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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 September 30, 2022  
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
mgpi-20220930_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.
x Large accelerated filer                                                          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: 
21,994,036 shares of Common Stock, no par value, as of October 28, 2022



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, 9-liter cases, per share, per bushel, per gallon, per proof gallon, per 9-liter case and percentage amounts, are shown in thousands unless otherwise noted.


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 September 30,Year to Date Ended September 30,
 2022202120222021
Sales$201,146 $176,611 $591,363 $459,873 
Cost of sales142,098 119,525 401,270 313,661 
Gross profit59,048 57,086 190,093 146,212 
Advertising and promotion expenses7,279 5,664 18,848 9,888 
Selling, general and administrative expenses17,904 18,527 52,029 55,266 
Other operating (income) expense, net1 11 (34)11 
Operating income33,864 32,884 119,250 81,047 
Interest expense, net(1,350)(1,116)(4,491)(2,708)
Other income (expense), net(1,353)(421)(2,361)(479)
Income before income taxes31,161 31,347 112,398 77,860 
Income tax expense7,533 7,674 26,037 18,701 
Net income23,628 23,673 86,361 59,159 
Net (income) loss attributable to noncontrolling interest180 203 444 279 
Net income attributable to MGP Ingredients, Inc.23,808 23,876 86,805 59,438 
Income attributable to participating securities(188)(175)(688)(471)
Net income used in Earnings Per Common Share calculation$23,620 $23,701 $86,117 $58,967 
Share information:
Basic weighted average common shares22,008,381 21,981,201 22,000,026 20,293,818 
Diluted weighted average common shares22,228,814 21,981,201 22,000,026 20,293,818 
Basic Earnings Per Common Share$1.07 $1.08 $3.91 $2.91 
Diluted Earnings Per Common Share$1.06 $1.08 $3.91 $2.91 

















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 September 30,Year to Date Ended September 30,
 2022202120222021
Net income attributable to MGP Ingredients, Inc. $23,808 $23,876 $86,805 $59,438 
Other comprehensive loss, net of tax:
Unrealized loss on foreign currency translation adjustment(467)(141)(1,116)(134)
Change in Company-sponsored post-employment benefit plan(76)(89)(102)(40)
Other comprehensive loss(543)(230)(1,218)(174)
Comprehensive income attributable to MGP Ingredients, Inc. 23,265 23,646 85,587 59,264 
Comprehensive loss attributable to noncontrolling interest(180)(203)(444)(279)
Comprehensive income$23,085 $23,443 $85,143 $58,985 




































See accompanying notes to unaudited condensed consolidated financial statements

4


       MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 September 30, 2022December 31, 2021
Current Assets  
Cash and cash equivalents$50,674 $21,568 
Receivables (less allowance for credit loss, $175 and $150 at September 30, 2022, and December 31, 2021, respectively)
107,653 92,537 
Inventory275,478 245,944 
Prepaid expenses5,833 1,510 
Refundable income taxes1,006 5,539 
Total current assets440,644 367,098 
Property, plant, and equipment430,945 404,149 
Less accumulated depreciation and amortization(210,254)(196,863)
Property, plant, and equipment, net220,691 207,286 
Operating lease right-of-use assets, net 14,516 9,671 
Investment in joint ventures6,140 4,944 
Intangible assets, net217,285 218,838 
Goodwill226,294 226,294 
Other assets6,505 7,336 
Total assets$1,132,075 $1,041,467 
Current Liabilities  
Current maturities of long-term debt$4,800 $3,227 
Accounts payable64,858 53,712 
Federal and state excise taxes payable4,713 6,992 
Accrued expenses and other26,420 24,869 
Total current liabilities100,791 88,800 
Long-term debt, less current maturities31,105 35,266 
Convertible senior notes195,146 194,906 
Long-term operating lease liabilities11,327 6,997 
Other noncurrent liabilities4,047 5,132 
Deferred income taxes65,799 66,101 
Total liabilities408,215 397,202 
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 23,125,166 shares at September 30, 2022 and December 31, 2021; and 21,993,355 and 21,964,314 shares outstanding at September 30, 2022 and December 31, 2021, respectively
6,715 6,715 
Additional paid-in capital317,541 315,802 
Retained earnings423,063 344,237 
Accumulated other comprehensive income(864)354 
Treasury stock, at cost, 1,131,811 and 1,160,852 shares at September 30, 2022 and December 31, 2021, respectively
(21,665)(22,357)
Total MGP Ingredients, Inc. stockholders’ equity724,794 644,755 
Noncontrolling interest(934)(490)
Total equity723,860 644,265 
Total liabilities and equity$1,132,075 $1,041,467 
See accompanying notes to unaudited condensed consolidated financial statements
5


MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 Year to Date Ended September 30,
 20222021
Cash Flows from Operating Activities  
Net income$86,361 $59,159 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization16,257 13,668 
Share-based compensation3,086 5,247 
Deferred income taxes, including change in valuation allowance(302)465 
Other, net1,462 (231)
Changes in operating assets and liabilities, net of effects of acquisition:  
Receivables, net(15,582)(5,593)
Inventory(30,599)(7,588)
Prepaid expenses1,165 1,206 
Refundable income taxes(1,006)(2,086)
Accounts payable12,613 (6,678)
Accrued expenses and other1,220 15,859 
Federal and state excise taxes payable(2,279)(1,961)
Other, net(143)(682)
Net cash provided by operating activities72,253 70,785 
Cash Flows from Investing Activities  
Additions to property, plant, and equipment(29,217)(37,257)
Purchase of business, net of cash acquired (149,613)
Contributions to equity method investment(2,232)(988)
Other, net(315)(1,308)
Net cash used in investing activities(31,764)(189,166)
Cash Flows from Financing Activities  
Payment of dividends and dividend equivalents(7,984)(7,362)
Purchase of treasury stock(714)(767)
Loan fees paid related to borrowings (666)
Principal payments on long-term debt(2,603)(813)
Proceeds from credit agreement - revolver 242,300 
Payments on credit agreement - revolver (32,300)
Payment on assumed debt as part of the Merger (87,509)
Net cash provided by (used in) financing activities(11,301)112,883 
Effect of exchange rate changes on cash(82)(2)
Increase (decrease) in cash and cash equivalents29,106 (5,500)
Cash and cash equivalents, beginning of period21,568 21,662 
Cash and cash equivalents, end of period$50,674 $16,162 
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 September 30, 2022
(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, 2021
$4 $6,715 $315,802 $344,237 $354 $(22,357)$(490)$644,265 
Comprehensive income:
Net income (loss)   37,437   (66)37,371 
Other comprehensive loss    (232)  (232)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
   (2,661)   (2,661)
Share-based compensation  1,373     1,373 
Stock shares awarded, forfeited or vested  (604)  604   
Stock shares repurchased     (711) (711)
Balance, March 31, 2022
4 6,715 316,571 379,013 122 (22,464)(556)679,405 
Comprehensive income:
Net income (loss)   25,560   (198)25,362 
Other comprehensive loss    (443)  (443)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
   (2,658)   (2,658)
Share-based compensation  1,409     1,409 
Stock shares awarded, forfeited or vested  (740)  740   
Stock shares repurchased     (2) (2)
Balance, June 30, 2022
4 6,715 317,240 401,915 (321)(21,726)(754)703,073 
Comprehensive income:
Net income (loss)   23,808  (180)23,628 
Other comprehensive loss    (543) (543)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
   (2,660)   (2,660)
Share-based compensation  363     363 
Stock shares awarded, forfeited, or vested  (62)  62   
Stock shares repurchased     (1) (1)
Balance, September 30, 2022
$4 $6,715 $317,541 $423,063 $(864)$(21,665)$(934)$723,860 

See accompanying notes to unaudited condensed consolidated financial statements





7


MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For Year to Date Ended September 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 (loss)— — — 20,135 — — (76)20,059 
Other comprehensive income— — — — 1 — — 1 
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
— — — (2,653)— — — (2,653)
Share-based compensation— — 1,538 — — — — 1,538 
Stock shares awarded, forfeited, or vested— — (705)— — 705 — — 
Stock shares repurchased— — — — — (91)— (91)
Equity consideration for Merger— — 296,213 — — — — 296,213 
Balance, June 30, 2021
4 6,715 315,062 293,800 542 (22,469)(76)593,578 
Comprehensive income:
Net income (loss)— — — 23,876 — — (203)23,673 
Other comprehensive loss— — — — (230)— — (230)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures
— — — (2,654)— — — (2,654)
Share-based compensation— — 480 — — — — 480 
Stock shares awarded, forfeited, or vested— — (64)— — 64 — — 
Stock shares repurchased— — — — — (1)— (1)
Equity consideration for Merger— — 65 — — — — 65 
Balance, September 30, 2021
$4 $6,715 $315,543 $315,022 $312 $(22,406)$(279)$614,911 

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,” or “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients. Distilled spirits include premium bourbon and rye whiskeys and grain neutral spirits, including vodka and gin. The Company’s distilled spirits are either packaged and sold under its own brands to distributors, sold, directly or indirectly to manufacturers of other branded spirits, or direct to consumer. 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 consumer packaged goods industry. The Company’s industrial alcohol and ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries. The Company’s distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and milo), and its ingredient products are derived primarily from wheat flour.  
On April 1, 2021, the Company acquired Luxco, Inc. and its affiliated companies (“Luxco”), 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.

The Company reports three operating segments: Distilling Solutions, Branded Spirits and Ingredient Solutions. During 2022, the Company changed the name of its Distillery Products segment to Distilling Solutions. Certain amounts in the 2021 consolidated financial statements have been reclassified to conform to the 2022 presentation.

Basis of Presentation and Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements as of and for the quarter and year to date ended September 30, 2022, should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, 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 a 60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The Company consolidated Dos Primos’ activity on the financial statements and presented the 40 percent non-controlling interest portion on a separate line.

Use of Estimates.  The financial reporting policies of the Company conform to GAAP.  The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  The application of certain of these policies places demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain, inclusive of the effects related to the COVID-19 pandemic.  For all of these policies, management cautions that future events rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment.

9


Immaterial Correction to Prior Period Financial Statements. During the year to date ended September 30, 2022, the Company identified an immaterial correction related to gross amounts of Property, plant and equipment and Accumulated depreciation and amortization in the Condensed Consolidated Balance Sheet as of December 31, 2021. The Company performed a materiality assessment, considering both quantitative and qualitative factors, which resulted in the determination that the correction to the financial statements was immaterial. As such, the Company corrected the December 31, 2021 gross balances for Property, plant, and equipment and Accumulated depreciation and amortization on the Condensed Consolidated Balance Sheet reported in this Form 10-Q by equal and offsetting amounts, which resulted in no change to the balance of Property, plant, and equipment, net.

Inventory.  Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process as well as bottles, caps, and labels used in the bottling process, and certain maintenance and repair items.  Bourbons and whiskeys, included in inventory, 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. Inventory consists of the following:

September 30, 2022December 31, 2021
Finished goods$49,008 $35,362 
Barreled distillate (bourbons and whiskeys)185,681 174,080 
Raw materials27,496 24,981 
Work in process1,581 1,261 
Maintenance materials10,020 9,179 
Other1,692 1,081 
Total$275,478 $245,944 

Revenue Recognition. Revenue is recognized when control of the promised goods or services 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.

The Company’s Distilling Solutions segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers. Even though the aged and unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product. Control is transferred to the customer in bill and hold transactions when: the customer acceptance specifications have been met, legal title has transferred, the customer has a present obligation to pay for the product, and the risk and rewards of ownership have transferred to the customer. Additionally, all of the following bill and hold criteria have to be met in order for control to be transferred to the customer: the reason for the bill and hold arrangement is substantive - the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer.

Warehouse services revenue is recognized over the time that warehouse services are rendered and as they are rendered. This is a faithful depiction of the satisfaction of the performance obligation because control of the aging products has already passed to the customer and there are no additional performance activities required by the Company, except as requested by the customer. The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized. Contract bottling is recognized over the time contract bottling services are rendered and as they are rendered.

10


Sales in the Branded Spirits segment reflect reductions attributable to consideration given to customers in incentive programs, including discounts and allowances for certain volume targets. These allowances and discounts are not for distinct goods and are paid only when the depletion volume targets are achieved by the customer. The amounts reimbursed to customers are determined based on agreed-upon amounts and are recorded as a reduction of revenue.

Excise Taxes. The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau
of the U.S. Treasury Department (the “TTB”) regulations which 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.

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 Common Share (“EPS”).  Basic and diluted EPS is computed using the two-class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings.  Basic EPS amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each period. Diluted EPS is computed using the if-converted method by dividing the net income attributable to common shareholders by the weighted average shares outstanding, inclusive of the impact of the Convertible Senior Notes, except for where the result would be anti-dilutive as of the balance sheet date.

Translation of Foreign Currencies. Assets and liabilities of Niche Drinks Co., Ltd. (“Niche”), a wholly owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the condensed consolidated balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included as a component of 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 value of 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 September 30, 2022, 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.
11


 
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 $178,062 and $272,971 at September 30, 2022 and December 31, 2021, respectively. The financial statement carrying value of total debt was $231,051 (including unamortized loan fees) and $233,399 (including unamortized loan fees) at September 30, 2022 and December 31, 2021, 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, Employee and Non-Employee Benefit Plans. See Note 3, Business Combination, for discussion related to the fair value of tangible and intangible assets acquired and liabilities assumed as part of the merger with Luxco.

Equity Method Investments. The Company holds 50 percent interests in DGL Destiladores, S.de R.L. de C.V. (“DGL”) and Agricola LG, S.de R.L. de C.V. (“Agricola”) (combined “LMX”), which are accounted for as equity method investments since the date of acquisition and are considered affiliates of the Company. The investment in LMX, which is recorded in Investment in joint ventures on the Condensed Consolidated Balance Sheet, was $6,140 and $4,944 at September 30, 2022 and December 31, 2021, respectively. During the quarter ended September 30, 2022 and 2021, the Company recorded a loss of $856 and $405 from our equity method investments, respectively, which is recorded in Other income (expense), net on the Condensed Consolidated Statement of Income. During the year to date ended September 30, 2022 and 2021, the Company recorded a loss of $1,036 and $739 from our equity method investments, respectively, which is recorded in Other (income) expense, net on the Condensed Consolidated Statement of Income. During the quarter and year to date ended September 30, 2022, the Company purchased $8,265 and $28,194, respectively, of bulk beverage alcohol from LMX, and during the quarter and year to date ended September 30, 2021, the Company purchased $8,052 and $19,724, respectively, of bulk beverage alcohol from LMX.

Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended September 30, 2022.

Note 2.  Revenue

The Company generates revenues from the Distilling Solutions segment by the sale of products and by providing warehouse services related to the storage and aging of customer products. The Company generates revenues from the Branded Spirits segment by the sale of products and by providing contract bottling services. The Company generates revenues from Ingredient Solutions segment by the sale of products. Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services and contract bottling services is recognized over time. Contracts with customers include a single performance obligation (either the sale of products, the provision of warehouse services or contract bottling services).

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The following table presents the Company’s sales by segment and major products and services:
Quarter Ended September 30,Year to Date Ended September 30,
2022202120222021
Distilling Solutions
Brown goods$57,423 $42,793 $175,899 $129,600 
White goods20,469 21,187 57,996 56,049 
Premium beverage alcohol77,892 63,980 233,895 185,649 
Industrial alcohol10,761 14,790 35,141 46,896 
Food grade alcohol88,653 78,770 269,036 232,545 
Fuel grade alcohol3,713 3,592 10,307 10,862 
Distillers feed and related co-products9,943 4,016 30,127 13,660 
Warehouse services6,335 4,666 17,821 12,949 
Total Distilling Solutions108,644 91,044 327,291 270,016 
Branded Spirits
Ultra premium13,804 11,363 35,836 19,491 
Super premium3,350 2,798 9,522 6,393 
Premium6,013 5,683 17,928 11,012 
Mid20,834 22,992 63,408 48,399 
Value12,097 12,756 36,304 25,984 
Other6,663 5,969 14,080 11,278 
Total Branded Spirits62,761 61,561 177,078 122,557 
Ingredient Solutions
Specialty wheat starches16,241 12,231 47,445 35,051 
Specialty wheat proteins9,697 8,901 29,225 23,299 
Commodity wheat starches3,803 2,626 10,286 7,572 
Commodity wheat proteins 248 38 1,378 
Total Ingredient Solutions29,741 24,006 86,994 67,300 
Total sales$201,146 $176,611 $591,363 $459,873 

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, Luxco became a wholly owned subsidiary of MGP and is 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 was subject to customary purchase price adjustments related to, among other things, net working capital, acquired cash and assumed debt. The consideration paid at closing included a preliminary estimated purchase price adjustment. In September 2021, the parties finalized the purchase price adjustment, which decreased the cash consideration paid by approximately $608 and increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.

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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 amount transferred in a tax deferred manner, under the tax-free reorganization rules, did not create additional tax basis for the Company. The taxable component of the transaction created additional tax basis and a corresponding future tax deduction for the Company.

Purchase Price Allocation. The Merger was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The following table summarizes the allocation of the consideration paid for Luxco to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.
Consideration:
Cash, net of assumed debt$149,484 
Value of MGP Common Stock issued at close (a)
296,279 
Fair value of total consideration transferred$445,763 
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash $479 
Receivables