498 | | Thereafter | 44,463 | |
Total | Total | $ | 38,295 | | Total | $ | 58,750 | |
Goodwill and Indefinite-Lived Intangible Assets. The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units.
Changes in carrying amount of goodwill by business segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Distilling Solutions | | Branded Spirits | | Ingredient Solutions | | Total |
Balance, December 31, 2021 | $ | — | | | $ | 226,294 | | | $ | — | | | $ | 226,294 | |
Acquisitions | — | | | — | | | — | | | — | |
Balance, September 30, 2022 | $ | — | | | $ | 226,294 | | | $ | — | | | $ | 226,294 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Distilling Solutions | | Branded Spirits | | Ingredient Solutions | | Total |
Balance, December 31, 2022 | $ | — | | | $ | 226,294 | | | $ | — | | | $ | 226,294 | |
Acquisitions | — | | | 99,419 | | | — | | | 99,419 | |
Balance, June 30, 2023 | $ | — | | | $ | 325,713 | | | $ | — | | | $ | 325,713 | |
Changes in carrying amount of trade name intangible assets by business segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Distilling Solutions | | Branded Spirits | | Ingredient Solutions | | Total |
Balance, December 31, 2021 | $ | — | | | $ | 178,990 | | | $ | — | | | $ | 178,990 | |
Acquisitions | — | | | — | | | — | | | — | |
Balance, September 30, 2022 | $ | — | | | $ | 178,990 | | | $ | — | | | $ | 178,990 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Distilling Solutions | | Branded Spirits | | Ingredient Solutions | | Total |
Balance, December 31, 2022 | $ | — | | | $ | 178,990 | | | $ | — | | | $ | 178,990 | |
Acquisitions | — | | | 33,700 | | | — | | | 33,700 | |
Balance, June 30, 2023 | $ | — | | | $ | 212,690 | | | $ | — | | | $ | 212,690 | |
Note 5. Corporate Borrowings
The following table presents the Company’s outstanding indebtedness: | Description(a) | Description(a) | | September 30, 2022 | | December 31, 2021 | Description(a) | | June 30, 2023 | | December 31, 2022 |
Credit Agreement - Revolver, 4.14% (variable rate) due 2025 | | $ | — | | | $ | — | | |
Credit Agreement - Revolver, 6.20% (variable rate) due 2026 | | Credit Agreement - Revolver, 6.20% (variable rate) due 2026 | | $ | 98,000 | | | $ | — | |
Convertible Senior Notes, 1.88% (fixed rate) due 2041 | Convertible Senior Notes, 1.88% (fixed rate) due 2041 | | 201,250 | | | 201,250 | | Convertible Senior Notes, 1.88% (fixed rate) due 2041 | | 201,250 | | | 201,250 | |
| Note Purchase Agreement | Note Purchase Agreement | | Note Purchase Agreement | |
Series A Senior Secured Notes, 3.53% (fixed rate) due 2027 | Series A Senior Secured Notes, 3.53% (fixed rate) due 2027 | | 16,000 | | | 18,400 | | Series A Senior Secured Notes, 3.53% (fixed rate) due 2027 | | 13,600 | | | 15,200 | |
Senior Secured Notes, 3.80% (fixed rate) due 2029 | Senior Secured Notes, 3.80% (fixed rate) due 2029 | | 20,000 | | | 20,000 | | Senior Secured Notes, 3.80% (fixed rate) due 2029 | | 19,200 | | | 20,000 | |
Other long-term borrowings | | — | | | 203 | | |
| Total indebtedness outstanding | Total indebtedness outstanding | | 237,250 | | | 239,853 | | Total indebtedness outstanding | | 332,050 | | | 236,450 | |
Less unamortized loan fees(b) | Less unamortized loan fees(b) | | (6,199) | | | (6,454) | | Less unamortized loan fees(b) | | (6,946) | | | (6,115) | |
Total indebtedness outstanding, net | Total indebtedness outstanding, net | | 231,051 | | | 233,399 | | Total indebtedness outstanding, net | | 325,104 | | | 230,335 | |
Less current maturities of long-term debt | Less current maturities of long-term debt | | (4,800) | | | (3,227) | | Less current maturities of long-term debt | | (6,400) | | | (5,600) | |
Long-term debt and Credit Agreement - Revolver | | $ | 226,251 | | | $ | 230,172 | | |
Long-term debt | | Long-term debt | | $ | 318,704 | | | $ | 224,735 | |
(a) Interest rates are as of SeptemberJune 30, 2022.2023.
(b) Loan fees are being amortized over the life of the debt instruments.
Credit Agreement. On February 14, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with multiple participants led by Wells Fargo Bank, National Association (“Wells Fargo Bank”) that matures on FebruaryMarch 14, 2025.2026. The Credit Agreement provided for a $300,000 revolving credit facility. On May 14, 2021, the Credit Agreement was amended to increase the principal amount available to $400,000 and to permit the Company, subject to obtaining lender approval, to increase the amount of the revolving credit facility by up to an additional $100,000. On August 31, 2022, the Credit Agreement was amended to change the interest rate benchmark from LIBOR to SOFR. The Credit Agreement includes certain requirements and covenants with which the Company was in compliance with at SeptemberJune 30, 2022. The2023. Part of the cash portion of the Merger Consideration, the repayment of assumed debt,consideration paid to acquire Penelope and transaction-related expenses were financed with $242,300$105,000 borrowings under the Credit Agreement which was drawn down on April 1, 2021.Agreement. As of SeptemberJune 30, 2022,2023, the Company had no$98,000 outstanding borrowings under the Credit Agreement, leaving $400,000$302,000 available.
Convertible Senior Notes. On November 16, 2021, the Company issued $201,250 in aggregate principal amount of 1.875%1.88% convertible senior notes due in 2041 (“2041(the “2041 Notes”). The 2041 Notes were issued pursuant to an indenture, dated as of November 16, 2021 ( the(the “Indenture”), by and among the Company, as issuer, Luxco, Inc., MGPI Processing, Inc., and MGPI of Indiana, LLC, as subsidiary guarantors, and U.S. Bank National Association, as trustee. The 2041 Notes are senior, unsecured obligations of the Company and interest is payable semi-annually in arrears at a fixed interest rate of 1.875%1.88% on May 15 and November 15 of each year. The 2041 Notes mature on November 15, 2041 (“Maturity Date”) unless earlier repurchased, redeemed, or converted, per the agreement.terms of the Indenture. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2041 Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2041 Notes being converted.
Note Purchase Agreements. The Company’s Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”), with PGIM, Inc.,(“Prudential”), an affiliate of Prudential Financial, Inc., and certain affiliates of Prudential, provides for the issuance of $20,000 of Series A Senior Secured Notes and the issuance of up to $105,000 of additional Senior Secured Notes (or any higher amount solely to the extent Prudential has provided written notice to the Company of its authorization of such a higher amount). On July 29, 2021, Prudential provided the Company notice pursuant to Section 1.2 of the Note Purchase Agreement that Prudential has authorized an increase in the amount of additional Senior Secured Notes that may be issued under the uncommitted shelf facility under the Note Purchase Agreement from $105,000 to $140,000, effective as of July 29, 2021. The deadline for issuing theany new notes under the shelf facility is August 23, 2023.
During 2017, the Company issued $20,000 of Series A Senior Secured Notes with a maturity date of August 23, 2027. During 2019, the Company issued $20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029. The Note Purchase Agreement includes certain requirements and covenants with which the Company was in compliance with at SeptemberJune 30, 20222023. As of SeptemberJune 30, 2022,2023, the Company has $16,000had $13,600 of Series A Senior Secured Notes and $20,000$19,200 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $120,000 available of Senior Secured Notes.
Other long-term borrowings. As part of the Merger, the Company acquired additional long-term notes payable to certain counties in Kentucky and during the quarter ended September 30, 2022, the Company paid off the outstanding balances.
Note 6. Income Taxes
The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The Company’s quarterly effective tax rate can be subject to significant change due to the effect of discrete items arising in a given quarter. Beginning in the second quarter of 2021,2023, the estimated annual effective tax rate includes both domestic and foreignU.S. entities acquired in the Merger. See Note 3, Business Combination, for further details.Penelope acquisition.
Income tax expense for the quarter and year to date ended SeptemberJune 30, 2022,2023 was $7,533$10,804 and $26,037$20,459, respectively, for an effective tax rate of 24.225.3 percent and 23.224.5 percent, respectively. The effective tax rate for the quarter and year to date ended SeptemberJune 30, 20222023 differed from the 21 percent U.S. federal statutory rate on pretax income primarily due to state and foreign income taxes and income taxes on foreign subsidiaries, partially offset by U.S. state and federal tax credits and the deduction applicable to export activity. The Penelope acquisition had an immaterial impact on the quarter and year to date effective tax rate and deferred taxes, including any valuation allowances related to deferred taxes and reserves for uncertain tax positions.
Income tax expense for the quarter and year to date ended June 30, 2022 was $7,339 and $18,504, respectively, for an effective tax rate of 22.4 percent and 22.8 percent, respectively. The effective tax rate for the quarter and year to date ended June 30, 2022 differed from the 21 percent U.S. federal statutory rate on pretax income primarily due to state income taxes and income taxes on foreign subsidiaries, partially offset by state and federal tax credits, and the deduction applicable to export activity. The increase in Incomeincome tax expense for the quarter and year to date ended SeptemberJune 30, 2022 was primarily due to higher Incomeincome before income taxes as compared to the prior year periods.
Income tax expense for the quarter and year to date ended September 30, 2021, was $7,674 and $18,701 for an effective tax rate of 24.5 percent and 24.0 percent, respectively. The effective tax rate for the quarter and year to date ended September 30, 2021 differed from the 21 percent federal statutory rate on pretax income primarily due to state taxes, income taxes on foreign subsidiaries acquired as a result of the Merger, nondeductible transaction costs, partially offset by state and federal credits and the deduction applicable to export activity.
Note 7. Equity and EPS
The following table presents computations of basic and diluted EPS: | | | Quarter Ended September 30, | | Year to Date Ended September 30, | | Quarter Ended June 30, | | Year to Date Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Operations: | Operations: | | | | | | | | | Operations: | | | | | | | | |
Net income(a) | Net income(a) | | $ | 23,628 | | | $ | 23,673 | | | $ | 86,361 | | | $ | 59,159 | | Net income(a) | | $ | 31,964 | | | $ | 25,362 | | | $ | 62,996 | | | $ | 62,733 | |
Net loss attributable to noncontrolling interest | Net loss attributable to noncontrolling interest | | 180 | | | 203 | | | 444 | | | 279 | | Net loss attributable to noncontrolling interest | | 162 | | | 198 | | | 201 | | | 264 | |
Income attributable to participating securities (unvested shares and units)(b) | Income attributable to participating securities (unvested shares and units)(b) | | (188) | | | (175) | | | (688) | | | (471) | | Income attributable to participating securities (unvested shares and units)(b) | | (324) | | | (217) | | | (633) | | | (535) | |
Net income used in EPS calculation | Net income used in EPS calculation | | $ | 23,620 | | | $ | 23,701 | | | $ | 86,117 | | | $ | 58,967 | | Net income used in EPS calculation | | $ | 31,802 | | | $ | 25,343 | | | $ | 62,564 | | | $ | 62,462 | |
| Share information: | Share information: | | Share information: | |
Basic weighted average common shares(c) | Basic weighted average common shares(c) | | 22,008,381 | | | 21,981,201 | | | 22,000,026 | | | 20,293,818 | | Basic weighted average common shares(c) | | 22,062,142 | | | 22,002,385 | | | 22,051,244 | | | 21,995,779 | |
| Diluted weighted average common shares(c)(d) | | 22,228,814 | | | 21,981,201 | | | 22,000,026 | | | 20,293,818 | | |
Diluted weighted average common shares(d) | | Diluted weighted average common shares(d) | | 22,139,663 | | | 22,002,385 | | | 22,106,113 | | | 21,995,779 | |
| Basic EPS | Basic EPS | | $ | 1.07 | | | $ | 1.08 | | | $ | 3.91 | | | $ | 2.91 | | Basic EPS | | $ | 1.44 | | | $ | 1.15 | | | $ | 2.84 | | | $ | 2.84 | |
Diluted EPS | Diluted EPS | | $ | 1.06 | | | $ | 1.08 | | | $ | 3.91 | | | $ | 2.91 | | Diluted EPS | | $ | 1.44 | | | $ | 1.15 | | | $ | 2.83 | | | $ | 2.84 | |
(a)Net income attributable to all shareholders.stockholders.
(b)Participating securities included 176,398226,684 and 163,024189,297 unvested restricted stock units (“RSUs”), at SeptemberJune 30, 20222023 and 2021,2022, respectively.
(c)Under the two-class method, basic and diluted weighted average common shares at September 30, 2022 and 2021 exclude unvested participating securities.
(d)The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares if the inclusion was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market price per share during the quarter and year to date period exceeds the conversion price of $96.24 per share.
Share Issuance. On April 1, 2021, as part For the quarter ended June 30, 2023, the average market price per share during the quarter exceeded $96.24 per share; however, the impact to diluted EPS calculation was less than $0.01, which resulted in reported basic and diluted EPS being equal. For the year to date ended June 30, 2023, the inclusion of the considerationshares had a dilutive impact and were included in the diluted EPS calculation. There was no dilutive impact for the Merger, the Company issued 5,007,833 shares of common stock. In September 2021, the parties finalized the purchase price adjustments, which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.
Share Repurchase. On February 25, 2019, MGP’s Board of Directors approved a $25,000 share repurchase authorization commencing February 27, 2019, through February 27, 2022. Under the share repurchase program, the Company could have repurchased stock from timequarter and year to time for cash in open market purchases, block transactions, and privately negotiated transactions in accordance with applicable federal securities laws. The Company did not repurchase any shares under the share repurchase program during 2022, prior to its expiration on February 27,date ended June 30, 2022. The Company did not renew the share repurchase program upon its expiration.
Common Stock Share Activity.
| | | | | | | | | | | |
| Shares Outstanding |
| Capital Stock Preferred | | Common Stock |
Balance, December 31, 2021 | 437 | | | 21,964,314 | |
Issuance of Common Stock | — | | | 29,807 | |
Repurchase of Common Stock (a) | — | | | (9,021) | |
Balance, March 31, 2022 | 437 | | | 21,985,100 | |
Issuance of Common Stock | — | | | 7,655 | |
Repurchase of Common Stock(a) | — | | | (4) | |
Balance, June 30, 2022 | 437 | | | 21,992,751 | |
Issuance of Common Stock | — | | | 606 | |
Repurchase of Common Stock(a) | — | | | (2) | |
Balance, September 30, 2022 | 437 | | | 21,993,355 | |
| | | | | | | | | | | |
| Shares Outstanding |
| Capital Stock Preferred | | Common Stock |
Balance, December 31, 2020 | 437 | | | 16,915,862 | |
Issuance of Common Stock | — | | | 35,114 | |
Repurchase of Common Stock (a) | — | | | (10,376) | |
Balance, March 31, 2021 | 437 | | | 16,940,600 | |
Issuance of Common Stock | — | | | 5,022,122 | |
Repurchase of Common Stock(a) | — | | | (1,489) | |
Balance, June 30, 2021 | 437 | | | 21,961,233 | |
Issuance of Common Stock | — | | | 2,361 | |
Repurchase of Common Stock(a) | — | | | (20) | |
Balance, September 30, 2021 | 437 | | | 21,963,574 | |
Common Stock Share Activity. The following table presents the Company’s share activity: | | | | | | | | | | | |
| Shares Outstanding |
| Capital Stock Preferred | | Common Stock |
Balance, December 31, 2022 | 437 | | | 21,994,042 | |
Issuance of Common Stock | — | | | 23,324 | |
Repurchase of Common Stock (a) | — | | | (8,437) | |
Balance, March 31, 2023 | 437 | | | 22,008,929 | |
Issuance of Common Stock | — | | | 5,445 | |
Repurchase of Common Stock(a) | — | | | — | |
Balance, June 30, 2023 | 437 | | | 22,014,374 | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| Shares Outstanding |
| Capital Stock Preferred | | Common Stock |
Balance, December 31, 2021 | 437 | | | 21,964,314 | |
Issuance of Common Stock | — | | | 29,807 | |
Repurchase of Common Stock (a) | — | | | (9,021) | |
Balance, March 31, 2022 | 437 | | | 21,985,100 | |
Issuance of Common Stock | — | | | 7,655 | |
Repurchase of Common Stock(a) | — | | | (4) | |
Balance, June 30, 2022 | 437 | | | 21,992,751 | |
| | | |
| | | |
| | | |
(a)The Common Stock repurchases were for tax withholding on equity based compensationequity-based compensation.
Note 8. Commitments and Contingencies
There are various legal and regulatory proceedings involving the Company and its subsidiaries. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated.
Shareholder matters. On May 11, 2020, Mitchell Dorfman, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Dorfman, derivatively on behalf of MGP Ingredients v. Griffin, et al., Case 2:20-cv-02239. On June 4, 2020, Justin Carter, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Carter, derivatively on behalf of MGP Ingredients v. Griffin, et al., Case 2:20-cv-02281. On June 18, 2020, Alexandra Kearns, a shareholder in MGP, filed an action in the District Court of Atchison County, Kansas, under the caption Kearns, derivatively on behalf of MGP Ingredients v. Griffin, et al., Case 2020-CV-000042. The defendants were certain of the Company’s current and former officers and directors. The Company was a nominal defendant in each action. Plaintiffs alleged that the Company was damaged as a result of the commencement of securities litigation against defendants, the repurchase of Company stock at artificially inflated prices, and compensation paid to the individual defendants. The Complaint in Dorfman asserted claims for violations of Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The Complaint in Carter asserted claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The Petition in Kearns asserted claims for breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The pleadings prayed for an award of compensatory damages, including interest, in favor of the Company, for equitable relief related to the Company’s corporate governance, for disgorgement of compensation, and for an award of attorneys’ fees and costs.
On August 31, 2021, the court dismissed with prejudice the securities litigation on which some of the derivative claims were based. On January 4, 2022, the court dismissed the Carter action. On January 11, 2022, the court dismissed the Dorfman action. On February 2, 2022, the plaintiffs and defendants entered into a stipulation of dismissal of the Kearns action. The federal claims alleged in Carter were dismissed with prejudice. All other derivative claims were dismissed without prejudice.
2016 Atchison Chemical Release. A chemical release occurred at the Company’s Atchison facility on October 21, 2016, which resulted in emissions venting into the air (“the Atchison Chemical Release”). Private plaintiffs initiated legal proceedings against the Company for damages resulting from the Atchison Chemical Release. The Company reached a settlement with the plaintiffs in December 2021 and the legal proceedings were dismissed with prejudice in January 2022.
Note 9. Employee and Non-Employee Benefit Plans
Share-Based Compensation Plans. The Company’s share-based compensation plans provide for the awarding of stock options, stock appreciation rights, shares of restricted stock, (“Restricted Stock”), and RSUs for senior executives and salariedother employees, as well as non-employee directors. The Company currently has two active equity-based compensation plans: the Employee2014 Equity Incentive Plan of 2014 (the(as amended, the “2014 Plan”) and the 2014 Non-Employee Director Equity Incentive Plan (the “Directors’ Plan”).
As of SeptemberJune 30, 2022, 585,3532023, 658,081 RSUs had been granted offrom the 1,500,000 shares approved under the 2014 Plan, and 130,982137,840 shares had been granted offrom the 300,000 shares approved under the Directors’ Plan. As of SeptemberJune 30, 2022,2023, there were 178,608226,684 unvested RSUs under the Company’s long-term incentive plans, and 176,398all of which were participating securities (Note(see Note 7).
Deferred Compensation Plan. The Company established an unfunded Executive Deferred Compensation Plan (“EDC(the “EDC Plan”) effective as of June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation. The Company’s obligations under this plan willthe EDC Plan change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the plan.EDC Plan. Realized and unrealized gains (losses) on deferred compensation plan investments were included as a component of Otherother income (expense), net on the Company’s Condensed Consolidated Statements of IncomeIncome. For the quarter and year to date ended June 30, 2023, the Company had a gain on deferred compensation plan investments of $211 and $390, respectively, and for the quarter and year to date ended September 30, 2022. For quarter and year to date ended SeptemberJune 30, 2022, the Company had a loss on deferred compensation plan investments of $103$489 and $931,$828, respectively. For quarter ended September 30, 2021, the Company had a loss on deferred compensation plan investments of $15 and for the year to date ended September 30, 2021, the Company had a gain on deferred compensation plan investments of $261.
EDC Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Participants were able to direct the deferral of a portion of their base salary and a portion of their estimated accrued Short-termshort-term incentive plan (“STI Plan”) amounts that were paid during the first quarter of the following year. Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options. STI Plan deferral amounts are deposited, at the time of payment, into the EDC Plan by the Company and allocated by participants among Company-determined investment options.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, the EDC Plan investments were $2,510$2,979 and $3,072,$2,176, respectively, which were recorded in Otherother assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were $617$650 and $510 at both SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively, which were included in Accruedaccrued expenses and other on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan non-current liabilities were $2,310$2,621 and $2,981$2,191 at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively, and were included in Otherother noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets.
Note 10. Operating Segments
At SeptemberJune 30, 2022,2023, the Company had three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. The Distilling Solutions segment consists of food grade alcohol and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry) and fuel grade alcohol. The Distilling Solutions segment also includes warehouse services, includingsuch as barrel put away, barrel storage, retrieval, and blendingbarrel retrieval services. The Branded Spirits segment consists of producing, importing,a portfolio of high quality branded spirits which are produced through the distilleries and bottling and rectifying of distilled spirits.facilities. The Ingredient Solutions segment consists of specialty starches and proteins and commodity starches and proteins.
Operating profit for each segment is based on sales less identifiable operating expenses. Non-direct selling, general, and administrative expenses, interest expense, other special charges, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, property, plant and equipment, leases, goodwill, and intangible assets have been identified with the segments to which they relate. All other assets are considered as Corporate.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended September 30, | | Year to Date Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Sales to Customers | | | | | | | | |
Distilling Solutions | | $ | 108,644 | | | $ | 91,044 | | | $ | 327,291 | | | $ | 270,016 | |
Branded Spirits | | 62,761 | | | 61,561 | | | 177,078 | | | 122,557 | |
Ingredient Solutions | | 29,741 | | | 24,006 | | | 86,994 | | | 67,300 | |
Total | | $ | 201,146 | | | $ | 176,611 | | | $ | 591,363 | | | $ | 459,873 | |
| | | | | | | | |
Gross Profit | | | | | | | | |
Distilling Solutions | | $ | 25,917 | | | $ | 26,981 | | | $ | 94,630 | | | $ | 87,211 | |
Branded Spirits | | 25,067 | | | 23,217 | | | 70,809 | | | 41,737 | |
Ingredient Solutions | | 8,064 | | | 6,888 | | | 24,654 | | | 17,264 | |
Total | | $ | 59,048 | | | $ | 57,086 | | | $ | 190,093 | | | $ | 146,212 | |
| | | | | | | | |
Depreciation and Amortization | | | | | | | | |
Distilling Solutions | | $ | 2,929 | | | $ | 2,695 | | | $ | 8,716 | | | $ | 7,900 | |
Branded Spirits | | 1,434 | | | 1,743 | | | 4,618 | | | 3,481 | |
Ingredient Solutions | | 613 | | | 531 | | | 1,838 | | | 1,487 | |
Corporate | | 357 | | | 274 | | | 1,085 | | | 800 | |
Total | | $ | 5,333 | | | $ | 5,243 | | | $ | 16,257 | | | $ | 13,668 | |
| | | | | | | | |
Income (loss) before Income Taxes | | | | | | | | |
Distilling Solutions | | $ | 25,213 | | | $ | 26,047 | | | $ | 92,332 | | | $ | 84,225 | |
Branded Spirits | | 9,776 | | | 9,293 | | | 28,016 | | | 15,182 | |
Ingredient Solutions | | 6,822 | | | 6,214 | | | 21,770 | | | 15,121 | |
Corporate | | (10,650) | | | (10,207) | | | (29,720) | | | (36,668) | |
Total | | $ | 31,161 | | | $ | 31,347 | | | $ | 112,398 | | | $ | 77,860 | |
The following table presents summarized financial information for each segment: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended June 30, | | Year to Date Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Sales to Customers | | | | | | | | |
Distilling Solutions | | $ | 116,865 | | | $ | 107,138 | | | $ | 230,088 | | | $ | 218,647 | |
Branded Spirits | | 57,616 | | | 58,566 | | | 114,499 | | | 114,317 | |
Ingredient Solutions | | 34,520 | | | 29,278 | | | 65,424 | | | 57,253 | |
Total | | $ | 209,001 | | | $ | 194,982 | | | $ | 410,011 | | | $ | 390,217 | |
| | | | | | | | |
Gross Profit | | | | | | | | |
Distilling Solutions | | $ | 38,678 | | | $ | 29,780 | | | $ | 71,706 | | | $ | 68,713 | |
Branded Spirits | | 26,003 | | | 20,960 | | | 50,596 | | | 45,742 | |
Ingredient Solutions | | 11,614 | | | 8,484 | | | 23,817 | | | 16,590 | |
Total | | $ | 76,295 | | | $ | 59,224 | | | $ | 146,119 | | | $ | 131,045 | |
| | | | | | | | |
Depreciation and Amortization | | | | | | | | |
Distilling Solutions | | $ | 2,870 | | | $ | 2,926 | | | $ | 5,721 | | | $ | 5,787 | |
Branded Spirits | | 1,658 | | | 1,402 | | | 3,149 | | | 3,184 | |
Ingredient Solutions | | 622 | | | 613 | | | 1,280 | | | 1,225 | |
Corporate | | 169 | | | 362 | | | 340 | | | 728 | |
Total | | $ | 5,319 | | | $ | 5,303 | | | $ | 10,490 | | | $ | 10,924 | |
| | | | | | | | |
Income (loss) before Income Taxes | | | | | | | | |
Distilling Solutions | | $ | 37,956 | | | $ | 29,127 | | | $ | 70,257 | | | $ | 67,119 | |
Branded Spirits | | 9,221 | | | 7,454 | | | 18,378 | | | 18,240 | |
Ingredient Solutions | | 10,001 | | | 7,477 | | | 20,847 | | | 14,948 | |
Corporate | | (14,410) | | | (11,357) | | | (26,027) | | | (19,070) | |
Total | | $ | 42,768 | | | $ | 32,701 | | | $ | 83,455 | | | $ | 81,237 | |
The following table allocates assets to each segment as of: | | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
Identifiable Assets | Identifiable Assets | | | | | Identifiable Assets | | | | |
Distilling Solutions | Distilling Solutions | | $ | 330,487 | | | $ | 314,816 | | Distilling Solutions | | $ | 396,306 | | | $ | 350,068 | |
Branded Spirits | Branded Spirits | | 699,354 | | | 658,826 | | Branded Spirits | | 894,117 | | | 698,985 | |
Ingredient Solutions | Ingredient Solutions | | 57,061 | | | 43,009 | | Ingredient Solutions | | 76,369 | | | 63,943 | |
Corporate | Corporate | | 45,173 | | | 24,816 | | Corporate | | 28,337 | | | 45,215 | |
Total | Total | | $ | 1,132,075 | | | $ | 1,041,467 | | Total | | $ | 1,395,129 | | | $ | 1,158,211 | |
Note 11. Subsequent Events
Dividend. On NovemberAugust 3, 2022,2023, the Company’s Board of Directors declaredCompany announced a quarterly dividend payable to stockholders of record as of November 18, 2022, of the Company’s Common Stock, and acommon stock, resulting in dividend equivalentequivalents payable to holders of certain RSUs as of November 18, 2022,RSU holders, of $0.12 per share and per unit,RSU. The dividend and dividend equivalents are payable on December 2, 2022.September 1, 2023 to stockholders of record and certain RSU holders on August 18, 2023.
Planned Closure of the Atchison Distillery. On July 13, 2023, the Company announced the decision by its Board of Directors to approve the closure of the Company’s distillery located in Atchison, Kansas (the “Atchison Distillery”). The anticipated closure date is January 2024. The Company currently expects to incur aggregate pre-tax charges of $23,000 to $31,000 for the year ending December 31, 2023 in connection with the closure of the Atchison Distillery.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, unless otherwise noted)
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report on Form 10-Q containsmay contain forward looking statements as well as historical information. All statements, other than statements of historical facts, regarding the prospects of our industry and our prospects, plans, financial position, and strategic plan may constitute forward looking statements. In addition, forwardstatements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about the timing of and charges associated with the Atchison, Kansas distillery closure; our sources of cash being adequate; our capital expenditures; our ability to support our liquidity and operating needs through cash generated from operations; and our ability to obtain credit funding. Forward looking statements are usually identified by or are associated with such words as “intend,” “plan,” “believe,” “estimate,” “expect,” “anticipate,” “project,” “forecast,” “hopeful,” “should,” “may,” “will,” “could,” “encouraged,” “opportunities,” “potential,” and/or the negatives or variations of these terms orand similar terminology. Forward lookingThese forward-looking statements reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, our performance, our financial results, and our financial condition and are based on current expectations and assumptions thatnot guarantees of future performance.
All forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied in the forward looking statements. A detailed discussion ofcertain risks and uncertainties that could cause actual results and events to differ materially from such forward looking statements is included inmaterially. For information on these risks and uncertainties and other factors that could affect the section titledCompany’s business, see the “Risk Factors” (Item 1A)and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K for the year ended December 31, 2021 and the additional risk factors included in2022, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 in Part II, Item 1A.March 31, 2023, this Report, and our other filings with the Securities and Exchange Commission (the “SEC”). Forward looking statements in this Report are made as of the date of this report,Report, and we undertake no obligation to update any forward-looking statements or revise publicly any forward looking statements, whether becauseinformation made in this Report, except as required by law.
RECENT DEVELOPMENTS
Acquisition of new information, future events or otherwise.Penelope. On May 8, 2023, we entered into a definitive agreement to acquire 100 percent of the equity of Penelope Bourbon LLC (“Penelope”), and subsequently completed the acquisition on June 1, 2023. Penelope, prior to our acquisition, was a family and founder-owned and operated American whiskey company with a diverse portfolio of high-quality whiskeys in the premium plus price tiers. As a result of the acquisition, we enhance our presence in the growing American whiskey category and expand our portfolio of premium plus price tier brands. Following the acquisition, Penelope became a wholly owned subsidiary of the Company and its financial results are included in the Branded Spirits segment (see Note 3, Business Combination for additional information).
Planned Closure of the Atchison Distillery. On July 13, 2023, we announced the decision by our Board of Directors to approve the closure of our distillery located in Atchison, Kansas (the “Atchison Distillery”). The anticipated closure date is January 2024. The decision to close the Atchison Distillery is consistent with our plan to address profitability headwinds associated with our grain neutral spirits and industrial alcohol products within the Distilling Solutions segment. We currently expect to incur aggregate pre-tax charges of $23,000 to $31,000 for the year ending December 31, 2023 in connection with the closure of the Atchison Distillery.
OVERVIEW
MGP is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients. Distilled spirits include premium bourbon, rye, and ryeother whiskeys (“brown goods”) and grain neutral spirits (“GNS”), including vodka and gin. WeOur distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP is also a top producer of high quality industrial alcohol for use in both food and non-food applications. Our distilled spirits are either packaged and sold underWe have a portfolio of our own brands to distributors, sold, directly or indirectly, to manufacturers of otherhigh quality branded spirits, or direct to consumer. Our Branded Spirits consist of producing, importing, bottling and rectifying distilled spiritswhich we produce through our distilleries and bottling facilities. The Company’sfacilities and sell to distributors. Our branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end
American whiskey, tequila, and gin. Our protein and starch food ingredients provideserve a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the consumer packaged goods industry. Our ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Form 10-Q,Report, as well as our audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations - General, set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
2022.
RESULTS OF OPERATIONS
Consolidated Results
The table below details the consolidated results for the quarters ended SeptemberJune 30, 20222023 and 2021: | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended September 30, | | | | | |
| 2022 | | 2021 | | | | 2022 v. 2021 | |
Sales | $ | 201,146 | | | $ | 176,611 | | | | | 14 | % | |
Cost of sales | 142,098 | | | 119,525 | | | | | 19 | | |
Gross profit | 59,048 | | | 57,086 | | | | | 3 | | |
Gross margin % | 29.4 | % | | 32.3 | % | | | | (2.9) | | pp(a) |
Advertising and promotion expenses | 7,279 | | | 5,664 | | | | | 29 | | |
Selling, general, and administrative (“SG&A”) expenses | 17,904 | | | 18,527 | | | | | (3) | | |
Other operating (income) expense, net | 1 | | | 11 | | | | | (91) | | |
Operating income | 33,864 | | | 32,884 | | | | | 3 | | |
Operating margin % | 16.8 | % | | 18.6 | % | | | | (1.8) | | pp |
Interest expense, net | (1,350) | | | (1,116) | | | | | (21) | | |
Other income (expense), net | (1,353) | | | (421) | | | | | (221) | | |
Income before income taxes | 31,161 | | | 31,347 | | | | | (1) | | |
Income tax expense | 7,533 | | | 7,674 | | | | | (2) | | |
Effective tax expense rate % | 24.2 | % | | 24.5 | % | | | | (0.3) | | pp |
Net income | $ | 23,628 | | | $ | 23,673 | | | | | — | % | |
Net income margin % | 11.7 | % | | 13.4 | % | | | | (1.7) | | pp |
2022: | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended June 30, | | | | | |
| 2023 | | 2022 | | | | 2023 v. 2022 | |
Sales | $ | 209,001 | | | $ | 194,982 | | | | | 7 | % | |
Cost of sales | 132,706 | | | 135,758 | | | | | (2) | | |
Gross profit | 76,295 | | | 59,224 | | | | | 29 | | |
Gross margin % | 36.5 | % | | 30.4 | % | | | | 6.1 | | pp(a) |
Advertising and promotion expenses | 8,639 | | | 6,065 | | | | | 42 | | |
Selling, general, and administrative (“SG&A”) expenses | 23,513 | | | 17,853 | | | | | 32 | | |
| | | | | | | | |
Operating income | 44,143 | | | 35,306 | | | | | 25 | | |
Operating margin % | 21.1 | % | | 18.1 | % | | | | 3.0 | | pp |
Interest expense, net | (1,282) | | | (1,543) | | | | | 17 | | |
Other expense, net | (93) | | | (1,062) | | | | | 91 | | |
Income before income taxes | 42,768 | | | 32,701 | | | | | 31 | | |
Income tax expense | 10,804 | | | 7,339 | | | | | 47 | | |
Effective tax expense rate % | 25.3 | % | | 22.4 | % | | | | 2.9 | | pp |
Net income | $ | 31,964 | | | $ | 25,362 | | | | | 26 | % | |
Net income margin % | 15.3 | % | | 13.0 | % | | | | 2.3 | | pp |
(a) Percentage points (“pp”).
Sales - Sales for the quarter ended SeptemberJune 30, 20222023 were $201,146,$209,001, an increase of 147 percent compared to the year-ago quarter, which was the result of increased sales in the Distilling Solutions and Ingredient Solutions segments, partially offset by decreased sales in the Branded Spirits segment. Within the Distilling Solutions segment, sales were up 9 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol. Within the Ingredient Solutions segment, sales were up 18 percent, primarily due to increased sales of specialty wheat proteins. Within the Branded Spirits segment, sales were down 2 percent, primarily due to decreased sales of brands in the mid and value price tiers (see “Segment Results”).
Gross profit - Gross profit for the quarter ended June 30, 2023 was $76,295, an increase of 29 percent compared to the year-ago quarter. The increase was driven by an increase in gross profit in the Distilling Solutions, Branded Spirits and Ingredient Solutions segments. Within the Distilling Solutions segment, gross profit increased by $8,898, or 30 percent. Within the Branded Spirits segment, gross profit increased $5,043, or 24 percent. Within the Ingredient Solutions segment, gross profit increased by $3,130, or 37 percent (see “Segment Results”).
Advertising and promotion expenses - Advertising and promotion expenses for the quarter ended June 30, 2023 were $8,639, an increase of 42 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.
SG&A expenses - SG&A expenses for the quarter ended June 30, 2023 were $23,513, an increase of 32 percent compared to the year-ago quarter, primarily due to higher personnel expenses and business acquisition costs related to the acquisition of Penelope.
Operating income - Operating income for the quarter ended June 30, 2023 increased to $44,143 from $35,306 for the quarter ended June 30, 2022, primarily due to a increase in gross profit in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments. These increases were partially offset by increases in the previously described SG&A and advertising and promotion expenses.
| | | | | | | | | | | | | | | | | |
Operating income, quarter versus quarter | | Operating Income | | Change | |
Operating income for the quarter ended June 30, 2022 | | $ | 35,306 | | | | |
Increase in gross profit - Distilling Solutions segment(a) | | 8,898 | | | 25 | % | |
Increase in gross profit - Branded Spirits segment(a) | | 5,043 | | | 14 | | pp(b) |
Increase in gross profit - Ingredient Solutions segment(a) | | 3,130 | | | 9 | | pp |
Increase in advertising and promotion expenses | | (2,574) | | | (7) | | pp |
Increase in SG&A expenses | | (5,660) | | | (16) | | pp |
| | | | | |
Operating income for the quarter ended June 30, 2023 | | $ | 44,143 | | | 25 | % | |
(a) See “Segment Results.”
(b) Percentage points (“pp”).
Income tax expense - Income tax expense for the quarter ended June 30, 2023 was $10,804, for an effective tax rate of 25.3 percent. Income tax expense for the quarter ended June 30, 2022 was $7,339, for an effective tax rate of 22.4 percent. The increase in income tax expense, quarter versus quarter, was due primarily to higher income before income taxes and lower tax credits.
Earnings per common share (“EPS”) - Basic and diluted EPS was $1.44 for the quarter ended June 30, 2023, compared to $1.15 for the quarter ended June 30, 2022. The change in basic and diluted EPS, quarter versus quarter, was primarily due to an increase in operating income.
| | | | | | | | | | | | | | | | | | | | | |
Change in basic and diluted EPS, quarter versus quarter | | Basic and Diluted EPS | | Change | | | | | |
Basic and diluted EPS for the quarter ended June 30, 2022 | | $ | 1.15 | | | | | | | | |
Change in operating income(a) | | 0.31 | | | 26 | % | | | | | |
Change in other income (expense), net(a) | | 0.03 | | | 3 | | pp(b) | | | | |
| | | | | | | | | |
| | | | | | | | | |
Change in interest expense, net(a) | | 0.01 | | | 1 | | pp | | | | |
Change in effective tax rate | | (0.06) | | | (5) | | pp | | | | |
Basic and diluted EPS for the quarter ended June 30, 2023 | | $ | 1.44 | | | 25 | % | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(a) Net of tax based on the effective tax rate for the base year (2022).
(b) Percentage points (“pp”).
The table below details the consolidated results for the year to date ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | |
| Year to Date Ended June 30, | | | | |
| 2023 | | 2022 | | | | 2023 v. 2022 | |
Sales | $ | 410,011 | | | $ | 390,217 | | | | | 5 | % | |
Cost of sales | 263,892 | | | 259,172 | | | | | 2 | | |
Gross profit | 146,119 | | | 131,045 | | | | | 12 | | |
Gross margin % | 35.6 | % | | 33.6 | % | | | | 2.0 | | pp(a) |
Advertising and promotion expenses | 16,372 | | | 11,569 | | | | | 42 | | |
SG&A expenses | 44,045 | | | 34,090 | | | | | 29 | | |
| | | | | | | | |
Operating income | 85,702 | | | 85,386 | | | | | — | | |
Operating margin % | 20.9 | % | | 21.9 | % | | | | (1.0) | | pp |
Interest expense, net | (2,277) | | | (3,141) | | | | | 28 | | |
Other income (expense), net | 30 | | | (1,008) | | | | | 103 | | |
Income before income taxes | 83,455 | | | 81,237 | | | | | 3 | | |
Income tax expense | 20,459 | | | 18,504 | | | | | 11 | | |
Effective tax expense rate % | 24.5 | % | | 22.8 | % | | | | 1.7 | | pp |
Net income | $ | 62,996 | | | $ | 62,733 | | | | | — | % | |
Net income margin % | 15.4 | % | | 16.1 | % | | | | (0.7) | | pp |
(a) Percentage points (“pp”).
Sales - Sales for the year to date ended June 30, 2023 were $410,011, an increase of 5 percent compared to the year-ago period, which was the result of increased sales in the Distilling Solutions, Ingredient Solutions, and Branded Spirits segments. Within the Distilling Solutions segment, sales were up 195 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol and distillers feed and related co-products.alcohol. Within the Ingredient Solutions segment, sales were up 2414 percent, primarily due to increased sales of specialty wheat starchesproteins and commodity wheat starches. Within the Branded Spirits segment, sales were up 2 percent, primarily due to increased sales of brands in line with the ultra premium price tieryear-ago period (see Segment Results)“Segment Results”).
Gross profit - Gross profit for quarterthe year to date ended SeptemberJune 30, 20222023 was $59,048,$146,119, an increase of 312 percent compared to the year-ago quarter.period. The increase was driven by an increase in gross profit in the Ingredient Solutions, Branded Spirits, and IngredientDistilling Solutions segments, partially offset by a decrease in Distillingsegments. In the Ingredient Solutions segment, gross profit.profit increased by $7,227, or 44 percent. In the Branded Spirits segment, gross profit increased by $1,850,$4,854, or 8 percent. In the Ingredient Solutions segment, gross profit increased by $1,176, or 1711 percent. In the Distilling Solutions segment, gross profit declinedincreased by $1,064,$2,993, or 4 percent (see Segment Results)“Segment Results”).
Advertising and promotion expenses - Advertising and promotion expenses for quarterthe year to date ended SeptemberJune 30, 20222023 were $7,279,$16,372, an increase of 2942 percent compared to the year-ago quarter,period, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the ultra premium super premium and premiumplus price tiers.
SG&A expenses - SG&A expenses for quarterthe year to date ended SeptemberJune 30, 20222023 were $17,904, a decrease$44,045, an increase of 329 percent compared to the year-ago quarter,period. The increase in SG&A expenses was primarily due to lower incentive compensation expensehigher personnel expenses and one-timebusiness acquisition costs in 2021expenses related to the Merger with Luxco that did not recur in 2022.acquisition of Penelope.
Operating income - Operating income for quarterthe year to date ended SeptemberJune 30, 20222023 increased to $33,864$85,702 from $32,884$85,386 for quarterthe year to date period ended SeptemberJune 30, 2021,2022, primarily due to an increase inincreased gross profit in the Ingredient Solutions, Branded Spirits, and IngredientDistilling Solutions segments as well as a decrease in the previously described SG&A expenses.segments. These were partially offset by an increase in the previously described AdvertisingSG&A and advertising and promotion expenses and a decrease in gross profit in the Distilling Solutions segment.expenses.
| | | | | | | | | | | | | | | | | |
Operating income, quarter versus quarter | | Operating Income | | Change | |
Operating income for quarter ended September 30, 2021 | | $ | 32,884 | | | | |
Increase in gross profit - Branded Spirits segment(a) | | 1,850 | | | 5 | | pp(b) |
Increase in gross profit - Ingredient Solutions segment(a) | | 1,176 | | | 4 | | pp |
Decrease in gross profit - Distilling Solutions segment(a) | | (1,064) | | | (3) | | pp |
Increase in Advertising and promotion expenses | | (1,615) | | | (5) | | pp |
Decrease in SG&A expenses | | 623 | | | 2 | | pp |
Change in Other operating income (expense), net | | 10 | | | — | | pp |
Operating income for quarter ended September 30, 2022 | | $ | 33,864 | | | 3 | % | |
| | | | | | | | | | | | | | | | | |
Operating income, year to date versus year to date | | Operating Income | | Change | |
Operating income for the year to date ended June 30, 2022 | | $ | 85,386 | | | | |
Increase in gross profit - Ingredient Solutions segment(a) | | 7,227 | | | 8 | % | |
Increase in gross profit - Branded Spirits segment(a) | | 4,854 | | | 6 | | pp(b) |
Increase in gross profit - Distilling Solutions segment(a) | | 2,993 | | | 4 | | pp |
Increase in advertising and promotion expenses | | (4,803) | | | (6) | | pp |
Increase in SG&A expenses | | (9,955) | | | (12) | | pp |
| | | | | |
Operating income for the year to date ended June 30, 2023 | | $ | 85,702 | | | — | % | |
(a) See segment discussion.“Segment Results.”
(b) Percentage points (“pp”).
Income tax expense - Income tax expense for quarterthe year to date ended SeptemberJune 30, 20222023 was $7,533,$20,459, for an effective tax rate of 24.2 percent. Income tax expense for the quarter ended September 30, 2021, was $7,674, for an effective tax rate of 24.5 percent. The decrease in Income tax expense, quarter versus quarter, was due primarily to lower Income before income taxes. The decrease in effective tax rate, quarter versus quarter, was due primarily to favorable tax benefits, related to certain tax credits concerning our capital spend.
Earnings per common share (“EPS”) - BasicEPS was $1.07 for quarter ended September 30, 2022, compared to $1.08 for quarter ended September 30, 2021. The change in Basic EPS, quarter versus quarter, was primarily due to a change in Other income (expense), net and a change in interest expense, net, partially offset by an increase in Operating income. Dilutive EPS was $1.06 for the quarter ended September 30, 2022, compared to $1.08 for the quarter ended September 30, 2021. The change in Diluted EPS, quarter versus quarter, was primarily due to the same changes as Basic EPS as well as the impact of dilutive shares outstanding.
| | | | | | | | | | | | | | | | | | | | | |
Change in basic and diluted EPS, quarter versus quarter | | Basic and Diluted EPS | | Change | | | | | |
Basic and diluted EPS for quarter ended September 30, 2021 | | $ | 1.08 | | | | | | | | |
Increase in Operating income(a) | | 0.03 | | | 3 | | pp(b) | | | | |
Change in Other income (expense), net(a) | | (0.03) | | | (3) | | pp | | | | |
| | | | | | | | | |
| | | | | | | | | |
Change in Interest expense, net(a) | | (0.01) | | | (1) | | pp | | | | |
| | | | | | | | | |
Basic EPS for quarter ended September 30, 2022 | | $ | 1.07 | | | (1) | % | | | | | |
Impact of dilutive shares outstanding | | (0.01) | | | (1) | | pp | | | | |
Diluted EPS for quarter ended September 30, 2022 | | $ | 1.06 | | | (2) | % | | | | | |
(a) Item is net of tax based on the effective tax rate for the base year (2021).
(b) Percentage points (“pp”).
The table below details the consolidated results for year to date ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | |
| Year to Date Ended September 30, | | | | |
| 2022 | | 2021 | | | | 2022 v. 2021 | |
Sales | $ | 591,363 | | | $ | 459,873 | | | | | 29 | % | |
Cost of sales | 401,270 | | | 313,661 | | | | | 28 | | |
Gross profit | 190,093 | | | 146,212 | | | | | 30 | | |
Gross margin % | 32.1 | % | | 31.8 | % | | | | 0.3 | | pp(a) |
Advertising and promotion expenses | 18,848 | | | 9,888 | | | | | 91 | | |
SG&A expenses | 52,029 | | | 55,266 | | | | | (6) | | |
Other operating (income) expense, net | (34) | | | 11 | | | | | (409) | | |
Operating income | 119,250 | | | 81,047 | | | | | 47 | | |
Operating margin % | 20.2 | % | | 17.6 | % | | | | 2.6 | | pp |
Interest expense, net | (4,491) | | | (2,708) | | | | | (66) | | |
Other income (expense), net | (2,361) | | | (479) | | | | | (393) | | |
Income before income taxes | 112,398 | | | 77,860 | | | | | 44 | | |
Income tax expense | 26,037 | | | 18,701 | | | | | 39 | | |
Effective tax expense rate % | 23.2 | % | | 24.0 | % | | | | (0.8) | | pp |
Net income | $ | 86,361 | | | $ | 59,159 | | | | | 46 | % | |
Net income margin % | 14.6 | % | | 12.9 | % | | | | 1.7 | | pp |
(a) Percentage points (“pp”).
Sales - Sales for year to date ended September 30, 2022 were $591,363, an increase of 29 percent compared to the year-ago period, which was the result of increased sales in the Distilling Solutions, Branded Spirits and Ingredient Solutions segments. Within the Distilling Solutions segment, sales were up 21 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol and distillers feed and related co-products. Within the Branded Spirits segment, sales were up 44 percent, primarily due to the additional brands acquired as part of the April 1, 2021 Merger. Within the Ingredient Solutions segment, sales were up 29 percent, primarily due to increased sales of specialty wheat starches and proteins, and commodity wheat starches (see Segment Results).
Gross profit - Gross profit for year to date ended September 30, 2022 was $190,093, an increase of 30 percent compared to the year-ago period. The increase was driven by an increase in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments. In the Branded Spirits segment, gross profit increased by $29,072, or 70 percent. In the Distilling Solutions segment, gross profit increased by $7,419, or 9 percent. In the Ingredient Solutions segment, gross profit increased by $7,390, or 43 percent (see Segment Results).
Advertising and promotion expenses - Advertising and promotion expenses for year to date ended September 30, 2022 were $18,848, an increase of 91 percent compared to the year-ago period, primarily driven by the assumption of Luxco’s Advertising and promotion expenses as well as increased advertising and promotion investment in the Branded Spirits segment, specifically in the ultra premium, super premium and premium price tiers.
SG&A expenses - SG&A expenses for year to date ended September 30, 2022 were $52,029, a decrease of 6 percent compared to the year-ago period. The decrease in SG&A expenses was driven primarily by the one-time acquisition costs in 2021 related to the Merger with Luxco that did not recur in 2022, partially offset by the assumption of Luxco’s SG&A expenses.
Operating income - Operating income for year to date ended September 30, 2022 increased to $119,250 from $81,047 for year to date period ended September 30, 2021, primarily due to an increase in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments as well as a decrease in the previously described SG&A expenses. These were partially offset by an increase in the previously described Advertising and promotion expenses.
| | | | | | | | | | | | | | | | | |
Operating income, year to date versus year to date | | Operating Income | | Change | |
Operating income for year to date ended September 30, 2021 | | $ | 81,047 | | | | |
Increase in gross profit - Branded Spirits segment(a) | | 29,072 | | | 36 | | pp(b) |
Increase in gross profit - Distilling Solutions segment(a) | | 7,419 | | | 9 | | pp |
Increase in gross profit - Ingredient Solutions segment(a) | | 7,390 | | | 9 | | pp |
Increase in Advertising and promotion expenses | | (8,960) | | | (11) | | pp |
Decrease in SG&A expenses | | 3,237 | | | 4 | | pp |
Change in Other operating income (expense), net | | 45 | | | — | | pp |
Operating income for year to date ended September 30, 2022 | | $ | 119,250 | | | 47 | % | |
(a) See segment discussion.
(b) Percentage points (“pp”).
Income tax expense - Income tax expense for year to date ended September 30, 2022 was $26,037, for an effective tax rate of 23.2 percent. Income tax expense for the year to date ended SeptemberJune 30, 2021,2022, was $18,701,$18,504, for an effective tax rate of 24.022.8 percent. The increase in Incomeincome tax expense, year to date versus year to date, was primarily due to higher Incomeincome before income taxes. The decrease in effectivetaxes and lower tax rate, year to date versus year to date, was due to favorable tax benefits, related to certain tax credits concerning our capital spend.credits.
Earnings per common share - BasicEPS was $3.91 for the year to date ended SeptemberJune 30, 2022, compared to $2.912023 was consistent with the prior year period of $2.84. Diluted EPS was $2.83 for the year to date ended SeptemberJune 30, 2021.2023, compared to $2.84 for the year to date ended June 30, 2022. The change in diluted EPS, increased, year to date versus year to date, was primarily due to an increase in operating income, partially offset by an increase inthe impact of dilutive shares outstanding as a result of shares issued as partrelated to the conversion feature of the consideration paid for the Merger with Luxco.Convertible Senior Notes.
| Change in basic and diluted EPS, year to date versus year to date | Change in basic and diluted EPS, year to date versus year to date | | Basic and Diluted EPS | | Change | | Change in basic and diluted EPS, year to date versus year to date | | Basic and Diluted EPS | | Change | |
Basic and diluted EPS for year to date ended September 30, 2021 | | $ | 2.91 | | | | | |
Increase in operating income(a) | | 1.63 | | | 56 | | pp(b) | |
Basic and diluted EPS for the year to date ended June 30, 2022 | | Basic and diluted EPS for the year to date ended June 30, 2022 | | $ | 2.84 | | | | |
Change in interest expense, net(a) | Change in interest expense, net(a) | | (0.08) | | | (3) | | pp | Change in interest expense, net(a) | | 0.03 | | | 1 | % | |
Change in other income (expense), net(a) | Change in other income (expense), net(a) | | (0.06) | | | (2) | | pp | Change in other income (expense), net(a) | | 0.03 | | | 1 | | pp(b) |
Tax: Change in effective tax rate | | 0.02 | | | 1 | | pp | |
Change in operating income(a) | | Change in operating income(a) | | 0.01 | | | — | | pp |
Change in effective tax rate | | Change in effective tax rate | | (0.06) | | | (2) | | pp |
Change in weighted average shares outstanding | Change in weighted average shares outstanding | | (0.51) | | | (18) | | pp | Change in weighted average shares outstanding | | (0.01) | | | — | | pp |
| Basic and diluted EPS for year to date ended September 30, 2022 | | $ | 3.91 | | | 34 | % | | |
Basic EPS for the year to date ended June 30, 2023 | | Basic EPS for the year to date ended June 30, 2023 | | $ | 2.84 | | | — | % | |
Impact of dilutive shares outstanding | | Impact of dilutive shares outstanding | | (0.01) | | | — | | pp |
Diluted EPS for the year to date ended June 30, 2023 | | Diluted EPS for the year to date ended June 30, 2023 | | $ | 2.83 | | | — | % | |
(a) Item is netNet of tax based on the effective tax rate for the base year (2021)(2022).
(b) Percentage points (“pp”).
SEGMENT RESULTS
Distilling Solutions
The following tables show selected financial information for the Distilling Solutions segment for the quarters ended SeptemberJune 30, 20222023 and 2021.2022.
| | | DISTILLING SOLUTIONS SALES | | | DISTILLING SOLUTIONS SALES | |
| | Quarter Ended September 30, | | Quarter versus Quarter Sales Change Increase/(Decrease) | | | Quarter Ended June 30, | | Quarter versus Quarter Sales Change Increase/(Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Brown goods | Brown goods | $ | 57,423 | | | $ | 42,793 | | | $ | 14,630 | | | 34 | % | | Brown goods | $ | 73,124 | | | $ | 56,331 | | | $ | 16,793 | | | 30 | % | |
White goods | White goods | 20,469 | | | 21,187 | | | (718) | | | (3) | | | White goods | 16,816 | | | 17,441 | | | (625) | | | (4) | | |
Premium beverage alcohol | Premium beverage alcohol | 77,892 | | | 63,980 | | | 13,912 | | | 22 | | | Premium beverage alcohol | 89,940 | | | 73,772 | | | 16,168 | | | 22 | | |
Industrial alcohol | Industrial alcohol | 10,761 | | | 14,790 | | | (4,029) | | | (27) | | | Industrial alcohol | 10,065 | | | 12,885 | | | (2,820) | | | (22) | | |
Food grade alcohol | Food grade alcohol | 88,653 | | | 78,770 | | | 9,883 | | | 13 | | | Food grade alcohol | 100,005 | | | 86,657 | | | 13,348 | | | 15 | | |
Fuel grade alcohol | Fuel grade alcohol | 3,713 | | | 3,592 | | | 121 | | | 3 | | | Fuel grade alcohol | 1,898 | | | 3,312 | | | (1,414) | | | (43) | | |
Distillers feed and related co-products | Distillers feed and related co-products | 9,943 | | | 4,016 | | | 5,927 | | | 148 | | | Distillers feed and related co-products | 8,215 | | | 11,267 | | | (3,052) | | | (27) | | |
Warehouse services | Warehouse services | 6,335 | | | 4,666 | | | 1,669 | | | 36 | | | Warehouse services | 6,747 | | | 5,902 | | | 845 | | | 14 | | |
Total Distilling Solutions | Total Distilling Solutions | $ | 108,644 | | | $ | 91,044 | | | $ | 17,600 | | | 19 | % | | Total Distilling Solutions | $ | 116,865 | | | $ | 107,138 | | | $ | 9,727 | | | 9 | % | |
| | | Change in Quarter versus Quarter Sales Attributed to: | | | Change in Quarter versus Quarter Sales Attributed to: | |
| | Total (a) | | Volume(b) | | Net Price/Mix(c) | | | | Total (a) | | Volume(b) | | Net Price/Mix(c) | | |
Premium beverage alcohol | Premium beverage alcohol | 22% | | 4% | | 18% | | Premium beverage alcohol | 22% | | (6)% | | 28% | |
| | | Other Financial Information | | | Other Financial Information | |
| | Quarter Ended September 30, | | Quarter versus Quarter Increase / (Decrease) | | | Quarter Ended June 30, | | Quarter versus Quarter Increase / (Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Gross profit | Gross profit | $ | 25,917 | | | $ | 26,981 | | | $ | (1,064) | | | (4) | % | | Gross profit | $ | 38,678 | | | $ | 29,780 | | | $ | 8,898 | | | 30 | % | |
Gross margin % | Gross margin % | 23.9 | % | | 29.6 | % | | | | (5.7) | | pp(d) | Gross margin % | 33.1 | % | | 27.8 | % | | | | 5.3 | | pp(d) |
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Distilling Solutions segment for the quarter ended SeptemberJune 30, 20222023 increased by $17,600,$9,727, or 199 percent, compared to the prior year quarter. Sales of brown goods within premium beverage alcohol and warehouse services increased while distillers feed and related co-products, warehouse services, andindustrial alcohol, fuel grade alcohol increased while industrial alcohol, and white goods within premium beverage alcohol decreased compared to the prior year quarter.decreased. The increase in sales of brown goods was primarily driven by higher sales volume. Theaverage selling price. This increase was partially offset by a decrease in sales of distillers feed and related co-products, was due to higher average selling price, partially offset by lower sales volumes, both of which primarily resulted from the previously disclosed dryer fire at our Atchison facility which occurred in 2020. These increases were partially offset by a decrease in sales of industrial alcohol, fuel grade alcohol, and white goods, which werewas driven primarily by lower sales volume,volume. The decrease in white goods and industrial alcohol were partially offset by higher average selling price.
Gross profit decreasedincreased quarter versus quarter by $1,064,$8,898, or 430 percent. Gross margin for the quarter ended SeptemberJune 30, 2022 decreased2023 increased to 23.933.1 percent from 29.627.8 percent for the prior year quarter. The decreaseincrease in gross profit was primarily due to higher input costs for white goods and industrial alcohol. The average selling price for these products also increased, but not enough to offset the higher input costs. This decreasebrown goods and white goods. These increases in gross profit waswere partially offset by an increase in brown goods gross profit.higher input costs across all product categories.
The following tables show selected financial information for the Distilling Solutions segment for the year to date ended SeptemberJune 30, 20222023 and 2021.2022.
| | | DISTILLING SOLUTIONS SALES | | | DISTILLING SOLUTIONS SALES | |
| | Year to Date Ended September 30, | | Year to Date versus Year to Date Sales Change Increase/(Decrease) | | | Year to Date Ended June 30, | | Year to Date versus Year to Date Sales Change Increase/(Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Brown Goods | Brown Goods | $ | 175,899 | | | $ | 129,600 | | | $ | 46,299 | | | 36 | % | | Brown Goods | $ | 141,448 | | | $ | 118,476 | | | $ | 22,972 | | | 19 | % | |
White Goods | White Goods | 57,996 | | | 56,049 | | | 1,947 | | | 3 | | | White Goods | 32,770 | | | 37,527 | | | (4,757) | | | (13) | | |
Premium beverage alcohol | Premium beverage alcohol | 233,895 | | | 185,649 | | | 48,246 | | | 26 | | | Premium beverage alcohol | 174,218 | | | 156,003 | | | 18,215 | | | 12 | | |
Industrial alcohol | Industrial alcohol | 35,141 | | | 46,896 | | | (11,755) | | | (25) | | | Industrial alcohol | 20,504 | | | 24,380 | | | (3,876) | | | (16) | | |
Food grade alcohol | Food grade alcohol | 269,036 | | | 232,545 | | | 36,491 | | | 16 | | | Food grade alcohol | 194,722 | | | 180,383 | | | 14,339 | | | 8 | | |
Fuel grade alcohol | Fuel grade alcohol | 10,307 | | | 10,862 | | | (555) | | | (5) | | | Fuel grade alcohol | 4,454 | | | 6,594 | | | (2,140) | | | (32) | | |
Distillers feed and related co-products | Distillers feed and related co-products | 30,127 | | | 13,660 | | | 16,467 | | | 121 | | | Distillers feed and related co-products | 17,307 | | | 20,184 | | | (2,877) | | | (14) | | |
Warehouse services | Warehouse services | 17,821 | | | 12,949 | | | 4,872 | | | 38 | | | Warehouse services | 13,605 | | | 11,486 | | | 2,119 | | | 18 | | |
Total Distilling Solutions | Total Distilling Solutions | $ | 327,291 | | | $ | 270,016 | | | $ | 57,275 | | | 21 | % | | Total Distilling Solutions | $ | 230,088 | | | $ | 218,647 | | | $ | 11,441 | | | 5 | % | |
| | | Change in Year to Date versus Year to Date Sales Attributed to: | | | Change in Year to Date versus Year to Date Sales Attributed to: | |
| | Total(a) | | Volume(b) | | Net Price/Mix(c) | | | | Total(a) | | Volume(b) | | Net Price/Mix(c) | | |
Premium beverage alcohol | Premium beverage alcohol | 26% | | 6% | | 20% | | Premium beverage alcohol | 12% | | (12)% | | 24% | |
| | | Other Financial Information | | | Other Financial Information | |
| | Year to Date Ended September 30, | | Year to Date versus Year to Date Increase / (Decrease) | | | Year to Date Ended June 30, | | Year to Date versus Year to Date Increase / (Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Gross profit | Gross profit | $ | 94,630 | | | $ | 87,211 | | | $ | 7,419 | | | 9 | % | | Gross profit | $ | 71,706 | | | $ | 68,713 | | | $ | 2,993 | | | 4 | % | |
Gross margin % | Gross margin % | 28.9 | % | | 32.3 | % | | | | (3.4) | | pp(d) | Gross margin % | 31.2 | % | | 31.4 | % | | | | (0.2) | | pp(d) |
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Distilling Solutions segment for the year to date ended SeptemberJune 30, 20222023 increased by $57,275,$11,441, or 215 percent compared to the year-ago period. Sales of brown goods within premium beverage alcohol distillers feed and related co-products, warehouse services andincreased while white goods within premium beverage alcohol, increased while industrial alcohol, distillers feed and related co-products, and fuel grade alcohol decreased compared to the prior year to date period. The increase in sales of brown goods was driven by higher sales volume and higher average selling price. The increase in sales of distillers feed and related co-products was due to higher average selling price, partially offset by lower sales volumes, both of which primarily resulted from the previously disclosed dryer fire at our Atchison facility which occurred in 2020. The increase in sales of white goods was driven by higher average selling price, partially offset by lower sales volume. These increases wereThis increase was partially offset by a decrease in sales of white goods and industrial alcohol, which was driven primarily by lower sales volume, partially offset by higher average selling price. Additionally, sales of distilleries feed and related co-products and fuel grade alcohol decreased primarily due to a decrease in sales volume.
Gross profit for the year to date ended SeptemberJune 30, 20222023 increased by $7,419,$2,993, or 94 percent compared to the year-ago period. Gross margin for the year to date ended SeptemberJune 30, 20222023 decreased slightly to 28.931.2 percent from 32.331.4 percent for the prior year period. The increase in gross profit was due primarily to higher average selling price and higher sales volume on brown goods. These increases wereThis increase was partially offset by higher input costs for industrial alcohol, white goods, and fuel grade alcohol.across all product categories. The average selling price for these products alsowhite goods, industrial alcohol, and distillers feed and related co-products increased, but not enough to offset the higher input costs which caused a slight decrease in the gross margin percentage.
Branded Spirits
The following tables show selected financial information for the Branded Spirits segment for the quarters ended SeptemberJune 30, 20222023 and 2021.2022.
| | | BRANDED SPIRITS SALES | | | BRANDED SPIRITS SALES | |
| | Quarter Ended September 30, | | Quarter versus Quarter Sales Change Increase/(Decrease) | | | Quarter Ended June 30, | | Quarter versus Quarter Sales Change Increase/(Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Ultra premium | Ultra premium | $ | 13,804 | | | $ | 11,363 | | | $ | 2,441 | | | 21 | % | | Ultra premium | $ | 14,372 | | | $ | 9,435 | | | $ | 4,937 | | | 52 | % | |
Super premium | Super premium | 3,350 | | | 2,798 | | | 552 | | | 20 | | | Super premium | 3,130 | | | 3,226 | | | (96) | | | (3) | | |
Premium | Premium | 6,013 | | | 5,683 | | | 330 | | | 6 | | | Premium | 6,261 | | | 5,775 | | | 486 | | | 8 | | |
Premium plus | | Premium plus | 23,763 | | | 18,436 | | | 5,327 | | | 29 | | |
Mid | Mid | 20,834 | | | 22,992 | | | (2,158) | | | (9) | | | Mid | 17,090 | | | 23,301 | | | (6,211) | | | (27) | | |
Value | Value | 12,097 | | | 12,756 | | | (659) | | | (5) | | | Value | 11,578 | | | 12,908 | | | (1,330) | | | (10) | | |
Other | Other | 6,663 | | | 5,969 | | | 694 | | | 12 | | | Other | 5,185 | | | 3,921 | | | 1,264 | | | 32 | | |
Total Branded Spirits | Total Branded Spirits | $ | 62,761 | | | $ | 61,561 | | | $ | 1,200 | | | 2 | % | | Total Branded Spirits | $ | 57,616 | | | $ | 58,566 | | | $ | (950) | | | (2) | % | |
| | | Change in Quarter versus Quarter Sales Attributed to: | | | Change in Quarter versus Quarter Sales Attributed to: | |
| | Total (a) | | Volume(b) | | Net Price/Mix(c) | | | | Total (a) | | Volume(b) | | Net Price/Mix(c) | | |
Total Branded Spirits | Total Branded Spirits | 2% | | (6)% | | 8% | | Total Branded Spirits | (2)% | | (24)% | | 22% | |
| | | Other Financial Information | | | Other Financial Information | |
| | Quarter Ended September 30, | | Quarter versus Quarter Increase / (Decrease) | | | Quarter Ended June 30, | | Quarter versus Quarter Increase / (Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Gross profit | Gross profit | $ | 25,067 | | | $ | 23,217 | | | $ | 1,850 | | | 8 | % | | Gross profit | $ | 26,003 | | | $ | 20,960 | | | $ | 5,043 | | | 24 | % | |
Gross margin % | Gross margin % | 39.9 | % | | 37.7 | % | | | | 2.2 | | pp(d) | Gross margin % | 45.1 | % | | 35.8 | % | | | | 9.3 | | pp(d) |
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Branded Spirits segment for the quarter ended June 30, 2023 decreased by $950, or 2 percent compared to the prior year quarter. The decrease was primarily driven by decreased sales of brands within the mid and value price tiers primarily due to timing of sales associated with a distributor realignment made by the Company during the first quarter of 2023. These decreases were partially offset by an increase in the ultra premium price tier primarily due to an increase in sales of our American whiskey brands, including the additional brands acquired as part of the acquisition of Penelope.
Gross profit increased quarter versus quarter by $5,043, or 24 percent. Gross margin for the quarter ended June 30, 2023 increased to 45.1 percent from 35.8 percent for the prior year quarter. The increase in gross profit was primarily driven by an increase in sales volume and average selling price in the ultra premium price tier, partially offset by a decrease in sales volume of brands within the mid and value price tiers.
The following tables show selected financial information for the Branded Spirits segment for the year to date ended June 30, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| BRANDED SPIRITS SALES | |
| Year to Date Ended June 30, | | Year to Date versus Year to Date Sales Change Increase/(Decrease) | |
| 2023 | | 2022 | | $ Change | | % Change | |
Ultra premium | $ | 23,487 | | | $ | 22,032 | | | $ | 1,455 | | | 7 | % | |
Super premium | 5,977 | | | 6,172 | | | (195) | | | (3) | | |
Premium | 13,045 | | | 11,915 | | | 1,130 | | | 9 | | |
Premium plus | 42,509 | | | 40,119 | | | 2,390 | | | 6 | | |
Mid | 37,925 | | | 42,574 | | | (4,649) | | | (11) | | |
Value | 24,999 | | | 24,207 | | | 792 | | | 3 | | |
Other | 9,066 | | | 7,417 | | | 1,649 | | | 22 | | |
Total Branded Spirits | $ | 114,499 | | | $ | 114,317 | | | $ | 182 | | | — | % | |
| | | | | | | | |
| Change in Year to Date versus Year to Date Sales Attributed to: | | | |
| Total (a) | | Volume(b) | | Net Price/Mix(c) | | | |
Total Branded Spirits | —% | | (9)% | | 9% | | | |
| | | | | | | | |
| Other Financial Information | |
| Year to Date Ended June 30, | | Year to Date versus Year to Date Increase / (Decrease) | |
| 2023 | | 2022 | | $ Change | | % Change | |
Gross profit | $ | 50,596 | | | $ | 45,742 | | | $ | 4,854 | | | 11 | % | |
Gross margin % | 44.2 | % | | 40.0 | % | | | | 4.2 | | pp(d) |
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of Branded Spirits for quarterthe year to date ended SeptemberJune 30, 20222023 were in line with sales from the year ago period. Sales within the other category increased by $1,200, or 2 percent comparedprimarily due to increased sales volume of private label brands. Sales of brands within the prior year quarter. Salesultra premium and premium price tiers increased primarily due to an increase in the ultra premiumaverage selling price tier due primarily to increased sales of American whiskey brands as well the additional brands acquired as an increase inpart of the other tier due to timingacquisition of certain contracted private label sales.Penelope. These increases were partiallyprimarily offset by a decrease indecreased sales of brands within the mid price tier, as a result of a change in the product mix towards more premium brands as well as the re-opening of on-premise locations during the prior year period.
Gross profit increased quarter versus quarter by $1,850, or 8 percent. Gross margin for the quarter ended September 30, 2022 increased to 39.9 percent from 37.7 percent for the prior year quarter. The increase in gross profit was primarily driven by increased sales volume and higher average selling price of brands within the ultra premium price tier. These increases were partially offset by increased inputs costs in the mid and value price tier categories.
The following tables show selected financial information for the Branded Spirits segment for year to date ended September 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| BRANDED SPIRITS SALES | |
| Year to Date Ended September 30, | | Year to Date versus Year to Date Sales Change Increase/(Decrease) | |
| 2022 | | 2021 | | $ Change | | % Change | |
Ultra premium | $ | 35,836 | | | $ | 19,491 | | | $ | 16,345 | | | 84 | % | |
Super premium | 9,522 | | | 6,393 | | | 3,129 | | | 49 | | |
Premium | 17,928 | | | 11,012 | | | 6,916 | | | 63 | | |
Mid | 63,408 | | | 48,399 | | | 15,009 | | | 31 | | |
Value | 36,304 | | | 25,984 | | | 10,320 | | | 40 | | |
Other | 14,080 | | | 11,278 | | | 2,802 | | | 25 | | |
Total Branded Spirits | $ | 177,078 | | | $ | 122,557 | | | $ | 54,521 | | | 44 | % | |
| | | | | | | | |
| Change in Year to Date versus Year to Date Sales Attributed to: | | | |
| Total (a) | | Volume(b) | | Net Price/Mix(c) | | | |
Total Branded Spirits | 44% | | 31% | | 13% | | | |
| | | | | | | | |
| Other Financial Information | |
| Year to Date Ended September 30, | | Year to Date versus Year to Date Increase / (Decrease) | |
| 2022 | | 2021 | | $ Change | | % Change | |
Gross profit | $ | 70,809 | | | $ | 41,737 | | | $ | 29,072 | | | 70 | % | |
Gross margin % | 40.0 | % | | 34.1 | % | | | | 5.9 | | pp(d) |
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of Branded Spirits for year to date ended September 30, 2022 increased by $54,521, or 44 percent compared to the year-ago period. Sales across all pricing tiers increased compared to the year-ago period, primarily due to the additional brands acquired as part of the Merger.decreased sales volume.
Gross profit for the year to date ended SeptemberJune 30, 20222023 increased by $29,072,$4,854, or 7011 percent. Gross margin for the year to date ended SeptemberJune 30, 20222023 increased to 40.044.2 percent from 34.140.0 percent for the prior year. The increase in gross profit was primarily driven by the additional brands acquired as part of the Merger as well as a required step upan increase in value of certain assets due to purchase accounting related to the Merger in 2021 that did not recur in 2022. Of the purchase accounting step ups, $2,529 was associated with marking the finished goods inventory to fair value and fully flowed throughaverage selling price in the prior year period.
ultra premium and premium price tier.
Ingredient Solutions
The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended SeptemberJune 30, 20222023 and 2021.2022.
| | | INGREDIENT SOLUTIONS SALES | | | INGREDIENT SOLUTIONS SALES | |
| | Quarter Ended September 30, | | Quarter versus Quarter Sales Change Increase / (Decrease) | | | Quarter Ended June 30, | | Quarter versus Quarter Sales Change Increase / (Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Specialty wheat starches | Specialty wheat starches | $ | 16,241 | | | $ | 12,231 | | | $ | 4,010 | | | 33 | % | | Specialty wheat starches | $ | 17,095 | | | $ | 16,001 | | | $ | 1,094 | | | 7 | % | |
Specialty wheat proteins | Specialty wheat proteins | 9,697 | | | 8,901 | | | 796 | | | 9 | | | Specialty wheat proteins | 12,588 | | | 10,109 | | | 2,479 | | | 25 | | |
Commodity wheat starches | Commodity wheat starches | 3,803 | | | 2,626 | | | 1,177 | | | 45 | | | Commodity wheat starches | 4,837 | | | 3,130 | | | 1,707 | | | 55 | | |
Commodity wheat proteins | Commodity wheat proteins | — | | | 248 | | | (248) | | | (100) | | | Commodity wheat proteins | — | | | 38 | | | (38) | | | N/A | |
Total Ingredient Solutions | Total Ingredient Solutions | $ | 29,741 | | | $ | 24,006 | | | $ | 5,735 | | | 24 | % | | Total Ingredient Solutions | $ | 34,520 | | | $ | 29,278 | | | $ | 5,242 | | | 18 | % | |
| | | Change in Quarter versus Quarter Sales Attributed to: | | | Change in Quarter versus Quarter Sales Attributed to: | |
| | Total(a) | | Volume(b) | | Net Price/Mix(c) | | | Total(a) | | Volume(b) | | Net Price/Mix(c) | |
Total Ingredient Solutions | Total Ingredient Solutions | 24% | | 5% | | 19% | | Total Ingredient Solutions | 18% | | (1)% | | 19% | |
| | | Other Financial Information | | | Other Financial Information | |
| | Quarter Ended September 30, | | Quarter versus Quarter Increase / (Decrease) | | | Quarter Ended June 30, | | Quarter versus Quarter Increase / (Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Gross profit | Gross profit | $ | 8,064 | | | $ | 6,888 | | | $ | 1,176 | | | 17 | % | | Gross profit | $ | 11,614 | | | $ | 8,484 | | | $ | 3,130 | | | 37 | % | |
Gross margin % | Gross margin % | 27.1 | % | | 28.7 | % | | | | (1.6) | | pp(d) | Gross margin % | 33.6 | % | | 29.0 | % | | | | 4.6 | | pp(d) |
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Ingredient Solutions salessegment for the quarter ended SeptemberJune 30, 20222023 increased by $5,735,$5,242, or 2418 percent, compared to the prior year quarter. The increase was primarily driven by higher sales of specialty wheat starches due to higher sales volumeproteins and higher average selling prices. Commoditycommodity wheat starches and specialty wheat proteins increasedprimarily due primarily to higher average selling price.prices and higher sales volume. Additionally, sales for specialty wheat starches increased primarily due to higher average selling prices, partially offset by lower sales volume.
Gross profit increased quarter versus quarter by $1,176,$3,130, or 1737 percent. Gross margin for the quarter ended SeptemberJune 30, 2022 decreased2023 increased to 27.133.6 percent from 28.729.0 percent for the prior year quarter. The increase in gross profit was primarily driven by higher average selling price of specialty wheat starches and proteins, and commodity wheat starches,across all product categories, partially offset by higher input costs for specialty wheat starches and proteins, and commodity starches. These increased input costs are the primary driver for the decrease in gross margin percentage.across all product categories.
The following tables show selected financial information for the Ingredient Solutions segment for the year to date SeptemberJune 30, 20222023 and 2021.2022.
| | | INGREDIENT SOLUTIONS SALES | | | INGREDIENT SOLUTIONS SALES | |
| | Year to Date Ended September 30, | | Year to Date versus Year to Date Sales Change Increase/(Decrease) | | | Year to Date Ended June 30, | | Year to Date versus Year to Date Sales Change Increase/(Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Specialty wheat starches | Specialty wheat starches | $ | 47,445 | | | $ | 35,051 | | | $ | 12,394 | | | 35 | % | | Specialty wheat starches | $ | 31,781 | | | $ | 31,204 | | | $ | 577 | | | 2 | % | |
Specialty wheat proteins | Specialty wheat proteins | 29,225 | | | 23,299 | | | 5,926 | | | 25 | | | Specialty wheat proteins | 24,478 | | | 19,528 | | | 4,950 | | | 25 | | |
Commodity wheat starches | Commodity wheat starches | 10,286 | | | 7,572 | | | 2,714 | | | 36 | | | Commodity wheat starches | 8,644 | | | 6,483 | | | 2,161 | | | 33 | | |
Commodity wheat proteins | Commodity wheat proteins | 38 | | | 1,378 | | | (1,340) | | | (97) | | | Commodity wheat proteins | 521 | | | 38 | | | 483 | | | 1,271 | | |
Total Ingredient Solutions | Total Ingredient Solutions | $ | 86,994 | | | $ | 67,300 | | | $ | 19,694 | | | 29 | % | | Total Ingredient Solutions | $ | 65,424 | | | $ | 57,253 | | | $ | 8,171 | | | 14 | % | |
| | | Change in Year to Date versus Year to Date Sales Attributed to: | | | Change in Year to Date versus Year to Date Sales Attributed to: | |
| | Total(a) | | Volume(b) | | Net Price/Mix(c) | | | Total(a) | | Volume(b) | | Net Price/Mix(c) | |
Total Ingredient Solutions | Total Ingredient Solutions | 29% | | 9% | | 20% | | Total Ingredient Solutions | 14% | | (6)% | | 20% | |
| | | Other Financial Information | | | Other Financial Information | |
| | Year to Date Ended September 30, | | Year to Date versus Year to Date Increase / (Decrease) | | | Year to Date Ended June 30, | | Year to Date versus Year to Date Increase / (Decrease) | |
| | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | |
Gross profit | Gross profit | $ | 24,654 | | | $ | 17,264 | | | $ | 7,390 | | | 43 | % | | Gross profit | $ | 23,817 | | | $ | 16,590 | | | $ | 7,227 | | | 44 | % | |
Gross margin % | Gross margin % | 28.3 | % | | 25.7 | % | | | | 2.6 | | pp(d) | Gross margin % | 36.4 | % | | 29.0 | % | | | | 7.4 | | pp(d) |
(a) Total sale changes is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Ingredient Solutions salessegment for the year to date ended SeptemberJune 30, 20222023 increased by $19,694,$8,171, or 2914 percent, compared to the prior year period. The increase in Ingredient Solutions sales was primarily driven by higher sales of specialty wheat starches primarily due to higher sales volume and higher average selling prices. Additionally, the increase in Ingredient Solutions sales was driven by higher sales of specialty wheat proteins primarily due to higher average selling price and higher sales volume. SalesAdditionally, sales of commodity wheat starches, were also upspecialty wheat starches, and commodity wheat proteins increased primarily due to higher average selling price. These increases were partially offset by a decrease in sales of commodity wheat proteins due to lower sales volume.
Gross profit increased by $7,390,$7,227, or 4344 percent for the year to date ended SeptemberJune 30, 20222023 compared to the prior year period. Gross margin for the year to date ended SeptemberJune 30, 20222023 increased to 28.336.4 percent from 25.729.0 percent for the prior year period. The increase in gross profit was primarily driven by higher average selling price and higher sales volumes of specialty wheat starches and proteins and commodity wheat starches. These increases wereacross all product categories, partially offset by higher input costs foracross all product lines within the segment. Gross profit in the prior year to date period was impacted by a temporary curtailment of natural gas usage due to extreme weather conditions which caused the Company to shut down the Atchison facilities for several days.categories.
CASH FLOW, FINANCIAL CONDITION, AND LIQUIDITY
We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.
Operating cash flow and borrowings through our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement (Note(see Note 5) provide the primary sources of cash to fund operating needs and capital expenditures. These same sources of cash are used to fund shareholderstockholder dividends and other discretionary uses. Our overall liquidity reflects our strong business results and an effective cash management strategy that takes into account liquidity management, economic factors, and tax considerations. We expect our sources of cash to be adequate to provide for budgeted capital expenditures, potential mergers or acquisitions, and anticipated operating requirements for the foreseeable future.next 12 months and beyond.
Cash Flow Summary | | | Year to Date Ended September 30, | | Changes, year versus year Increase / (Decrease) | | Year to Date Ended June 30, | | Changes, year versus year Increase / (Decrease) |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
| Cash provided by operating activities | Cash provided by operating activities | | $ | 72,253 | | | $ | 70,785 | | | $ | 1,468 | | Cash provided by operating activities | | $ | 20,156 | | | $ | 43,019 | | | $ | (22,863) | |
| | Cash used in investing activities | Cash used in investing activities | | (31,764) | | | (189,166) | | | 157,402 | | Cash used in investing activities | | (135,589) | | | (19,484) | | | (116,105) | |
| | Cash provided by (used in) financing activities | Cash provided by (used in) financing activities | | (11,301) | | | 112,883 | | | (124,184) | | Cash provided by (used in) financing activities | | 89,462 | | | (7,649) | | | 97,111 | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | | (82) | | | (2) | | | (80) | | Effect of exchange rate changes on cash | | 41 | | | (39) | | | 80 | |
| Increase (decrease) in cash and cash equivalents | Increase (decrease) in cash and cash equivalents | | $ | 29,106 | | | $ | (5,500) | | | $ | 34,606 | | Increase (decrease) in cash and cash equivalents | | $ | (25,930) | | | $ | 15,847 | | | $ | (41,777) | |
Cash increased $29,106decreased $25,930 for the year to date ended SeptemberJune 30, 2022,2023, compared to a decreasean increase of $5,500$15,847 for the year to date ended SeptemberJune 30, 2021,2022, for a net increasedecrease in cash of $34,606,$41,777, period versus period.
Operating Activities. Cash provided by operating activities for the year to date ended SeptemberJune 30, 20222023 was $72,253.$20,156. The cash provided by operating activities resulted primarily from net income of $86,361,$62,996, adjustments for non-cash or non-operating charges of $20,503,$17,041, including depreciation and amortization and share-based compensation, partially offset by cash used in operating assets and liabilities, net of the effects of acquisition, of $59,881. The primary drivers of the changes in operating assets and liabilities were $41,020 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate and finished goods inventory, $35,833 use of cash related to increased accounts receivable, net due to timing of sales and customer payments during the quarter, and $7,048 use of cash related to a decrease in accrued expenses and other, primarily due to incentive compensation expense. These uses of cash were partially offset, primarily by $22,328 cash provided by an increase in accounts payable due to timing of payments.
Cash provided by operating activities for the year to date ended June 30, 2022 was $43,019. The cash provided by operating activities resulted primarily from net income of $62,733, adjustments for non-cash or non-operating charges of $13,262, including depreciation and amortization, and share-based compensation, partially offset by cash used in operating assets and liabilities of $34,611.$32,976. The primary drivers of the changes in operating assets and liabilities were $30,599$27,508 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate and finished goods inventory, and barreled distillate, as well as $15,582$13,142 use of cash related to increased accounts receivables, net, due to increased sales during the year to date period as well as timing of customer payments.payments, and $4,791 use of cash related to accrued expenses and other primarily related to an increase in incentive compensation. These uses of cash were partially offset, primarily by $12,613$11,438 cash provided by an increase in accounts payable.
Cash provided by operating activities for year to date ended September 30, 2021 was $70,785. The cash provided by operating activities resulted primarily from net income of $59,159, adjustments for non-cash or non-operating charges of $19,149, including depreciation and amortization, and share-based compensation, as well as cash used in operating assets and liabilities of $7,523. The primary drivers of the changes in operating assets and liabilities, excluding the asset and liability balances acquired as part of the Merger, were $7,588 use of cash related to an increase in inventories, primarily barreled distillate, $6,678 use of cash related to a decrease in accounts payable, and $5,593 use of cash related to accounts receivables, net due to increased sales during the quarter as well as an increase in insurance recoveries receivable. These uses of cash were partially offset by $15,859 cash provided by accrued expenses and other primarily related to legally committed insurance recovery amounts obtained prior to contingencies related to the insurance claim being resolved.
Investing Activities. Cash used in investing activities for the year to date ended SeptemberJune 30, 2023 was $135,589, which primarily resulted from $104,398 related to the acquisition of Penelope, net of cash acquired, and additions to property, plant, and equipment of $30,055 (see “Capital Spending”). Cash used in investing activities for the year to date ended June 30, 2022 was $31,764,$19,484, which primarily resulted from additions to property, plant, and equipment of $29,217$18,087 (see Capital Spending). Cash used in investing activities for year to date ended September 30, 2021 was $189,166, which primarily resulted from $149,613 related to the Merger with Luxco, and additions to property, plant and equipment of $37,257 (see Capital Spending)“Capital Spending”).
Capital Spending. We manage capital spending to support our business growth plans. We have incurred $28,524$23,863 and $33,882$14,553 of capital expenditures and have paid $29,217$30,055 and $37,257$18,087 for capital expenditures for the year to date ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The difference between the amount of capital expenditures incurred and amount paid is due to the change in capital expenditures in accounts payable. We expect approximately $47,200$63,000 in capital expenditures in 2022,2023, which will be usedincludes capital expenditures for facility improvement and expansion, facility sustaining projects, and environmental health and safety projects.projects, as well as the planned closure of the Atchison Distillery.
Financing Activities. Cash provided by financing activities for the year to date ended June 30, 2023 was $89,462, due to net proceeds on debt of $95,600 (see “Long-Term and Short-Term Debt”), partially offset by payments of dividends and dividend equivalents of $5,337 (see “Dividends and Dividend Equivalents”), and purchases of treasury stock of $801 (see “Treasury Purchases”).
Cash used in financing activities for the year to date ended SeptemberJune 30, 2022 was $11,301,$7,649, due to payments of dividends and dividend equivalents of $7,984$5,322 (see Dividends“Dividends and Dividend Equivalents)Equivalents”), net payments on debt of $2,603$1,614 (see Long-Term“Long-Term and Short-Term Debt)Debt”), and purchases of treasury stock of $714$713 (see Treasury Purchases).
Cash provided by financing activities for year to date ended September 30, 2021 was $112,883, due to net proceeds from debt of $208,521 (see Long-term and Short-term Debt), partially offset by $87,509 payment on assumed debt as part of the Merger, payments of dividends and dividend equivalents of $7,362 (see Dividends and Dividend Equivalents) and purchases of treasury stock of $767 (see Treasury Purchases)“Treasury Purchases”).
Treasury Purchases. 29,36622,592 RSUs vested and converted to shares of common sharesstock for employees during the year to date ended SeptemberJune 30, 2023, of which we withheld and purchased for treasury 8,437 shares valued at $801 to cover payment of associated withholding taxes.
29,356 RSUs vested and converted to shares of common stock for employees during the year to date ended June 30, 2022, of which we withheld and purchased for treasury 9,0279,025 shares valued at $714 to cover payment of associated withholding taxes.
38,059 RSUs vested and converted to common shares for employees during year to date ended September 30, 2021, of which we withheld and purchased for treasury 11,885 shares valued at $767$713 to cover payment of associated withholding taxes.
Share Repurchases. On February 25, 2019, our Board of Directors approved a $25,000 share repurchase authorization commencing February 27, 2019, through February 27, 2022. The Company did not repurchase any shares during 2022 prior to the expiration of the program on February 27, 2022.
Dividends and Dividend Equivalents
| Dividend and Dividend Equivalent Information (per Share and Unit) | Dividend and Dividend Equivalent Information (per Share and Unit) | Dividend and Dividend Equivalent Information (per Share and Unit) |
Declaration date | Declaration date | | Record date | | Payment date | | Declared(c) | | Paid(c) | | Dividend payment | | Dividend equivalent payment(a)(b) | | Total payment(b) | Declaration date | | Record date | | Payment date | | Declared(c) | | Paid(c) | | Dividend payment | | Dividend equivalent payment(a)(b) | | Total payment(b) |
2023 | | 2023 | | | | | | | | | | | | | | |
February 23, 2023 | | February 23, 2023 | | March 10, 2023 | | March 24, 2023 | | $ | 0.12 | | | $ | 0.12 | | | $ | 2,640 | | | $ | 29 | | | $ | 2,669 | |
May 4, 2023 | | May 4, 2023 | | May 19, 2023 | | June 2, 2023 | | 0.12 | | | 0.12 | | | 2,641 | | | 27 | | | 2,668 | |
| | | | $ | 0.24 | | | $ | 0.24 | | | $ | 5,281 | | | $ | 56 | | | $ | 5,337 | |
| 2022 | 2022 | | | | | | | | | | | | | | | 2022 | |
February 22, 2022 | February 22, 2022 | | March 11, 2022 | | March 25, 2022 | | $ | 0.12 | | | $ | 0.12 | | | $ | 2,638 | | | $ | 23 | | | $ | 2,661 | | February 22, 2022 | | March 11, 2022 | | March 25, 2022 | | $ | 0.12 | | | $ | 0.12 | | | $ | 2,638 | | | $ | 23 | | | $ | 2,661 | |
May 5, 2022 | May 5, 2022 | | May 20, 2022 | | June 3, 2022 | | 0.12 | | | 0.12 | | | 2,638 | | | 23 | | | 2,661 | | May 5, 2022 | | May 20, 2022 | | June 3, 2022 | | 0.12 | | | 0.12 | | | 2,638 | | | 23 | | | 2,661 | |
August 4, 2022 | | August 19, 2022 | | September 2, 2022 | | 0.12 | | | 0.12 | | | 2,639 | | | 23 | | | 2,662 | | |
| | $ | 0.36 | | | $ | 0.36 | | | $ | 7,915 | | | $ | 69 | | | $ | 7,984 | | |
| | | | | | | | | | | | $ | 0.24 | | | $ | 0.24 | | | $ | 5,276 | | | $ | 46 | | | $ | 5,322 | |
2021 | | |
February 23, 2021 | | March 12, 2021 | | March 26, 2021 | | $ | 0.12 | | | $ | 0.12 | | | $ | 2,033 | | | $ | 19 | | | $ | 2,052 | | |
May 3, 2021 | | May 21, 2021 | | June 4, 2021 | | 0.12 | | | 0.12 | | | 2,635 | | | 20 | | | 2,655 | | |
August 2, 2021 | | August 20, 2021 | | September 3, 2021 | | 0.12 | | | 0.12 | | | 2,635 | | | 20 | | | 2,655 | | |
| $ | 0.36 | | | $ | 0.36 | | | $ | 7,303 | | | $ | 59 | | | $ | 7,362 | | |
(a) Dividend equivalent payments on unvested participating securities.
(b) Includes estimated forfeitures.
(c) Per share amountamount.
On NovemberAugust 3, 2022, our Board of Directors declared2023, we announced a quarterly dividend payable to stockholders of record as of November 18, 2022, of the Company’s Common Stock, and aour common stock, resulting in dividend equivalentequivalents payable to holders of certain RSUs as of November 18, 2022,RSU holders, of $0.12 per share and per unit,RSU. The dividend and dividend equivalent are payable on December 2, 2022.September 1, 2023 to stockholders of record and certain RSU holders on August 18, 2023.
Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including brand development, merger and acquisition, and share repurchase activities), and the overall cost of capital. Total debt was $231,051$325,104 (net of unamortized loan fees of $6,199)$6,946) at SeptemberJune 30, 2022,2023, and $233,399$230,335 (net of unamortized loan fees of $6,454)$6,115) at December 31, 2021.2022.
Financial Condition and Liquidity. Our principal uses of cash in the ordinary course of business are for input costs used in our production processes, salaries, capital expenditures, and investments supporting our strategic plan, such as the aging of barreled distillate and potential mergers and acquisitions. Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels.
Our principal sources of cash are product sales and borrowing on our various debt agreements. Under our debt agreements, we must meet certain financial covenants and restrictions, and at SeptemberJune 30, 2022,2023, we met those covenants and restrictions.
At SeptemberJune 30, 2022,2023, our current assets exceeded our current liabilities by $339,853,$402,198, largely due to our inventories, at cost, of $275,478.$343,826. At SeptemberJune 30, 2022,2023, our cash balance was $50,674$21,959 and we have used our various debt agreements for liquidity purposes, with $400,000$302,000 available under our Credit Agreement remaining for additional borrowings and up to $120,000 potentially available through August 23, 2023 under the Note Purchase Agreement.Agreement (see Note 5). We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We regularly assess our cash needs and the available sources to fund these needs. We utilize short-term and long-term debt to fund discretionary items, such as capital investments, dividend payments, as well asand potential mergers and acquisitions. Subject to market conditions, we could also fund future mergers and acquisitions through the issuance of additional shares of our common stock or preferred stock. In addition, we have strong operating results such that we believe financial institutions should provide sufficient credit funding to meet short-term financing requirements, if needed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to commodity price and interest rate market risks. We monitor and manage these exposures as part of our overall risk management program. Our risk management program focuses on the unpredictability of financial markets and seekswith the goal to reduce the potentially adverse effects that the volatility of these markets may have on our operating results.results and financial condition.
Commodity Costs. Certain commodities we use in our production process, or input costs, expose us to market price risk due to volatility in the prices for those commodities. Through our grain supply contracts for our Atchison and Lawrenceburg facilities, our wheat flour supply contract for our Atchison facility, and our natural gas contracts for both facilities, we purchase grain, wheat flour, and natural gas, respectively, for delivery from one to 24 months into the future at negotiated prices. We have determined that the firm commitments to purchase grain, wheat flour, and natural gas under the terms of our supply contracts meet the normal purchases and sales exception as defined under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, because the quantities involved are for amounts to be consumed within the normal expected production process.
Interest Rate Exposures. Our various debt agreements (Note(see Note 5) expose us to market risks arising from adverse changes in interest rates. Established procedures and internal processes govern the management of this market risk.
Increases in market interest rates would cause interest expense under our variable interest rate debt to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings under variable interest rate debt during the reporting period following an increase in market interest rates. Based on weighted average outstanding variable-rate borrowings at SeptemberJune 30, 2022,2023, a 100 basis point increase over the current rates actually in effect at such date would have a minimal impactincrease our interest expense on interest expense.an annual basis by $361. Based on weighted average outstanding fixed-rate borrowings at SeptemberJune 30, 2022,2023, a 100 basis point increase in market rates would result in a decrease in the fair value of our outstanding fixed-rate debt of $28,936,$28,795, and a 100 basis point decrease in market rates would result in an increase in the fair value of our outstanding fixed-rate debt of $38,728.$36,219.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. As of the quarter ended SeptemberJune 30, 2022,2023, our Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act)Act of 1934 (as amended, the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that our current disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange CommissionSEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including theour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls.Control. There were no changes in the Company’sour internal controlscontrol over financial reporting during the fiscal quarter ended SeptemberJune 30, 2022,2023, that have materially affected, or are reasonably likely to materially affect, the Company’sour internal controlscontrol over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Part I, Item 3, Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, and Note 8 toin this Report on Form 10-Q for information on certain proceedings to which we are subject.
ITEM 1A. RISK FACTORS
The riskRisk factors are described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 as updated2022. The following update, listed below, should be read in Part II, Item 1A. Risk Factors onconjunction with the risk factors disclosed in our Form 10-Q10-K for the quarteryear ended June 30, 2022,December 31, 2022.
We may not realize the anticipated benefits from the announced planned closure of our Atchison, Kansas distillery.
On July 13, 2023, we announced the planned closure of our distillery located in Atchison, Kansas, with an anticipated closure date of January 2024, as part of our plan to address profitability headwinds associated with our white goods and industrial products within our Distilling Solutions segment. This closure and any other actions to address profitability headwinds could fail to achieve the anticipated results, could disrupt our business, and could have notan adverse effect on our business, financial condition or results of operations. We cannot be sure that we will realize profitability improvements, gross margin improvements, or any other anticipated benefits from the closure of our Atchison, Kansas distillery or any other actions taken to address profitability headwinds. The Atchison, Kansas distillery closure, and its timing and effectiveness, is subject to assumptions, estimates, and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays or unanticipated costs, or if other unanticipated events or unintended consequences occur, our business and financial results could be adversely affected and could differ materially changed.from our expectations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There was no unregistered sale of equity securities during the quarter ended SeptemberJune 30, 2022.2023.
ISSUER PURCHASES OF EQUITY SECURITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (1) Total Number of Shares (or Units) Purchased | | (2) Average Price Paid per Share (or Unit) | | (3) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | (4) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |
July 1, 2022 through July 31, 2022 | | 2 | | (a) | $ | 101.44 | | | $ | — | | | $ | — | | |
August 1, 2022 through August 31, 2022 | | — | | | $ | — | | | $ | — | | | $ | — | | |
September 1, 2022 through September 30, 2022 | | — | | | $ | — | | | $ | — | | | $ | — | | |
Total | | 2 | | | | | $ | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (1) Total Number of Shares (or Units) Purchased | | (2) Average Price Paid per Share (or Unit) | | (3) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | (4) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |
April 1, 2023 through April 30, 2023 | | — | | (a) | $ | — | | | $ | — | | | $ | — | | |
May 1, 2023 through May 31, 2023 | | — | | (a) | $ | — | | | $ | — | | | $ | — | | |
June 1, 2023 through June 30, 2023 | | — | | (a) | $ | — | | | $ | — | | | $ | — | | |
Total | | — | | | | | $ | — | | | | |
(a) Vested RSUs awarded under the 2014 Plan purchased to cover employee withholding taxes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.During the quarter ended June 30, 2023, none of our directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408(a) of Regulation S-K).
ITEM 6. EXHIBITS
| | | | | |
Exhibit Number | Description of Exhibit |
** * 10.1 | |
** *10.2 | |
*10.3 | |
*31.1 | |
*31.2 | |
**32.1 | |
**32.2 | |
*101 | The following financial information from MGP Ingredients, Inc.’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2022,2023, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of SeptemberJune 30, 2022,2023, and December 31, 2021,2022, (ii) Condensed Consolidated Statements of Income for the threequarter and nine monthsyear to date ended SeptemberJune 30, 20222023 and 2021,2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the threequarter and nine monthsyear to date ended SeptemberJune 30, 20222023 and 2021,2022, (iv) Condensed Consolidated Statements of Cash Flows for the nine monthsyear to date ended SeptemberJune 30, 20222023 and 2021,2022, (v) Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity for the threeyear to date ended June 30, 2023 and nine months ended September 30, 2022, and 2021, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements. |
*104 | Cover Page Interactive Data Filed - formatted in iXBRL (Inline Extensible Business Reporting Language )Language) and contained in Exhibit 101 |
| * Filed herewith |
*Filed*Furnished herewith ** Management contract or compensatory plan or arrangement |
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: | NovemberAugust 3, 20222023 | By | /s/ David J. Colo |
| | | David J. Colo, President and Chief Executive Officer |
| | | |
Date: | NovemberAugust 3, 20222023 | By | /s/ Brandon M. Gall |
| | | Brandon M. Gall, Vice President, Finance and Chief Financial Officer |