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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, 2021  
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/487ade4462a4cebe43bd512f3017b032-mgpi-20210630_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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.”  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer                                                         x Accelerated filer
 Non-accelerated filer                          Smaller Reporting Company
Emerging growth company

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 
21,962,171 shares of Common Stock, no par value as of July 29, 2021



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 11, 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, per 9-liter case 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,
 2021202020212020
Sales$174,939 $92,560 $283,262 $191,642 
Cost of sales118,112 71,858 194,136 147,729 
Gross profit56,827 20,702 89,126 43,913 
Selling, general and administrative expenses29,164 9,364 40,963 18,867 
Operating income27,663 11,338 48,163 25,046 
Interest expense, net(1,104)(628)(1,592)(1,107)
Other income (loss), net(88)330 (58)167 
Income before income taxes26,471 11,040 46,513 24,106 
Income tax expense6,412 2,550 11,027 5,774 
Net income20,059 8,490 35,486 18,332 
Income attributable to participating securities150 57 299 123 
Net loss attributable to noncontrolling interest(76) (76) 
Net income attributable to MGP Ingredients, Inc. $19,985 $8,433 $35,263 $18,209 
Basic and diluted weighted average common shares21,916,721 16,899,079 19,436,143 16,956,502 
Basic and diluted Earnings Per Share$0.91 $0.50 $1.81 $1.07 
 























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,
 2021202020212020
Net income$20,059 $8,490 $35,486 $18,332 
Other comprehensive income, net of tax:
Unrealized gain on foreign currency translation adjustment1  7  
Change in Company-sponsored post-employment benefit plan 21 49 15 
Other comprehensive income1 21 56 15 
Comprehensive income20,060 8,511 35,542 18,347 
Comprehensive loss attributable to noncontrolling interest(76) (76) 
Comprehensive income attributable to MGP Ingredients, Inc.$20,136 $8,511 $35,618 $18,347 



































See accompanying notes to unaudited condensed consolidated financial statements

4


       MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Dollars in thousands)
 June 30, 2021December 31, 2020
Current Assets  
Cash and cash equivalents$37,243 $21,662 
Receivables (less allowance for credit losses, $100 and $24 at June 30, 2021, and December 31, 2020, respectively)
79,110 56,966 
Inventory232,292 141,011 
Prepaid expenses4,996 2,644 
Total current assets353,641 222,283 
Property, plant, and equipment378,962 313,730 
Less accumulated depreciation and amortization(189,330)(181,738)
Property, plant, and equipment, net189,632 131,992 
Operating lease right-of-use assets, net 9,169 5,151 
Investment in joint ventures5,739  
Intangible assets, net219,872 890 
Goodwill228,243 2,738 
Other assets8,001 3,521 
Total assets$1,014,297 $366,575 
Current Liabilities  
Current maturities of long-term debt$3,227 $1,600 
Accounts payable37,434 30,273 
Federal and state liquor taxes payable9,175 107 
Income taxes payable1,721 704 
Accrued expenses and other31,881 20,645 
Total current liabilities83,438 53,329 
Long-term debt, less current maturities36,870 38,271 
Credit agreement - revolver230,294  
Long-term operating lease liabilities6,626 3,057 
Other noncurrent liabilities5,117 7,094 
Deferred income taxes58,450 2,298 
Total liabilities420,795 104,049 
Commitments and Contingencies (Note 8)
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 23,123,793 shares at June 30, 2021 and 18,115,965 shares at December 31, 2020; and 21,961,233 and 16,915,862 shares outstanding at June 30, 2021 and December 31, 2020, respectively
6,715 6,715 
Additional paid-in capital315,062 15,503 
Retained earnings293,724 262,943 
Accumulated other comprehensive income542 486 
Treasury stock, at cost, 1,162,560 and 1,200,103 shares at June 30, 2021 and December 31, 2020, respectively
(22,469)(23,125)
Total MGP Ingredients, Inc. stockholders’ equity593,578 262,526 
Noncontrolling interest(76) 
Total equity593,502 262,526 
Total liabilities and equity$1,014,297 $366,575 
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,
 20212020
Cash Flows from Operating Activities  
Net income$35,486 $18,332 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization8,425 6,344 
Net loss attributable to noncontrolling interest(76) 
Gain on sale of assets (8)
Share-based compensation4,767 1,801 
Deferred income taxes, including change in valuation allowance(1,568)(99)
Unrealized gain on foreign currency7  
Changes in operating assets and liabilities, net of effects of acquisition:  
Receivables, net7,531 (13,174)
Inventory(408)(9,983)
Prepaid expenses(897)(1,973)
Income taxes payable1,017 5,778 
Accounts payable(12,996)(4,218)
Accrued expenses and other7,987 3,126 
Federal and state liquor taxes payable716 132 
Other, net(2,537)(72)
Net cash provided by operating activities47,454 5,986 
Cash Flows from Investing Activities  
Additions to property, plant, and equipment(18,336)(10,177)
Purchase of business, net of cash acquired(149,599)(2,750)
Contributions to equity method investment(988) 
Proceeds from sale of property 688 
Other, net(1,312)(168)
Net cash used in investing activities(170,235)(12,407)
Cash Flows from Financing Activities  
Payment of dividends and dividend equivalents(4,707)(4,101)
Purchase of treasury stock(765)(4,395)
Loan fees paid related to borrowings(666)(1,148)
Principal payments on long-term debt (199)
Proceeds from credit agreement - revolver242,300 54,700 
Payments on credit agreement - revolver(10,306)(30,000)
Payment on assumed debt as part of the Merger(87,497) 
Net cash provided by financing activities138,359 14,857 
Effect of exchange rate changes on cash3  
Increase in cash and cash equivalents15,581 8,436 
Cash and cash equivalents, beginning of period21,662 3,309 
Cash and cash equivalents, end of period$37,243 $11,745 
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, 2021
(Unaudited) (Dollars in thousands)
Capital
Stock
Preferred
Issued CommonAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
income
Treasury
Stock
Non-controlling InterestTotal
Balance, December 31, 2020
$4 $6,715 $15,503 $262,943 $486 $(23,125)$ $262,526 
Comprehensive income:
Net income   15,427    15,427 
Other comprehensive income    55   55 
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
   (2,052)   (2,052)
Share-based compensation  3,229     3,229 
Stock shares awarded, forfeited or vested  (716)  716   
Stock shares repurchased     (674) (674)
Balance, March 31, 2021
4 6,715 18,016 276,318 541 (23,083) 278,511 
Comprehensive income:
Net income   20,059   (76)19,983 
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 $293,724 $542 $(22,469)$(76)$593,502 


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, 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

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, branded spirits and food ingredients. Distilled spirits include premium bourbon and rye whiskeys and grain neutral spirits, including vodka and gin. Our distilled spirits are either packaged and sold under our own brands to distributors, sold, directly or indirectly, to manufacturers of other branded spirits, or direct to consumer. 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. Our industrial alcohol and ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries. The Company’s distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and milo), and its ingredient products are derived, primarily from wheat flour.  

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

As a result of the merger with Luxco, during the quarter ended June 30, 2021, the Company established a new reportable segment structure that separates Branded Spirits from the Distillery Products segment. The Ingredient Solutions segment remains unchanged. The new segment presentation reflects how management is now operating the business and making resource allocations. The Company now reports three operating segments: Distillery Products, Branded Spirits and Ingredient Solutions. Certain amounts in the 2020 consolidated financial statements have been reclassified to conform to the 2021 presentation and prior periods have been revised to reflect the new operating segment structure.

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, 2021, 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, 2020, filed with the Securities and Exchange Commission (“SEC”).  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

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

The Company holds 60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The Company consolidated Dos Primos activity on the financial statements and backs out 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 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 as well as bottles, caps, and labels used in the bottling process and certain maintenance and repair items.  Bourbon and
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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.

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, 2021December 31, 2020
Finished goods$47,500 $16,414 
Barreled distillate (bourbons and whiskeys)151,441 105,445 
Raw materials21,850 6,954 
Work in process1,533 1,805 
Maintenance materials8,806 8,634 
Other1,162 1,759 
Total$232,292 $141,011 

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

Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms. This is a faithful depiction of the satisfaction of the performance obligation because, at the point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has present obligation to pay. For certain international customers, deposits are required in advance of shipment. These deposits are reported as contract liabilities until control passes to the customer and revenue is recognized.

The Company’s Distillery Products 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: 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.

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 includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its Federal and state excise tax expense based upon units shipped and on its understanding of the applicable excise tax laws. 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.

Recognition of Insurance Recoveries. Estimated loss contingencies are recognized as charges to income when they are probable and reasonably estimable. Insurance recoveries are not recognized until all contingencies related to the insurance claim have been resolved and settlement has been reached with the insurer. Insurance recoveries, to the extent of costs and losses, are reported as a reduction to costs on the Condensed Consolidated Statements of Income. Insurance recoveries, in
10


excess of costs and losses, if any, would be reported as a separate caption in Operating income on the Condensed Consolidated Statements of Income. Legally committed recovery amounts obtained prior to contingencies being resolved are recorded in Accrued expenses and other on the Condensed Consolidated Balance Sheets.

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.

Translation of Foreign Currencies. Assets and liabilities of Niche Drinks Co., Ltd. (“Niche”), a wholly-owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the condensed consolidated balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included as a component of Accumulated other comprehensive 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 exceeds the assets acquired and liabilities assumed. The Company uses its best estimate and third party valuation specialists to determine the fair value of the assets acquired and liabilities assumed. During the measurement period, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill.

Goodwill and Indefinite-Lived Intangible Assets. The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company evaluates goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value. To the extent that the carrying amount 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 June 30, 2021, the Company determined that goodwill and indefinite-lived intangible assets were not impaired.

Fair Value of Financial Instruments.  The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.
 
The Company’s short term financial instruments include cash and cash equivalents, accounts receivables 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 $276,919 and $44,548 at June 30, 2021 and December 31, 2020, respectively. The financial statement carrying value of total debt was $270,391 (including unamortized loan fees) and $39,871 (including unamortized loan fees) at June 30, 2021 and December 31, 2020, respectively.  These fair values are considered Level 2 under the fair value hierarchy. Fair value disclosure for deferred compensation plan investments is included in Note 9.
11



Equity Method Investments. The condensed consolidated financial statements include the results of Luxco and its affiliated companies since April 1, 2021, when the Company obtained control through the Merger. The Company holds 50 percent interests in DGL Destiladores, S.de R.L. de C.V. (“DGL”) and Agricola LG, S.de R.L. de C.V. (“Agricola”) (combined “LMX”), which are accounted for as equity method investments since the date of acquisition. At June 30, 2021, the investment in LMX was $5,739, which is recorded in Investment in joint ventures on the Condensed Consolidated Balance Sheet. During the quarter and year to date ended June 30, 2021, the Company recorded a $334 loss from our equity method investments, which is recorded in Other income (loss), net on the Condensed Consolidated Statement of Income.

Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended June 30, 2021.

Note 2.  Revenue

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 Branded Spirits and Ingredient Solutions segments 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 include a single performance obligation (either the sale of products or the provision of warehouse services).

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,
2021202020212020
Distillery Products
Brown goods$43,766 $25,325 $86,807 $53,970 
White goods18,205 14,873 34,862 31,712 
Premium beverage alcohol61,971 40,198 121,669 85,682 
Industrial alcohol14,770 22,953 32,106 44,571 
Food grade alcohol76,741 63,151 153,775 130,253 
Fuel grade alcohol4,753 1,174 7,270 2,696 
Distillers feed and related co-products4,672 6,781 9,644 13,770 
Warehouse services4,182 3,699 8,283 7,600 
Total Distillery Products90,348 74,805 178,972 154,319 
Branded Spirits
Ultra premium10,093 320 10,574 684 
Premium6,301 47 6,383 171 
Mid17,786  17,786  
Value20,944  20,944  
Other5,302 17 5,309 17 
Total Branded Spirits60,426 384 60,996 872 
Ingredient Solutions
Specialty wheat starches12,598 9,122 22,820 19,334 
Specialty wheat proteins8,352 6,013 14,398 12,378 
Commodity wheat starches2,663 1,774 4,946 3,651 
Commodity wheat proteins552 462 1,130 1,088 
Total Ingredient Solutions24,165 17,371 43,294 36,451 
Total sales$174,939 $92,560 $283,262 $191,642 

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Note 3. Business Combination

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

Following the Merger, the Luxco Companies became wholly-owned subsidiaries of MGP and are included within the Branded Spirits segment. The aggregate consideration paid by the Company in connection with the Merger was $237,500 in cash (less assumed indebtedness) and 5,007,833 shares of common stock of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”). The Company Shares were valued at $296,213 and represented approximately 22.8 percent of the Company’s outstanding common stock immediately following the closing of the Merger. The Merger Consideration is subject to customary purchase price adjustments, including working capital, a portion of which may be paid in common stock.

The preliminary Merger Consideration will increase or decrease to the extent that actual closing date working capital exceeds or is less than the contractually agreed upon working capital target. In addition, the preliminary Merger Consideration will be increased for any acquired cash. In connection with the closing of the Merger on April 1, 2021, the preliminary purchase price adjustments increased the cash consideration paid by approximately $75 and increased stock consideration by approximately $159.

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

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

The Merger was accounted for as a business combination in accordance with Accounting Standard Codification 805 “ASC 805”), Business Combinations, and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value of the assets acquired and liabilities assumed are based upon a preliminary assessment of fair value and may 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.

13


Purchase Price Allocation. The following table summarizes the preliminary allocation of the consideration paid for Luxco 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$150,078 
Value of MGP Common Stock issued at close (a)
296,372 
Fair value of total consideration transferred$446,450 
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash $479 
Receivables29,675 
Inventory90,854 
Prepaid expenses1,454 
Property, plant and equipment, net41,279 
Investments in joint ventures5,085 
Intangible assets (b)
219,500 
Other assets4,257 
Total assets392,583 
Current maturities of long-term debt (c)
87,497 
Accounts payable14,453 
Federal and state liquor taxes payable8,352 
Accrued expenses and other2,832 
Other noncurrent liabilities784 
Deferred income taxes57,720 
Total liabilities171,638 
Goodwill225,505 
Total $446,450 

(a) The Company issued 5,007,833 shares of MGP Common Stock which was valued at $59.15 per share on April 1, 2021. The value of MGP Common Stock includes the preliminary working capital adjustment of $159.
(b) Intangible assets acquired includes trade names with an estimated fair value of $178,100 and distributor relationships with an estimated fair value of $41,400.
(c) The fair value of Luxco’s debt that was assumed by MGP in the transaction and repaid on the closing date.

In accordance with ASC 805 assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates and market comparable, 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.

Goodwill of $225,505 represents the excess of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed. No Goodwill is expected to be deductible for tax purposes. The Intangible assets acquired includes indefinite-lived intangible assets, trade names, with an estimated fair value of $178,100 and definite-lived intangible assets, distributor relationships, with an estimated fair value of $41,400 and a useful life of 20 years. The trade names and distributor relationships acquired by the Company have been adjusted to the estimated fair values using the relief from royalty method and multi-period earnings method, respectively. Management and a third party valuation team performed a preliminarily valuation analysis to determine the fair value of each trade name and distributor relationship.


14


Operating Results. The operating results of Luxco were consolidated with the Company’s operating results subsequent to the merger date. During the quarter and year to date ended June 30, 2021, the Company recorded $59,298 of Sales and $6,520 of Income before income taxes, attributable to Luxco on it’s Condensed Consolidated Statement of Income. During the quarter and year to date ended June 30, 2021, the Company has incurred $6,738 and $8,628, respectively, of transaction related costs, which are included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income.

Pro Forma Information. The following table summarizes the unaudited pro forma financial results for the quarter and year to date ended June 30, 2021 and 2020, as if the Merger had occurred on January 1, 2020:
Pro Forma Financial Information
Quarter Ended June 30,Year to Date Ended June 30,
2021202020212020
Sales$174,939 $141,686 $349,461 $289,894 
Net income28,124 12,589 34,419 15,990 
Basic and diluted earnings per share1.28 0.57 1.56 0.72 

The pro forma results are adjusted for items that are non-recurring in nature and directly attributable to the Merger, including the income tax effect of the adjustments. Merger related costs incurred by the Company of $6,738 and $8,628 for the quarter and year to date ended June 30, 2021, respectively, were excluded and $6,738 is assumed to have been incurred on January 1, 2020. Merger related costs incurred by Luxco of $3,132 were excluded from the year to date ended June 30, 2021 pro forma results. A non-recurring expense of $2,529 for the quarter and year to date ended June 30, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed and included in the results for the year to date ended June 30, 2020. Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives.     

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

Note 4. Goodwill and Intangible Assets

Definite-Lived Intangible Assets

The Company has a definite-lived intangible asset which was acquired as a result of the Merger. The distributor relationships have a carrying value of $40,882, net of accumulated amortization of $518. The distributor relationships have a useful life of 20 years. The amortization expense for the quarter and year to date ended June 30, 2021 was $518.

As of June 30, 2021, the expected future amortization expense related to definite-lived intangibles assets are as follows:
Remainder of 2021$1,035 
20222,070 
20232,070 
20242,070 
20252,070 
Thereafter31,567 
Total$40,882 

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.

15


Changes in carrying amount of goodwill by business segment were as follows:
Distillery ProductsBranded SpiritsIngredient SolutionsTotal
Balance, December 31, 2020
$ $2,738 $ $2,738 
Acquisitions 225,505  225,505 
Balance, June 30, 2021
$ $228,243 $ $228,243 


Changes in carrying amount of trade name intangible assets by business segment were as follows:
Distillery ProductsBranded SpiritsIngredient SolutionsTotal
Balance, December 31, 2020
$ $890 $ $890 
Acquisitions 178,100  178,100 
Balance, June 30, 2021
$ $178,990 $ $178,990 

Note 5.  Corporate Borrowings

The following table presents the Company’s outstanding indebtedness:
Description(a)
June 30, 2021December 31, 2020
Credit Agreement - Revolver, 1.09% (variable rate) due 2025
$232,000 $ 
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 
Other long-term borrowings216  
Total indebtedness outstanding272,216 40,000 
Less unamortized loan fees(b)
(1,825)(129)
Total indebtedness outstanding, net270,391