mgpi-20230930

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, 2023

☐ 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 every Interactive Data File required to be submitted 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 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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:

22,016,113 shares of Common Stock, no par value, as of October 27, 2023

INDEX


PART I. FINANCIAL INFORMATION			Page

	Item 1.	Financial Statements

	Condensed Consolidated Statements of Income (Unaudited)		3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)		4
	Condensed Consolidated Balance Sheets (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows (Unaudited)		6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)		7
	Notes to Unaudited Condensed Consolidated Financial Statements		9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

	Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	36

	Item 1A.	Risk Factors	36

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

	Item 3.	Defaults Upon Senior Securities	36

	Item 4.	Mine Safety Disclosures	36

	Item 5.	Other Information	37

	Item 6.	Exhibits	37

METHOD OF PRESENTATION

Throughout this Quarterly Report on Form 10-Q (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 Report, for any references to Note 1 through Note 12, 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.

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,
	2023		2022		2023		2022


Sales	$	211,624	$	201,146	$	621,635	$	591,363
Cost of sales	138,176		142,098		402,068		401,270
Gross profit	73,448		59,048		219,567		190,093
Advertising and promotion expenses	9,505		7,279		25,877		18,848
Selling, general, and administrative expenses	21,570		17,905		65,615		51,995
Impairment of long-lived assets and other	18,334		—		18,334		—
Change in fair value of contingent consideration	4,200		—		4,200		—
Operating income	19,839		33,864		105,541		119,250
Interest expense, net	(2,353)		(1,350)		(4,630)		(4,491)
Other income (expense), net	(25)		(1,353)		5		(2,361)
Income before income taxes	17,461		31,161		100,916		112,398
Income tax expense	4,373		7,533		24,832		26,037
Net income	13,088		23,628		76,084		86,361
Net loss attributable to noncontrolling interest	123		180		324		444
Net income attributable to MGP Ingredients, Inc.	13,211		23,808		76,408		86,805
Income attributable to participating securities	(129)		(188)		(760)		(688)

Net income used in earnings per common share calculation	$	13,082	$	23,620	$	75,648	$	86,117

Weighted average common shares
Basic	22,066,159		22,008,381		22,056,270		22,000,026
Diluted	22,381,516		22,228,814		22,207,031		22,000,026

Earnings per common share
Basic	$	0.59	$	1.07	$	3.43	$	3.91
Diluted	$	0.58	$	1.06	$	3.41	$	3.91

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Quarter Ended September 30,				Year to Date Ended September 30,
	2023		2022		2023		2022
Net income attributable to MGP Ingredients, Inc.	$	13,211	$	23,808	$	76,408	$	86,805
Other comprehensive income (loss), net of tax:
Unrealized loss on foreign currency translation adjustment	(317)		(467)		(6)		(1,116)
Change in Company-sponsored post-employment benefit plan	8		(76)		(168)		(102)
Other comprehensive loss	(309)		(543)		(174)		(1,218)

Comprehensive income attributable to MGP Ingredients, Inc.	12,902		23,265		76,234		85,587

Comprehensive loss attributable to noncontrolling interest	(123)		(180)		(324)		(444)
Comprehensive income	$	12,779	$	23,085	$	75,910	$	85,143

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (Dollars in thousands)


	September 30, 2023		December 31, 2022
Current Assets
Cash and cash equivalents	$	28,030	$	47,889
Receivables (less allowance for credit loss, $1,475 at both September 30, 2023, and December 31, 2022)	126,692		109,267
Inventory	342,401		289,722
Prepaid expenses	4,600		2,957
Refundable income taxes	2,193		4,327
Total current assets	503,916		454,162
Property, plant, and equipment	465,746		450,800
Less accumulated depreciation and amortization	(222,497)		(215,168)
Property, plant, and equipment, net	243,249		235,632
Operating lease right-of-use assets, net	15,551		15,042
Investment in joint ventures	5,343		5,534
Intangible assets, net	272,520		216,768
Goodwill	321,544		226,294
Other assets	4,242		4,779
Total assets	$	1,366,365	$	1,158,211
Current Liabilities
Current maturities of long-term debt	$	6,400	$	5,600
Accounts payable	54,403		66,432
Federal and state excise taxes payable	2,719		4,627

Accrued expenses and other	26,586		28,716
Total current liabilities	90,108		105,375
Long-term debt, less current maturities	114,812		29,510
Convertible senior notes	195,465		195,225
Long-term operating lease liabilities	12,606		11,622

Contingent consideration	66,300		—
Other noncurrent liabilities	3,888		3,723
Deferred income taxes	65,000		67,112
Total liabilities	548,179		412,567
Commitments and Contingencies (Note 9)
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, 2023 and December 31, 2022; and 22,015,196 and 21,994,042 shares outstanding at September 30, 2023 and December 31, 2022, respectively	6,715		6,715
Additional paid-in capital	323,129		318,839
Retained earnings	511,480		443,061
Accumulated other comprehensive loss	(478)		(304)
Treasury stock, at cost, 1,109,970 and 1,131,124 shares at September 30, 2023 and December 31, 2022, respectively	(21,260)		(21,591)
Total MGP Ingredients, Inc. stockholders’ equity	819,590		746,724
Noncontrolling interest	(1,404)		(1,080)
Total equity	818,186		745,644
Total liabilities and equity	$	1,366,365	$	1,158,211

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 September 30,
	2023		2022
Cash Flows from Operating Activities
Net income	$	76,084	$	86,361
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,272		16,257

Impairment of long-lived assets and other	18,334		—
Share-based compensation	5,651		3,086
Equity method investment loss	191		1,036
Deferred income taxes, including change in valuation allowance	(2,112)		(302)
Change in fair value of contingent consideration	4,200		—
Other, net	376		426
Changes in operating assets and liabilities, net of effects of acquisition:
Receivables, net	(14,980)		(15,582)
Inventory	(42,015)		(30,599)
Prepaid expenses	(1,517)		1,165
Income taxes payable (refundable)	2,134		(1,006)
Accounts payable	(10,069)		12,613
Accrued expenses and other	(2,471)		1,220
Federal and state excise taxes payable	(1,908)		(2,279)

Other, net	435		(143)
Net cash provided by operating activities	48,605		72,253

Cash Flows from Investing Activities
Additions to property, plant, and equipment	(42,062)		(29,217)

Purchase of business, net of cash acquired	(103,712)		—
Contributions to equity method investment	—		(2,232)

Other, net	(916)		(315)
Net cash used in investing activities	(146,690)		(31,764)

Cash Flows from Financing Activities
Payment of dividends and dividend equivalents	(8,006)		(7,984)
Purchase of treasury stock	(801)		(714)

Proceeds from long-term debt	105,000		—
Principal payments on long-term debt	(18,000)		(2,603)



Net cash provided by (used in) financing activities	78,193		(11,301)

Effect of exchange rate changes on cash and cash equivalents	33		(82)
Increase (decrease) in cash and cash equivalents	(19,859)		29,106
Cash and cash equivalents, beginning of period	47,889		21,568
Cash and cash equivalents, end of period	$	28,030	$	50,674

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 September 30, 2023

(Unaudited)

(Dollars in thousands)


	Capital Stock Preferred		Issued Common		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Treasury Stock		Non-controlling Interest		Total
Balance, December 31, 2022	$	4	$	6,715	$	318,839	$	443,061	$	(304)	$	(21,591)	$	(1,080)	$	745,644
Comprehensive income:
Net income (loss)	—		—		—		31,071		—		—		(39)		31,032
Other comprehensive income	—		—		—		—		68		—		—		68
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	—		—		2,665		—		—		—		—		2,665
Stock shares awarded, forfeited or vested	—		—		(507)		—		—		507		—		—
Stock shares repurchased	—		—		—		—		—		(801)		—		(801)
Balance, March 31, 2023	4		6,715		320,997		471,471		(236)		(21,885)		(1,119)		775,947
Comprehensive income:
Net income (loss)	—		—		—		32,126		—		—		(162)		31,964
Other comprehensive income	—		—		—		—		67		—		—		67
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures	—		—		—		(2,664)		—		—		—		(2,664)
Share-based compensation	—		—		1,808		—		—		—		—		1,808
Stock shares awarded, forfeited or vested	—		—		(538)		—		—		538		—		—


Balance, June 30, 2023	4		6,715		322,267		500,933		(169)		(21,347)		(1,281)		807,122
Comprehensive income:
Net income (loss)	—		—		—		13,211		—				(123)		13,088
Other comprehensive loss	—		—		—		—		(309)				—		(309)
Dividends and dividend equivalents of $0.12 per common share and per restricted stock unit, net of estimated forfeitures	—		—		—		(2,664)		—		—		—		(2,664)
Share-based compensation	—		—		949		—		—		—		—		949
Stock shares awarded, forfeited, or vested	—		—		(87)		—		—		87		—		—


Balance, September 30, 2023	$	4	$	6,715	$	323,129	$	511,480	$	(478)	$	(21,260)	$	(1,404)	$	818,186

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 September 30, 2022

(Unaudited)

(Dollars in thousands)


	Capital Stock Preferred		Issued Common		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Treasury Stock		Non-controlling Interest		Total
Balance, December 31, 2021	$	4	$	6,715	$	315,802	$	344,237	$	354	$	(22,357)	$	(490)	$	644,265
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

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, rye, and other whiskeys and grain neutral spirits (“GNS”), including vodka and gin. The Company’s distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP is also a producer of high quality industrial alcohol for use in both food and non-food applications. The Company has a portfolio of its own high quality branded spirits which are produced through its distilleries and bottling facilities and sold to distributors. The Company’s branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end American whiskey, tequila, and gin. The Company’s protein and starch food ingredients provide a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the consumer packaged goods industry. The ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

On June 1, 2023, the Company acquired Penelope Bourbon LLC (“Penelope”), which, prior to the Company’s acquisition, was a family and founder-owned and operated American whiskey company with a diverse portfolio of high-quality whiskeys in the premium plus price tiers. See Note 3, Business Combination, for further details.

The Company reports three operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. Certain amounts in the 2022 consolidated financial statements have been reclassified to conform to the 2023 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, 2023, should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”). The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

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

The Company holds a 60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The Company consolidated Dos Primos’ activity on the financial statements and presented the 40 percent non-controlling interest portion on a separate line.

Use of Estimates. The financial reporting policies of the Company conform to GAAP. The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The application of certain of these policies places demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain. For all of these policies, management cautions that future events may not 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. Bourbons, ryes, and other whiskeys included in inventory are normally aged in barrels for several years, following industry practice. All barreled bourbon, rye, and other whiskeys are classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs.

Inventories are stated at the lower of cost or net realizable value on the first-in, first-out, or FIFO, method. Inventory valuations are impacted by constantly changing prices paid for key materials, primarily corn. Inventory consists of the following:


	September 30, 2023		December 31, 2022
Finished goods	$	53,160	$	47,073
Barreled distillate (bourbons and other whiskeys)	239,051		199,040
Raw materials	36,319		29,931
Work in process	550		1,645
Maintenance materials	10,528		9,931
Other	2,793		2,102
Total	$	342,401	$	289,722

Revenue Recognition. Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for the performance obligations. The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is generally one year or less.

Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms. This is a faithful depiction of the satisfaction of the performance obligation because, at the point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has a present obligation to pay.

The 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.

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 include making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual U.S. states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its U.S. 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, and that are collected by the Company from a customer, are excluded from revenue and expense.

Income Taxes. The Company accounts for income taxes using an asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized if it is 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. The Company maintains a U.S. bank account denominated in British pound sterling, which is adjusted for the market exchange rate at the reporting period-end. Any impact of the adjustment for the exchange rate applied to the financial asset is reported in other income (expense), net on the Condensed Consolidated Statements of Income.

Business Combinations. Assets acquired and liabilities assumed during a business combination are generally recorded at fair market value as of the acquisition date. Goodwill is recognized to the extent that the purchase consideration, including contingent consideration, exceeds the value of the assets acquired and liabilities assumed. The Company uses its internal estimates and third party valuation specialists to assist in determining the fair value of the assets acquired and liabilities assumed. During the measurement periods, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill.

Goodwill and 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 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 value 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, 2023, the Company determined that goodwill and indefinite-lived intangible assets were not impaired.

Fair Value of Financial Instruments. The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.

The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, 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. Excluding the impact of the conversion feature of the Convertible Senior Notes, the fair value of the Company’s debt was $223,030 and $150,249 at September 30, 2023 and December 31, 2022, respectively. The financial statement carrying value of total debt (net of unamortized loan fees) was $316,677 and $230,335 at September 30, 2023 and December 31, 2022, respectively. These fair values are considered Level 2 under the fair value hierarchy.

The fair value calculation of contingent consideration associated with the acquisition of Penelope uses unobservable inputs, such as estimated net sales over the term of the earn-out period, discount rates, and volatility rates. The contingent consideration is measured using the Monte Carlo simulation approach. The inputs used in the calculation of the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity. See Note 3, Business Combinations, for more information.

Fair value disclosure for deferred compensation plan investments is included in Note 10, Employee and Non-Employee Benefit Plans.

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” and together with DGL, “LMX”), which are accounted for as equity method investments and are considered affiliates of the Company. The investment in LMX, which is recorded in investment in joint ventures on the Condensed Consolidated Balance Sheets, was $5,343 and $5,534 at September 30, 2023 and December 31, 2022, respectively. During the quarters ended September 30, 2023 and 2022, the Company recorded a gain of $388 and a loss of $856, respectively, from its equity method investments, and during the year to date ended September 30, 2023 and 2022, the Company recorded a loss of $191 and $1,036, respectively, which is recorded in other income (expense), net on the Condensed Consolidated Statements of Income. During the quarter and year to date ended September 30, 2023, the Company purchased $10,223 and $30,178, respectively, of finished goods from LMX and bulk beverage alcohol from the other 50 percent owner of DGL. During the quarter and year to date ended September 30, 2022, the Company purchased $8,265 and $28,194, respectively, of finished goods from LMX and bulk beverage alcohol from the other 50 percent owner of DGL.

Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended September 30, 2023.

Note 2. Revenue

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

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


	Quarter Ended September 30,				Year to Date Ended September 30,
	2023		2022		2023		2022
Distilling Solutions
Brown goods	$	73,409	$	57,423	$	214,857	$	175,899
White goods	14,429		20,469		47,199		57,996
Premium beverage alcohol	87,838		77,892		262,056		233,895
Industrial alcohol	9,407		10,761		29,911		35,141
Food grade alcohol	97,245		88,653		291,967		269,036
Fuel grade alcohol	1,509		3,713		5,963		10,307
Distillers feed and related co-products	5,746		9,943		23,053		30,127
Warehouse services	7,353		6,335		20,958		17,821
Total Distilling Solutions	111,853		108,644		341,941		327,291

Branded Spirits
Ultra premium	20,107		13,804		43,594		35,836
Super premium	3,637		3,350		9,614		9,522
Premium	7,099		6,013		20,144		17,928
Premium plus	30,843		23,167		73,352		63,286
Mid	17,650		20,834		55,575		63,408
Value	11,049		12,097		36,048		36,304
Other	7,277		6,663		16,343		14,080
Total Branded Spirits	66,819		62,761		181,318		177,078

Ingredient Solutions
Specialty wheat starches	17,196		16,241		48,977		47,445
Specialty wheat proteins	11,440		9,697		35,918		29,225
Commodity wheat starches	4,226		3,803		12,870		10,286
Commodity wheat proteins	90		—		611		38
Total Ingredient Solutions	32,952		29,741		98,376		86,994

Total sales	$	211,624	$	201,146	$	621,635	$	591,363

Note 3. Business Combination

Description of the Transaction. On May 8, 2023, the Company entered into a definitive agreement to acquire 100 percent of the equity of Penelope, and subsequently completed the acquisition on June 1, 2023 (the “Acquisition”). Penelope, prior to the Acquisition, was a family and founder-owned and operated American whiskey company with a diverse portfolio of high-quality whiskeys in the premium plus price tiers. As a result of the Acquisition, the Company enhances its presence in the growing American whiskey category and expands its portfolio of premium plus price tier brands.

Following the Acquisition, Penelope became a wholly owned subsidiary of the Company and its financial results are included within the Branded Spirits segment. The aggregate consideration paid by the Company in connection with the Acquisition was $105,000 in cash paid at closing, with further additional potential earn-out consideration of up to a maximum cash payout of $110,800 if certain performance conditions, measured through December 31, 2025, are met. The consideration is subject to customary purchase price adjustments related to, among other things, net working capital and acquired cash. The consideration paid at closing included a preliminary estimated purchase price adjustment. During the quarter ended September 30, 2023, the Company finalized the net working capital adjustments, which decreased the cash consideration from $105,000 at closing to $104,638 at September 30, 2023. The cash portion of the consideration and transaction-related expenses were paid using both cash on hand and borrowings under the Company’s existing credit agreement. See Note 6, Corporate Borrowings, for further details.

For tax purposes, the Acquisition was structured as an asset purchase which created additional tax basis in the assets acquired as a result of valuing the assets at fair market value and the purchase price will be accounted for in accordance with U.S. federal tax law. Indefinite-lived intangible assets and goodwill is expected to be deductible for U.S. income tax purposes.

The Acquisition was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”). 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.

Purchase Price Allocation. The following table summarizes the preliminary allocation of the consideration paid for Penelope 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	$	104,638
Contingent consideration	62,100
Fair value of total consideration transferred	$	166,738

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	926
Receivables	2,323
Inventory	12,454
Prepaid expenses and other assets	77
Property, plant and equipment, net	253
Intangible assets (a)	57,700
Operating lease right-of-use assets, net	426
Other assets	44
Total assets	74,203
Accounts payable	2,242
Accrued expenses and other	205
Long-term operating lease liabilities	268
Total liabilities	2,715
Goodwill	95,250
Total	$	166,738

(a) Intangible assets acquired included trade names with an estimated fair value of $34,000 and distributor relationships with an estimated fair value of $23,700.

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 comparables, among others. The fair value of work-in-process and finished goods inventory was determined using the comparative sales method and raw materials was determined using the replacement cost method.

Goodwill of $95,250, all of which is expected to be deductible for tax purposes, represents the excess of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed. The intangible assets acquired included indefinite-lived intangible assets, trade names, which have an estimated fair value of $34,000, and definite-lived intangible assets, distributor relationships, which have an estimated fair value of $23,700 and a useful life of 20 years. The trade names and distributor relationships acquired by the Company have been recorded at estimated fair values using the relief from royalty method and multi-period excess earnings method, respectively. Management engaged a third party valuation specialist to assist in the valuation analysis of certain acquired assets including trade names and distributor relationships.

The operating results of Penelope have been included in the Company’s condensed consolidated financial statements since the June 1, 2023 acquisition date. The operating results and pro forma results are not disclosed due to the immaterial impact to the Company’s Condensed Consolidated Statements of Income.

During the quarter and year to date ended September 30, 2023, the Company incurred $314 and $1,814 of costs related to the Acquisition, which are included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Income.

Contingent Consideration. The estimated fair value of the contingent consideration obligation at the Acquisition date was $62,100, which was determined using a Monte Carlo simulation approach. This approach requires significant assumptions, including projected net sales, discount rates, and volatility rates. The inputs used in the calculation of the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity. The contingent consideration liability is measured on a quarterly basis and recorded at fair value. The changes in fair value of the obligation resulted from changes in the key assumptions between measurement dates, such as projected net sales, discount rates, and volatility rates. During the quarter ended September 30, 2023 there was a $4,200 adjustment to the fair value measurement of the contingent consideration obligation. The amount payable is based upon achievement of certain net sales targets between the Acquisition date and December 31, 2025. The possible payments range from zero to a maximum payout of $110,800.

Note 4. Goodwill and Intangible Assets

Definite-Lived Intangible Assets. The Company acquired definite-lived intangible assets in connection with various acquisitions of businesses. The distributor relationships have a carrying value of $59,530, net of accumulated amortization of $5,570. The distributor relationships have a useful life of 20 years. The amortization expense for the quarter and year to date ended September 30, 2023 was $820 and $1,948, respectively. The amortization expense for the quarter and year to date ended September 30, 2022 was $518 and $1,553, respectively.

As of September 30, 2023, the expected future amortization expense related to definite-lived intangible assets is as follows:


Remainder of 2023	$	813
2024	3,255
2025	3,255
2026	3,255
2027	3,255
Thereafter	45,697
Total	$	59,530

Goodwill and Indefinite-Lived Intangible Assets. The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units.

Changes in carrying amount of goodwill by business segment were as follows:


	Distilling Solutions		Branded Spirits		Ingredient Solutions		Total
Balance, December 31, 2022	$	—	$	226,294	$	—	$	226,294
Acquisitions	—		95,250		—		95,250
Balance, September 30, 2023	$	—	$	321,544	$	—	$	321,544

Changes in carrying amount of trade name intangible assets by business segment were as follows:


	Distilling Solutions		Branded Spirits		Ingredient Solutions		Total
Balance, December 31, 2022	$	—	$	178,990	$	—	$	178,990
Acquisitions	—		34,000		—		34,000
Balance, September 30, 2023	$	—	$	212,990	$	—	$	212,990

Note 5. Planned Closure of the Atchison Distillery

On July 13, 2023, the Company announced the decision by its Board of Directors to approve the closure of the Company’s distillery located in Atchison, Kansas (the “Atchison Distillery”). The anticipated closure date is January 2024. The decision to

close the Atchison Distillery is consistent with the Company’s plan to address profitability headwinds associated with its GNS and industrial alcohol products within the Distilling Solutions segment. As a result of the decision to close the Atchison Distillery, the Company, with the assistance of a third-party valuation specialist, completed a fair value analysis of the assets associated with the Atchison Distillery during the quarter ended September 30, 2023. The fair value of the assets associated with the Atchison Distillery were determined using a combination of the cost and market approach. During the quarter and year to date ended September 30, 2023, the Company recorded a $17,112 impairment of assets, which was recorded in impairment of long-lived assets and other on the Condensed Consolidated Statement of Income. The impaired assets were recorded within the Distilling Solution segment.

Additionally, the Company recorded $1,222 of expenses related to severance costs, contract termination fees, and consulting fees, which were recorded in impairment of long-lived assets and other on the Condensed Consolidated Statement of Income for the quarter and year to date ended September 30, 2023.

Note 6. Corporate Borrowings

The following table presents the Company’s outstanding indebtedness:


Description(a)	September 30, 2023		December 31, 2022
Credit Agreement - Revolver, 6.42% (variable rate) due 2026	$	91,000	$	—
Convertible Senior Notes, 1.88% (fixed rate) due 2041	201,250		201,250

Note Purchase Agreement
Series A Senior Secured Notes, 3.53% (fixed rate) due 2027	12,800		15,200
Senior Secured Notes, 3.80% (fixed rate) due 2029	18,400		20,000

Total indebtedness outstanding	323,450		236,450
Less unamortized loan fees(b)	(6,773)		(6,115)
Total indebtedness outstanding, net	316,677		230,335
Less current maturities of long-term debt	(6,400)		(5,600)
Long-term debt	$	310,277	$	224,735

(a) Interest rates are as of September 30, 2023.

(b) Loan fees are being amortized over the life of the debt instruments.

Credit Agreement. On February 14, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with multiple participants led by Wells Fargo Bank, National Association (“Wells Fargo Bank”) that matures on March 14, 2026. The Credit Agreement provided for a $300,000 revolving credit facility. On May 14, 2021, the Credit Agreement was amended to increase the principal amount available to $400,000 and to permit the Company, subject to obtaining lender approval, to increase the amount of the revolving credit facility by up to an additional $100,000. On August 31, 2022, the Credit Agreement was amended to change the interest rate benchmark from LIBOR to SOFR. The Credit Agreement includes certain requirements and covenants with which the Company was in compliance at September 30, 2023. Part of the cash portion of the consideration paid to acquire Penelope and transaction-related expenses were financed with $105,000 borrowings under the Credit Agreement. As of September 30, 2023, the Company had $91,000 outstanding borrowings under the Credit Agreement, leaving $309,000 available.

Convertible Senior Notes. On November 16, 2021, the Company issued $201,250 in aggregate principal amount of 1.88% convertible senior notes due in 2041 (the “2041 Notes”). The 2041 Notes were issued pursuant to an indenture, dated as of November 16, 2021 (the “Indenture”), by and among the Company, as issuer, Luxco, Inc., MGPI Processing, Inc., and MGPI of Indiana, LLC, as subsidiary guarantors, and U.S. Bank National Association, as trustee. The 2041 Notes are senior, unsecured obligations of the Company and interest is payable semi-annually in arrears at a fixed interest rate of 1.88% on May 15 and November 15 of each year. The 2041 Notes mature on November 15, 2041 unless earlier repurchased, redeemed, or converted, per the terms of the Indenture. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2041 Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2041 Notes being converted.

Note Purchase Agreements. The Company’s Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc. (“Prudential”), an affiliate of Prudential Financial, Inc., and certain affiliates of Prudential, provides for the issuance of $20,000 of Series A Senior Secured Notes and the issuance of up to $105,000 of additional Senior Secured Notes (or any higher amount solely to the extent Prudential has provided written notice to the Company of its authorization of such a

higher amount). Effective August 23, 2023, the Note Purchase Agreement was amended to increase the total amount of Senior Secured Notes that may be issued under the facility of the Note Purchase Agreement to $250,000. Additionally, the period for issuing senior secured promissory notes under the Note Purchase Agreement was extended from August 23, 2023 to August 31, 2026.

During 2017, the Company issued $20,000 of Series A Senior Secured Notes with a maturity date of August 23, 2027. During 2019, the Company issued $20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029. The Note Purchase Agreement includes certain requirements and covenants with which the Company was in compliance at September 30, 2023. As of September 30, 2023, the Company had $12,800 of Series A Senior Secured Notes and $18,400 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $218,800 available under the Note Purchase Agreement.

Note 7. Income Taxes

The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The Company’s quarterly effective tax rate can be subject to significant change due to the effect of discrete items arising in a given quarter. Beginning in the second quarter of 2023, the estimated annual tax rate includes the U.S. entity acquired in the Penelope Acquisition.

Income tax expense for the quarter and year to date ended September 30, 2023 was $4,373 and $24,832, respectively, for an effective tax rate of 25.0 percent and 24.6 percent, respectively. The effective tax rate for the quarter and year to date ended September 30, 2023 differed from the 21 percent U.S. federal statutory rate on pretax income primarily due to state income taxes and income taxes on foreign subsidiaries, partially offset by U.S. state and federal tax credits and the deduction applicable to export activity. As a result of the planned closure of the Atchison Distillery, the Company incurred impairment expenses (see Note 5 for more details on the planned closure). For the quarter ended September 30, 2023, the impairment had an immaterial impact on the effective tax rate; however, it did result in a reduced income tax expense due to the decrease in income before income taxes when using the estimated annual effective rate calculation.

Income tax expense for the quarter and year to date ended September 30, 2022 was $7,533 and $26,037, respectively, for an effective tax rate of 24.2 percent and 23.2 percent, respectively. The effective tax rate for the quarter and year to date ended September 30, 2022 differed from the 21 percent U.S. federal statutory rate on pretax income primarily due to state and foreign income taxes, partially offset by state and federal tax credits, and the deduction applicable to export activity. The increase in income tax expense for the year to date ended September 30, 2022 was primarily due to higher income before income taxes as compared to the prior year periods.

Note 8. Equity and EPS

The following table presents computations of basic and diluted EPS:


	Quarter Ended September 30,				Year to Date Ended September 30,
	2023		2022		2023		2022
Operations:
Net income(a)	$	13,088	$	23,628	$	76,084	$	86,361
Net loss attributable to noncontrolling interest	123		180		324		444
Income attributable to participating securities (unvested shares and units)(b)	(129)		(188)		(760)		(688)
Net income used in EPS calculation	$	13,082	$	23,620	$	75,648	$	86,117

Share information:
Basic weighted average common shares(c)	22,066,159		22,008,381		22,056,270		22,000,026

Diluted weighted average common shares(d)	22,381,516		22,228,814		22,207,031		22,000,026

Basic EPS	$	0.59	$	1.07	$	3.43	$	3.91
Diluted EPS	$	0.58	$	1.06	$	3.41	$	3.91

(a)Net income attributable to all stockholders.

(b)Participating securities included 226,410 and 176,398 unvested restricted stock units (“RSUs”) at September 30, 2023 and 2022, respectively.

(c)Under the two-class method, basic weighted average common shares exclude unvested participating securities.

(d)The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares if the inclusion was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market price per share during the quarter and year to date period exceeds the conversion price of $96.24 per share.

Common Stock Share Activity. The following table presents the Company’s share activity:


	Shares Outstanding
	Capital Stock Preferred	Common Stock
Balance, December 31, 2022	437	21,994,042
Issuance of Common Stock	—	23,324
Repurchase of Common Stock (a)	—	(8,437)
Balance, March 31, 2023	437	22,008,929
Issuance of Common Stock	—	5,445
Repurchase of Common Stock(a)	—	—
Balance, June 30, 2023	437	22,014,374
Issuance of Common Stock	—	822
Repurchase of Common Stock(a)	—	—
Balance, September 30, 2023	437	22,015,196


	Shares Outstanding
	Capital Stock Preferred	Common Stock
Balance, December 31, 2021	437	21,964,314
Issuance of Common Stock	—	29,807
Repurchase of Common Stock (a)	—	(9,021)
Balance, March 31, 2022	437	21,985,100
Issuance of Common Stock	—	7,655
Repurchase of Common Stock(a)	—	(4)
Balance, June 30, 2022	437	21,992,751
Issuance of Common Stock	—	606
Repurchase of Common Stock(a)	—	(2)
Balance, September 30, 2022	437	21,993,355

(a)The Common Stock repurchases were for tax withholding on equity-based compensation.

Note 9. Commitments and Contingencies

The Company and its subsidiaries are, from time to time, a party to legal and regulatory proceedings arising in the ordinary course of its business. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated.

Note 10. Employee and Non-Employee Benefit Plans

Share-Based Compensation Plans. The Company’s share-based compensation plans provide for the awarding of stock options, stock appreciation rights, shares of restricted stock, and RSUs for senior executives and other employees, as well as non-employee directors. The Company currently has two active equity-based compensation plans: the 2014 Equity Incentive Plan (as amended, the “2014 Plan”) and the 2014 Non-Employee Director Equity Incentive Plan (the “Directors’ Plan”).

As of September 30, 2023, 658,081 RSUs had been granted from the 1,500,000 shares approved under the 2014 Plan, and 138,662 shares had been granted from the 300,000 shares approved under the Directors’ Plan. As of September 30, 2023, there were 226,410 unvested RSUs under the Company’s long-term incentive plans, all of which were participating securities (see Note 8).

Deferred Compensation Plan. The Company established an unfunded Executive Deferred Compensation Plan (the “EDC Plan”) effective June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation. The Company’s obligations under the EDC Plan change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the EDC Plan. Realized and unrealized gains (losses) on deferred compensation plan investments were included as a component of other income (expense), net on the Company’s Condensed Consolidated Statements of Income. For the quarter and year to date ended September 30, 2023, the Company had a loss on deferred compensation plan investments of $118 and a gain on deferred compensation plan investments of $272, respectively. For the quarter and year to date ended September 30, 2022, the Company had a loss on deferred compensation plan investments of $103 and $931, respectively.

EDC Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Participants were able to direct the deferral of a portion of their base salary and a portion of their estimated accrued short-term incentive plan (“STI Plan”) amounts that were paid during the first quarter of the following year. Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options. STI Plan deferral amounts are deposited, at the time of payment, into the EDC Plan by the Company and allocated by participants among Company-determined investment options.

At September 30, 2023 and December 31, 2022, the EDC Plan investments were $2,878 and $2,176, respectively, which were recorded in other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were $650 and $510 at September 30, 2023 and December 31, 2022, respectively, which were included in accrued expenses and other on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan non-current liabilities were $2,615 and $2,191 at September 30, 2023 and December 31, 2022, respectively, and were included in other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets.

Note 11. Operating Segments

At September 30, 2023, the Company had three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. The Distilling Solutions segment consists of food grade alcohol and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry) and fuel grade alcohol. The Distilling Solutions segment also includes warehouse services, such as barrel put away, barrel storage, and barrel retrieval services. The Branded Spirits segment consists of a portfolio of high quality branded spirits which are produced through the distilleries and bottling facilities. The Ingredient Solutions segment consists of specialty starches and proteins and commodity starches and proteins.

Operating profit for each segment is based on sales less identifiable operating expenses. Non-direct selling, general, and administrative expenses, interest expense, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, property, plant and equipment, leases, goodwill, and intangible assets have been identified with the segments to which they relate. All other assets are considered as Corporate.

The following table presents summarized financial information for each segment:


	Quarter Ended September 30,				Year to Date Ended September 30,
	2023		2022		2023		2022
Sales to Customers
Distilling Solutions	$	111,853	$	108,644	$	341,941	$	327,291
Branded Spirits	66,819		62,761		181,318		177,078
Ingredient Solutions	32,952		29,741		98,376		86,994
Total	$	211,624	$	201,146	$	621,635	$	591,363

Gross Profit
Distilling Solutions	$	33,280	$	25,917	$	104,986	$	94,630
Branded Spirits	29,040		25,067		79,636		70,809
Ingredient Solutions	11,128		8,064		34,945		24,654
Total	$	73,448	$	59,048	$	219,567	$	190,093

Depreciation and Amortization
Distilling Solutions	$	3,082	$	2,929	$	8,803	$	8,716
Branded Spirits	1,914		1,434		5,063		4,618
Ingredient Solutions	619		613		1,899		1,838
Corporate	167		357		507		1,085
Total	$	5,782	$	5,333	$	16,272	$	16,257

Income (loss) before Income Taxes
Distilling Solutions	$	13,930	$	25,213	$	84,187	$	92,332
Branded Spirits	7,199		9,776		25,577		28,016
Ingredient Solutions	9,408		6,822		30,255		21,770
Corporate	(13,076)		(10,650)		(39,103)