mgpi-20200630
12-31FALSE00008350112020Q2us-gaap:AccountingStandardsUpdate201802Member00008350112020-01-012020-06-30xbrli:shares00008350112020-07-24iso4217:USD00008350112020-04-012020-06-3000008350112019-04-012019-06-3000008350112019-01-012019-06-30iso4217:USDxbrli:shares00008350112020-06-3000008350112019-12-31xbrli:pure00008350112019-01-012019-12-3100008350112018-12-3100008350112019-06-300000835011us-gaap:PreferredStockMember2019-12-310000835011us-gaap:CommonStockMember2019-12-310000835011us-gaap:AdditionalPaidInCapitalMember2019-12-310000835011us-gaap:RetainedEarningsMember2019-12-310000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000835011us-gaap:TreasuryStockMember2019-12-310000835011us-gaap:RetainedEarningsMember2020-01-012020-03-3100008350112020-01-012020-03-310000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310000835011us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310000835011us-gaap:TreasuryStockMember2020-01-012020-03-310000835011us-gaap:PreferredStockMember2020-03-310000835011us-gaap:CommonStockMember2020-03-310000835011us-gaap:AdditionalPaidInCapitalMember2020-03-310000835011us-gaap:RetainedEarningsMember2020-03-310000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310000835011us-gaap:TreasuryStockMember2020-03-3100008350112020-03-310000835011us-gaap:RetainedEarningsMember2020-04-012020-06-300000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300000835011us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300000835011us-gaap:PreferredStockMember2020-06-300000835011us-gaap:CommonStockMember2020-06-300000835011us-gaap:AdditionalPaidInCapitalMember2020-06-300000835011us-gaap:RetainedEarningsMember2020-06-300000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000835011us-gaap:TreasuryStockMember2020-06-300000835011us-gaap:PreferredStockMember2018-12-310000835011us-gaap:CommonStockMember2018-12-310000835011us-gaap:AdditionalPaidInCapitalMember2018-12-310000835011us-gaap:RetainedEarningsMember2018-12-310000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000835011us-gaap:TreasuryStockMember2018-12-310000835011us-gaap:RetainedEarningsMember2019-01-012019-03-3100008350112019-01-012019-03-310000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310000835011us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310000835011us-gaap:TreasuryStockMember2019-01-012019-03-310000835011srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2018-12-310000835011us-gaap:AccumulatedOtherComprehensiveIncomeMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310000835011srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310000835011us-gaap:PreferredStockMember2019-03-310000835011us-gaap:CommonStockMember2019-03-310000835011us-gaap:AdditionalPaidInCapitalMember2019-03-310000835011us-gaap:RetainedEarningsMember2019-03-310000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310000835011us-gaap:TreasuryStockMember2019-03-3100008350112019-03-310000835011us-gaap:RetainedEarningsMember2019-04-012019-06-300000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300000835011us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300000835011us-gaap:TreasuryStockMember2019-04-012019-06-300000835011us-gaap:PreferredStockMember2019-06-300000835011us-gaap:CommonStockMember2019-06-300000835011us-gaap:AdditionalPaidInCapitalMember2019-06-300000835011us-gaap:RetainedEarningsMember2019-06-300000835011us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300000835011us-gaap:TreasuryStockMember2019-06-300000835011mgpi:BrownGoodsMembermgpi:DistilleryProductsMember2020-04-012020-06-300000835011mgpi:BrownGoodsMembermgpi:DistilleryProductsMember2019-04-012019-06-300000835011mgpi:BrownGoodsMembermgpi:DistilleryProductsMember2020-01-012020-06-300000835011mgpi:BrownGoodsMembermgpi:DistilleryProductsMember2019-01-012019-06-300000835011mgpi:WhiteGoodsMembermgpi:DistilleryProductsMember2020-04-012020-06-300000835011mgpi:WhiteGoodsMembermgpi:DistilleryProductsMember2019-04-012019-06-300000835011mgpi:WhiteGoodsMembermgpi:DistilleryProductsMember2020-01-012020-06-300000835011mgpi:WhiteGoodsMembermgpi:DistilleryProductsMember2019-01-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:PremiumBeverageAlcoholMember2020-04-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:PremiumBeverageAlcoholMember2019-04-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:PremiumBeverageAlcoholMember2020-01-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:PremiumBeverageAlcoholMember2019-01-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:IndustrialAlcoholMember2020-04-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:IndustrialAlcoholMember2019-04-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:IndustrialAlcoholMember2020-01-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:IndustrialAlcoholMember2019-01-012019-06-300000835011mgpi:FoodGradeAlcoholMembermgpi:DistilleryProductsMember2020-04-012020-06-300000835011mgpi:FoodGradeAlcoholMembermgpi:DistilleryProductsMember2019-04-012019-06-300000835011mgpi:FoodGradeAlcoholMembermgpi:DistilleryProductsMember2020-01-012020-06-300000835011mgpi:FoodGradeAlcoholMembermgpi:DistilleryProductsMember2019-01-012019-06-300000835011mgpi:FuelGradeAlcoholMembermgpi:DistilleryProductsMember2020-04-012020-06-300000835011mgpi:FuelGradeAlcoholMembermgpi:DistilleryProductsMember2019-04-012019-06-300000835011mgpi:FuelGradeAlcoholMembermgpi:DistilleryProductsMember2020-01-012020-06-300000835011mgpi:FuelGradeAlcoholMembermgpi:DistilleryProductsMember2019-01-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:DistillersFeedAndRelatedCoProductsMember2020-04-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:DistillersFeedAndRelatedCoProductsMember2019-04-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:DistillersFeedAndRelatedCoProductsMember2020-01-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:DistillersFeedAndRelatedCoProductsMember2019-01-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:WarehouseServicesMember2020-04-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:WarehouseServicesMember2019-04-012019-06-300000835011mgpi:DistilleryProductsMembermgpi:WarehouseServicesMember2020-01-012020-06-300000835011mgpi:DistilleryProductsMembermgpi:WarehouseServicesMember2019-01-012019-06-300000835011mgpi:DistilleryProductsMember2020-04-012020-06-300000835011mgpi:DistilleryProductsMember2019-04-012019-06-300000835011mgpi:DistilleryProductsMember2020-01-012020-06-300000835011mgpi:DistilleryProductsMember2019-01-012019-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatStarchesMember2020-04-012020-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatStarchesMember2019-04-012019-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatStarchesMember2020-01-012020-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatStarchesMember2019-01-012019-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatProteinsMember2020-04-012020-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatProteinsMember2019-04-012019-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatProteinsMember2020-01-012020-06-300000835011mgpi:IngredientSolutionsMembermgpi:SpecialtyWheatProteinsMember2019-01-012019-06-300000835011mgpi:CommodityWheatStarchMembermgpi:IngredientSolutionsMember2020-04-012020-06-300000835011mgpi:CommodityWheatStarchMembermgpi:IngredientSolutionsMember2019-04-012019-06-300000835011mgpi:CommodityWheatStarchMembermgpi:IngredientSolutionsMember2020-01-012020-06-300000835011mgpi:CommodityWheatStarchMembermgpi:IngredientSolutionsMember2019-01-012019-06-300000835011mgpi:CommodityWheatProteinMembermgpi:IngredientSolutionsMember2020-04-012020-06-300000835011mgpi:CommodityWheatProteinMembermgpi:IngredientSolutionsMember2019-04-012019-06-300000835011mgpi:CommodityWheatProteinMembermgpi:IngredientSolutionsMember2020-01-012020-06-300000835011mgpi:CommodityWheatProteinMembermgpi:IngredientSolutionsMember2019-01-012019-06-300000835011mgpi:IngredientSolutionsMember2020-04-012020-06-300000835011mgpi:IngredientSolutionsMember2019-04-012019-06-300000835011mgpi:IngredientSolutionsMember2020-01-012020-06-300000835011mgpi:IngredientSolutionsMember2019-01-012019-06-300000835011mgpi:DistilleryProductsMember2019-12-310000835011mgpi:IngredientSolutionsMember2019-12-310000835011mgpi:DistilleryProductsMember2020-06-300000835011mgpi:IngredientSolutionsMember2020-06-300000835011us-gaap:TradeNamesMember2020-06-300000835011us-gaap:TradeNamesMember2019-12-310000835011mgpi:CreditAgreementDue2025Member2020-06-300000835011mgpi:CreditAgreementDue2025Member2019-12-310000835011mgpi:CreditAgreementDue2022Member2020-06-300000835011mgpi:CreditAgreementDue2022Member2019-12-310000835011mgpi:SecuredPromissoryNoteDue2022Memberus-gaap:SecuredDebtMember2020-06-300000835011mgpi:SecuredPromissoryNoteDue2022Memberus-gaap:SecuredDebtMember2019-12-310000835011mgpi:PrudentialNotePurchaseAgreement3.53Memberus-gaap:SecuredDebtMember2020-06-300000835011mgpi:PrudentialNotePurchaseAgreement3.53Memberus-gaap:SecuredDebtMember2019-12-310000835011mgpi:PrudentialNotePurchaseAgreement3.80Memberus-gaap:SecuredDebtMember2020-06-300000835011mgpi:PrudentialNotePurchaseAgreement3.80Memberus-gaap:SecuredDebtMember2019-12-310000835011mgpi:CreditAgreementDue2025Member2020-02-140000835011mgpi:CreditAgreementDue2025Member2020-01-012020-06-300000835011mgpi:PrudentialNotePurchaseAgreement3.53Memberus-gaap:SeniorNotesMember2020-06-300000835011mgpi:PrudentialNotePurchaseAgreement3.53Memberus-gaap:SeniorNotesMember2017-01-012017-12-310000835011us-gaap:SeniorNotesMembermgpi:PrudentialNotePurchaseAgreement3.80Member2019-01-012019-12-310000835011us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-06-300000835011us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-06-3000008350112019-02-250000835011mgpi:RansomwareCyberAttackMember2020-05-012020-05-31mgpi:numberOfLawsuits0000835011mgpi:CleanAirActViolationMember2020-06-300000835011mgpi:EPAAdministrativeCivilPenaltyMember2020-06-30mgpi:plan0000835011us-gaap:RestrictedStockUnitsRSUMembermgpi:EmployeeEquityIncentivePlanMember2020-01-012020-06-300000835011mgpi:EmployeeEquityIncentivePlanMember2020-06-300000835011us-gaap:RestrictedStockUnitsRSUMembermgpi:NonEmployeeDirectorEquityIncentivePlanMember2020-01-012020-06-300000835011mgpi:NonEmployeeDirectorEquityIncentivePlanMember2020-06-300000835011us-gaap:RestrictedStockUnitsRSUMember2020-06-300000835011mgpi:ShorttermIncentivePlanMember2020-06-300000835011mgpi:ShorttermIncentivePlanMember2019-12-31mgpi:segment0000835011us-gaap:OperatingSegmentsMembermgpi:DistilleryProductsMember2020-04-012020-06-300000835011us-gaap:OperatingSegmentsMembermgpi:DistilleryProductsMember2019-04-012019-06-300000835011us-gaap:OperatingSegmentsMembermgpi:DistilleryProductsMember2020-01-012020-06-300000835011us-gaap:OperatingSegmentsMembermgpi:DistilleryProductsMember2019-01-012019-06-300000835011mgpi:IngredientSolutionsMemberus-gaap:OperatingSegmentsMember2020-04-012020-06-300000835011mgpi:IngredientSolutionsMemberus-gaap:OperatingSegmentsMember2019-04-012019-06-300000835011mgpi:IngredientSolutionsMemberus-gaap:OperatingSegmentsMember2020-01-012020-06-300000835011mgpi:IngredientSolutionsMemberus-gaap:OperatingSegmentsMember2019-01-012019-06-300000835011us-gaap:CorporateNonSegmentMember2020-04-012020-06-300000835011us-gaap:CorporateNonSegmentMember2019-04-012019-06-300000835011us-gaap:CorporateNonSegmentMember2020-01-012020-06-300000835011us-gaap:CorporateNonSegmentMember2019-01-012019-06-300000835011us-gaap:OperatingSegmentsMembermgpi:DistilleryProductsMember2020-06-300000835011us-gaap:OperatingSegmentsMembermgpi:DistilleryProductsMember2019-12-310000835011mgpi:IngredientSolutionsMemberus-gaap:OperatingSegmentsMember2020-06-300000835011mgpi:IngredientSolutionsMemberus-gaap:OperatingSegmentsMember2019-12-310000835011us-gaap:CorporateNonSegmentMember2020-06-300000835011us-gaap:CorporateNonSegmentMember2019-12-310000835011us-gaap:SubsequentEventMember2020-07-282020-07-28

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 June 30, 2020  
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
https://cdn.kscope.io/f3f792bd0be3c2e0c3b3cd2218d42a6c-mgpi-20200630_g1.jpg 
MGP INGREDIENTS, INC.
(Exact name of registrant as specified in its charter) 
Kansas45-4082531
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

100 Commercial Street
AtchisonKansas66002
(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 classTrading SymbolName of each exchange on which registered
Common Stock, no par valueMGPINASDAQ Global Select Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.”  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
x Large accelerated filer                                                       Accelerated filer
 Non-accelerated filer (Do not check if smaller reporting company)    Smaller Reporting Company
Emerging growth company

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 
16,913,313 shares of Common Stock, no par value as of July 24, 2020



INDEX
 
Page
  
  
    
 
 
 
 
 
   
 
   
 
   
 
   
 
 
   
 
   
 
   
 
   
 
   
 
   
 

METHOD OF PRESENTATION

Throughout this Report, when we refer to “the Company,” “MGP,” “we,” “us,” “our,” and words of similar import, we are referring to the combined business of MGP Ingredients, Inc. and its consolidated subsidiaries, except to the extent that the context otherwise indicates. In this document, for any references to Note 1 through Note 10, refer to the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1.
 
All amounts in this report, except for share, par values, bushels, gallons, pounds, mmbtu, proof gallons, per share, per bushel, per gallon, per proof gallon and percentage amounts, are shown in thousands unless otherwise noted.

2


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 June 30,Year to Date Ended June 30,
 2020201920202019
Sales$92,560  $90,501  $191,642  $179,597  
Cost of sales71,858  70,979  147,729  143,415  
Gross profit20,702  19,522  43,913  36,182  
Selling, general and administrative expenses9,364  8,648  18,867  16,795  
Operating income11,338  10,874  25,046  19,387  
Interest expense, net and other(298) (321) (940) (573) 
Income before income taxes11,040  10,553  24,106  18,814  
Income tax expense2,550  2,642  5,774  1,183  
Net income8,490  7,911  18,332  17,631  
Income attributable to participating securities57  51  123  117  
Net income attributable to common shareholders and used in earnings per share calculation$8,433  $7,860  $18,209  $17,514  
Basic and diluted weighted average common shares16,899,079  17,021,599  16,956,502  16,994,864  
Basic and diluted earnings per common share$0.50  $0.46  $1.07  $1.03  
 























See accompanying notes to unaudited condensed consolidated financial statements
3


MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)

Quarter Ended June 30,Year to Date Ended June 30,
 2020201920202019
Net income$8,490  $7,911  $18,332  $17,631  
Other comprehensive income (loss), net of tax:
Change in Company-sponsored post-employment benefit plan21  (16) 15  (2) 
Comprehensive income$8,511  $7,895  $18,347  $17,629  












































See accompanying notes to unaudited condensed consolidated financial statements
4


       MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 June 30, 2020December 31, 2019
Current Assets  
Cash and cash equivalents$11,745  $3,309  
Receivables (less allowance for doubtful accounts at June 30, 2020, and December 31, 2019 - $24)
54,164  40,931  
Inventory147,108  136,931  
Prepaid expenses4,021  2,048  
Refundable income taxes  987  
Total current assets217,038  184,206  
Property, plant, and equipment320,192  313,958  
Less accumulated depreciation and amortization(191,589) (185,539) 
Property, plant, and equipment, net128,603  128,419  
Operating lease right-of-use assets, net 5,903  6,490  
Other assets5,469  3,482  
Total assets$357,013  $322,597  
Current Liabilities  
Current maturities of long-term debt$408  $401  
Accounts payable21,429  29,511  
Accrued expenses12,626  9,383  
Income taxes payable4,732    
Total current liabilities39,195  39,295  
Long-term debt, less current maturities40,463  40,658  
Credit agreement - revolver23,662  1  
Long-term operating lease liabilities3,691  4,267  
Deferred credits1,094  1,233  
Other noncurrent liabilities4,605  4,170  
Deferred income taxes1,606  1,929  
Total liabilities114,316  91,553  
Commitments and Contingencies (Note 7)
Stockholders’ Equity  
Capital stock  
Preferred, 5% non-cumulative; $10 par value; authorized 1,000 shares; issued and outstanding 437 shares
4  4  
Common stock  
No par value; authorized 40,000,000 shares; issued 18,115,965 shares at June 30, 2020 and December 31, 2019; and 16,895,522 and 17,028,125 shares outstanding at June 30, 2020 and December 31, 2019, respectively
6,715  6,715  
Additional paid-in capital15,026  14,029  
Retained earnings245,016  230,784  
Accumulated other comprehensive loss(231) (246) 
Treasury stock, at cost, 1,220,443 and 1,087,840 at June 30, 2020 and December 31, 2019, respectively
(23,833) (20,242) 
Total stockholders’ equity242,697  231,044  
Total liabilities and stockholders’ equity$357,013  $322,597  
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 June 30,
 20202019
Cash Flows from Operating Activities  
Net income$18,332  $17,631  
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization6,344  5,602  
Gain on sale of assets(8) (138) 
Share-based compensation1,801  2,267  
Deferred income taxes, including change in valuation allowance(99) 547  
Changes in operating assets and liabilities:  
Receivables, net(13,174) (2,807) 
Inventory(9,983) (9,238) 
Prepaid expenses(1,973) (514) 
Income taxes payable (refundable)5,778  (4,692) 
Accounts payable(4,218) (2,883) 
Accrued expenses3,258  (2,750) 
Deferred credits(139) (166) 
Other, net67  211  
Net cash provided by operating activities5,986  3,070  
Cash Flows from Investing Activities  
Additions to property, plant, and equipment(10,177) (6,192) 
Deferred compensation plan investments  (1,177) 
Acquisition of business(2,750)   
Proceeds from sale of property688    
Other, net(168)   
Net cash used in investing activities(12,407) (7,369) 
Cash Flows from Financing Activities  
Payment of dividends and dividend equivalents(4,101) (3,427) 
Purchase of treasury stock(4,395) (5,467) 
Loan fees paid related to borrowings(1,148)   
Proceeds from long-term debt  20,000  
Principal payments on long-term debt(199) (192) 
Proceeds from credit agreement - revolver54,700  12,625  
Payments on credit agreement - revolver(30,000) (22,025) 
Other, net  (78) 
Net cash provided by financing activities14,857  1,436  
Increase (decrease) in cash and cash equivalents8,436  (2,863) 
Cash and cash equivalents, beginning of period3,309  5,025  
Cash and cash equivalents, end of period$11,745  $2,162  

See accompanying notes to unaudited condensed consolidated financial statements
6


MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For Year to Date Ended June 30, 2020
(Unaudited) (Dollars in thousands)
Capital
Stock
Preferred
Issued CommonAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balance, December 31, 2019
$4  $6,715  $14,029  $230,784  $(246) $(20,242) $231,044  
Comprehensive income:
Net income—  —  —  9,842  —  —  9,842  
Other comprehensive loss—  —  —  —  (6) —  (6) 
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
—  —  —  (2,059) —  —  (2,059) 
Share-based compensation—  —  902  —  —  —  902  
Stock shares awarded, forfeited or vested—  —  (567) —  —  804  237  
Stock shares repurchased—  —  —  —  —  (4,395) (4,395) 
Balance, March 31, 2020
4  6,715  14,364  238,567  (252) (23,833) 235,565  
Comprehensive income:
Net income—  —  —  8,490  —  —  8,490  
Other comprehensive loss—  —  —  —  21  —  21  
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
—  —  —  (2,041) —  —  (2,041) 
Share-based compensation—  —  662  —  —  —  662  
Balance, June 30, 2020
$4  $6,715  $15,026  $245,016  $(231) $(23,833) $242,697  






See accompanying notes to unaudited condensed consolidated financial statements









7



MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For Year to Date Ended June 30, 2019
(Unaudited) (Dollars in thousands)

Capital
Stock
Preferred
Issued CommonAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balance, December 31, 2018
$4  $6,715  $15,375  $198,914  $(164) $(19,403) $201,441  
Comprehensive income:
Net income—  —  —  9,720  —  —  9,720  
Other comprehensive income—  —  —  —  14  —  14  
Dividends and dividend equivalents of $0.10 per common share and per restricted stock unit, net of estimated forfeitures
—  —  —  (1,714) —  —  (1,714) 
Share-based compensation—  —  1,031  —  —  —  1,031  
Stock shares awarded, forfeited or vested—  —  (3,770) —  —  3,864  94  
Stock shares repurchased—  —  —  —  —  (5,467) (5,467) 
Adjustment related to Accounting Standards Update 2018-02 adoption—  —  —  (69) 69  —    
Balance, March 31, 2019
4  6,715  12,636  206,851  (81) (21,006) 205,119  
Comprehensive income:
Net income—  —  —  7,911  —  —  7,911  
Other comprehensive income—  —  —  —  (16) —  (16) 
Dividends and dividend equivalents of $0.10 per common share and per restricted stock unit, net of estimated forfeitures
—  —  —  (1,713) —  —  (1,713) 
Share-based compensation—  —  481  —  —  —  481  
Stock shares awarded, forfeited, or vested—  —  —  —  —  660  660  
Balance, June 30, 2019
$4  $6,715  $13,117  $213,049  $(97) $(20,346) $212,442  




See accompanying notes to unaudited condensed consolidated financial statements

8



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,” and “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits and specialty wheat protein and starch food ingredients. Distilled spirits include premium bourbon and rye whiskeys and grain neutral spirits, including vodka and gin. MGP is also a top producer of high quality industrial alcohol for use in both food and non-food applications. 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 packaged goods industry. 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 from wheat flour.  The majority of the Company’s sales are made directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

Basis of Presentation and Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements as of and for the quarter ended June 30, 2020, 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, 2019, filed with the Securities and Exchange Commission (“SEC”).  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain amounts in 2019 consolidated financial statements have been reclassified to conform to the 2020 presentation.

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.

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 COVID-19.  For all of these policies, management cautions that future events rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment.

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

9


Inventories are stated at 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, primarily corn. Inventory consists of the following:
June 30, 2020December 31, 2019
Finished goods$16,557  $16,654  
Barreled distillate (bourbons and whiskeys)113,139  104,249  
Raw materials4,566  4,920  
Work in process2,871  1,766  
Maintenance materials8,615  8,200  
Other1,360  1,142  
Total$147,108  $136,931  

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 it expects to be entitled to in exchange for the performance obligations. The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one year or less.

Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer are excluded from revenue. 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 present obligation to pay.

The Company’s Distillery Products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells unaged distillate to customers, and the product is subsequently 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 unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product. Control is transferred to the customer in bill and hold transactions when: customer acceptance specifications have been met, legal title has transferred, the customer has a present obligation to pay for the product, and the risk and rewards of ownership have transferred to the customer. Additionally, all the following bill and hold criteria have to be met in order for control to be transferred to the customer: 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.

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

Earnings Per Share (“EPS”).  Basic and diluted EPS are 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.  Per share amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each year during the period.

10


Goodwill and Other Intangible Assets. The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company tests goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value. To the extent that the carrying amount exceeds fair value, an impairment of goodwill is recognized and allocated to the reporting units. 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 fair value of the reporting units was estimated using third party independent appraisals. The Company separately evaluates indefinite-lived intangible assets for impairment. As of June 30, 2020, the Company determined that goodwill was not impaired.

Fair Value of Financial Instruments.  The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.
 
The Company’s short term financial instruments include cash and cash equivalents, accounts receivables and accounts payable.  The carrying value of the short term financial instruments approximates the fair value due to their short term nature. These financial instruments have no stated maturities or the financial instruments have short term maturities that approximate market.
 
The fair value of the Company’s debt is estimated based on current market interest rates for debt with similar maturities and credit quality. The fair value of the Company’s debt was $72,676 and $42,534 at June 30, 2020 and December 31, 2019, respectively. The financial statement carrying value of total debt was $64,533 (including unamortized loan fees) and $41,060 (including unamortized loan fees) at June 30, 2020 and December 31, 2019, respectively.  These fair values are considered Level 2 under the fair value hierarchy. Fair value disclosure for deferred compensation plan investments is included in Note 8.

Recently Adopted Accounting Standard Updates. The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) and subsequent updates. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. The Company adopted this standard on January 1, 2020 using the modified retrospective approach, and it had no impact on its consolidated financial statements and disclosures.

ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill by eliminating the step 2 from the goodwill impairment test. An impairment in goodwill is recognized if the carrying amount of the reporting unit exceeds its fair value. The Company adopted this standard on January 1, 2020 on a prospective basis. The adoption of this standard had no impact on the Company's consolidated financial statements and disclosures.

ASU 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements. The Company adopted this guidance on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures.

ASU 2019-12, Simplifying the Accounting for Income Taxes, which clarifies and simplifies certain aspects of accounting for income taxes. This standard requires certain aspects to be adopted on either a retrospective or modified retrospective basis, while others apply prospectively. This guidance is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company elected to early adopt this standard on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures.

11


Note 2.  Revenue

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

Quarter Ended June 30,Year to Date Ended June 30,
2020201920202019
Distillery Products
Brown goods$25,540  $27,621  $54,610  $52,448  
White goods15,042  14,691  31,944  31,873  
Premium beverage alcohol40,582  42,312  86,554  84,321  
Industrial alcohol22,953  20,636  44,571  41,079  
Food grade alcohol63,535  62,948  131,125  125,400  
Fuel grade alcohol1,174  1,398  2,696  2,899  
Distillers feed and related co-products6,781  6,181  13,770  13,276  
Warehouse services3,699  3,496  7,600  7,025  
Total Distillery Products75,189  74,023  155,191  148,600  
Ingredient Solutions
Specialty wheat starches9,122  7,210  19,334  14,090  
Specialty wheat proteins6,013  5,276  12,378  9,718  
Commodity wheat starches1,774  3,013  3,651  5,275  
Commodity wheat proteins462  979  1,088  1,914  
Total Ingredient Solutions17,371  16,478  36,451  30,997  
Total sales$92,560  $90,501  $191,642  $179,597  

The Company generates revenues from the Distillery Products segment by the sale of products and by providing warehouse services related to the storage and aging of customer products. The Company generates revenues 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 is recognized over time. Contracts with customers in both segments include a single performance obligation (either the sale of products or the provision of warehouse services).

Note 3. Goodwill and Other 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. Goodwill and indefinite-lived intangible assets are included in Other assets on the Condensed Consolidated Balance Sheets. Changes in carrying amount of goodwill and indefinite-lived intangible assets by business segment were as follows:

Distillery Products (a)
Ingredient Solutions
Total (a)
Balance at December 31, 2019
$1,850  $  $1,850  
Acquisitions1,739    1,739  
Balance at June 30, 2020
$3,589  $  $3,589  

(a) Includes $890 and $350 of trade names at June 30, 2020 and December 31, 2019, respectively. Trade names are considered indefinite-lived intangible assets.




12


Note 4.  Corporate Borrowings

The following table presents the Company’s outstanding indebtedness:
Description(a)
June 30, 2020December 31, 2019
Credit Agreement - Revolver, 1.20% (variable rate) due 2025
$25,000  $  
Previous Credit Agreement - Revolver, 3.19% (variable rate) due 2022
  300  
Secured Promissory Note, 3.71% (fixed rate) due 2022
1,010  1,208  
Prudential Note Purchase Agreement, 3.53% (fixed rate) due 2027
20,000  20,000  
Prudential Note Purchase Agreement, 3.80% (fixed rate) due 2029
20,000  20,000  
Total indebtedness outstanding66,010  41,508  
Less unamortized loan fees(b)
(1,477) (448) 
Total indebtedness outstanding, net64,533  41,060  
Less current maturities of long-term debt(408) (401) 
Long-term debt and Credit Agreement - Revolver$64,125  $40,659  

(a) Interest rates are as of June 30, 2020, except for the Previous Credit Agreement which is as of December 31, 2019.
(b) Loan fees are being amortized over the life of the Credit Agreement and Note Purchase Agreement.

Credit Agreements. On February 14, 2020, the Company entered into a new credit agreement (the "Credit Agreement") with multiple participants lead by Wells Fargo Bank, National Association ("Wells Fargo Bank") that matures on February 14, 2025. The Credit Agreement replaced the Company's $150,000 Credit Agreement ("Previous Credit Agreement) with Wells Fargo Bank. The Credit Agreement provides for a $300,000 revolving credit facility. The Company may increase the facility from time to time by an aggregate principal amount of up to $100,000 provided certain conditions are satisfied and at the discretion of the lenders. The Company incurred $1,148 of new loan fees related to the Credit Agreement. The Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at June 30, 2020. As of June 30, 2020, the Company’s total outstanding borrowings under the Credit Agreement were $25,000 leaving $275,000 available.

Note Purchase Agreements. The Company’s Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc. provides for the issuance of up to $75,000 of Senior Secured Notes until August 2020. During 2017, the Company issued $20,000 of 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, which the Company was in compliance with at June 30, 2020.

Note 5. Income Taxes
The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The Company’s quarterly effective tax rate is subject to significant change due to the effect of discrete items arising in a given quarter.

Income tax expense for the quarter and year to date ended June 30, 2020, was $2,550 and $5,774, respectively, for an effective tax rate of 23.1 percent and 24.0 percent, respectively. The effective tax rate for quarter to date ended June 30, 2020 differed from the 21 percent federal statutory rate on pretax income, primarily due to state taxes, partially offset by state and federal tax credits and the deduction applicable to export activity. Additionally, during the quarter ended June 30, 2020, the Company concluded the 2016 IRS examination of its federal income tax return, with minimal findings. The effective tax rate for the year to date ended June 30, 2020, differed from the 21 percent federal statutory rate on pretax income, primarily due to state taxes, estimated increase in the Company's valuation allowance related to state income tax attributes, and the discrete tax impact of vested share-based awards, partially offset by federal and state credits, the deduction applicable to income derived from export activity.

Income tax expense for the quarter and year to date ended June 30, 2019, was $2,642 and $1,183, respectively, for an effective tax rate of 25.0 percent and 6.3 percent, respectively. The effective tax rate for quarter ended June 30, 2019, differed from the 21 percent federal statutory rate on pretax income, primarily due to state income taxes and certain compensation being subject to the deduction limitations applicable to public companies, partially offset by state and federal credits. The effective tax rate
13


for the year to date ended June 30, 2019, differed from the 21 percent federal statutory rate on pretax income, primarily due to the tax impact of vested share-based awards, the tax impact of state and federal tax credits, partially offset by state taxes and certain compensation being subject to the compensation deduction limitations applicable for public companies.

In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act along with other guidance issued by the IRS provides for numerous tax provisions and other stimulus measures, including temporary suspension of certain payment requirements for the employer portion of Social Security taxes, deferral of income tax payments until July 15, 2020, and technical corrections from prior tax legislation. The Company is in the process of monetizing certain parts of the CARES Act and continues to monitor tax legislation for additional potential benefits available to the Company. In particular, during quarter ended June 30, 2020, the Company either exercised or began the process to exercise its ability to defer portions of the Company's Social Security taxes, the Company's federal and in certain cases, state estimated income tax payments, along with technical changes under the CARES Act related to Qualified Improvement Property. The effect of these changes, to the extent allowed under ASC 740, have been reflected in the quarter ended June 30, 2020 tax provision, and will most notably effect the income taxes payable balance. Certain changes, however, will not be reflected in the quarter ended June 30, 2020 provision, as the rules under ASC 740 require waiting until an income tax method change is perfected. The Company anticipates these additional changes will be reflected in the financial statements after the Company files its 2019 federal income tax return.

Note 6.  Equity and EPS

The computations of basic and diluted EPS:
Quarter Ended June 30,Year to Date Ended June 30,
2020201920202019
Operations:
Net income(a)
$8,490  $7,911  $18,332  $17,631  
Less: Income attributable to participating securities(b)
57  51  123  117  
Net income attributable to common shareholders$8,433  $7,860  $18,209  $17,514  
Share information: