mgpi-20200630

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

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

For the transition period from _________________________ to _________________________________

Commission File Number: 0-17196

MGP INGREDIENTS, INC.

(Exact name of registrant as specified in its charter)


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


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

(913) 367-1480

(Registrant’s telephone number, including area code)

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


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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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

PART I. FINANCIAL INFORMATION

Page

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Statements of Income (Unaudited)

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Condensed Consolidated Balance Sheets (Unaudited)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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.

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,
	2020		2019		2020		2019


Sales	$	92,560	$	90,501	$	191,642	$	179,597
Cost of sales	71,858		70,979		147,729		143,415
Gross profit	20,702		19,522		43,913		36,182
Selling, general and administrative expenses	9,364		8,648		18,867		16,795

Operating income	11,338		10,874		25,046		19,387
Interest expense, net and other	(298)		(321)		(940)		(573)

Income before income taxes	11,040		10,553		24,106		18,814
Income tax expense	2,550		2,642		5,774		1,183
Net income	8,490		7,911		18,332		17,631

Income attributable to participating securities	57		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 shares	16,899,079		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

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Quarter Ended June 30,						Year to Date Ended June 30,
	2020		2019		2020		2019
Net income	$	8,490	$	7,911	$	18,332	$	17,631
Other comprehensive income (loss), net of tax:
Change in Company-sponsored post-employment benefit plan	21		(16)		15		(2)
Comprehensive income	$	8,511	$	7,895	$	18,347	$	17,629

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)


	June 30, 2020		December 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
Inventory	147,108		136,931
Prepaid expenses	4,021		2,048
Refundable income taxes	—		987
Total current assets	217,038		184,206

Property, plant, and equipment	320,192		313,958
Less accumulated depreciation and amortization	(191,589)		(185,539)
Property, plant, and equipment, net	128,603		128,419
Operating lease right-of-use assets, net	5,903		6,490
Other assets	5,469		3,482
Total assets	$	357,013	$	322,597

Current Liabilities
Current maturities of long-term debt	$	408	$	401
Accounts payable	21,429		29,511
Accrued expenses	12,626		9,383
Income taxes payable	4,732		—
Total current liabilities	39,195		39,295

Long-term debt, less current maturities	40,463		40,658
Credit agreement - revolver	23,662		1
Long-term operating lease liabilities	3,691		4,267
Deferred credits	1,094		1,233

Other noncurrent liabilities	4,605		4,170
Deferred income taxes	1,606		1,929
Total liabilities	114,316		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 capital	15,026		14,029
Retained earnings	245,016		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’ equity	242,697		231,044
Total liabilities and stockholders’ equity	$	357,013	$	322,597

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Year to Date Ended June 30,
	2020		2019
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 amortization	6,344		5,602
Gain on sale of assets	(8)		(138)
Share-based compensation	1,801		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 expenses	3,258		(2,750)
Deferred credits	(139)		(166)

Other, net	67		211
Net cash provided by operating activities	5,986		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 property	688		—
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 - revolver	54,700		12,625
Payments on credit agreement - revolver	(30,000)		(22,025)
Other, net	—		(78)
Net cash provided by financing activities	14,857		1,436

Increase (decrease) in cash and cash equivalents	8,436		(2,863)
Cash and cash equivalents, beginning of period	3,309		5,025
Cash and cash equivalents, end of period	$	11,745	$	2,162

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 June 30, 2020

(Unaudited) (Dollars in thousands)


	Capital Stock Preferred		Issued Common		Additional 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

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 Common		Additional 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

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.

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, 2020		December 31, 2019
Finished goods	$	16,557	$	16,654
Barreled distillate (bourbons and whiskeys)	113,139		104,249
Raw materials	4,566		4,920
Work in process	2,871		1,766
Maintenance materials	8,615		8,200
Other	1,360		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.

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.

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,
	2020		2019		2020		2019
Distillery Products
Brown goods	$	25,540	$	27,621	$	54,610	$	52,448
White goods	15,042		14,691		31,944		31,873
Premium beverage alcohol	40,582		42,312		86,554		84,321
Industrial alcohol	22,953		20,636		44,571		41,079
Food grade alcohol	63,535		62,948		131,125		125,400
Fuel grade alcohol	1,174		1,398		2,696		2,899
Distillers feed and related co-products	6,781		6,181		13,770		13,276
Warehouse services	3,699		3,496		7,600		7,025
Total Distillery Products	75,189		74,023		155,191		148,600

Ingredient Solutions
Specialty wheat starches	9,122		7,210		19,334		14,090
Specialty wheat proteins	6,013		5,276		12,378		9,718
Commodity wheat starches	1,774		3,013		3,651		5,275
Commodity wheat proteins	462		979		1,088		1,914
Total Ingredient Solutions	17,371		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
Acquisitions	1,739		—		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.

Note 4. Corporate Borrowings

The following table presents the Company’s outstanding indebtedness:


Description^(a)	June 30, 2020		December 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 outstanding	66,010		41,508
Less unamortized loan fees^(b)	(1,477)		(448)
Total indebtedness outstanding, net	64,533		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

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,
	2020		2019		2020		2019
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:


Basic and diluted weighted average common shares^(c)	16,899,079		17,021,599		16,956,502		16,994,864

Basic and diluted EPS	$	0.50	$	0.46	$	1.07	$