MGP Ingredients(MGPI) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for MGP Ingredients, Inc., including statements of income, comprehensive income, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes on accounting policies, business combinations, debt, and segment information Condensed Consolidated Statements of Income (Unaudited) Condensed Consolidated Statements of Income (Unaudited) - Quarter Ended June 30: | Metric | Q2 2023 ($ thousands) | Q2 2022 ($ thousands) | | :--- | :--- | :--- | | Sales | 209,001 | 194,982 | | Gross profit | 76,295 | 59,224 | | Operating income | 44,143 | 35,306 | | Net income attributable to MGP Ingredients, Inc. | 32,126 | 25,560 | | Basic EPS | 1.44 | 1.15 | | Diluted EPS | 1.44 | 1.15 | Condensed Consolidated Statements of Income (Unaudited) - Year to Date Ended June 30: | Metric | YTD 2023 ($ thousands) | YTD 2022 ($ thousands) | | :--- | :--- | :--- | | Sales | 410,011 | 390,217 | | Gross profit | 146,119 | 131,045 | | Operating income | 85,702 | 85,386 | | Net income attributable to MGP Ingredients, Inc. | 63,197 | 62,997 | | Basic EPS | 2.84 | 2.84 | | Diluted EPS | 2.83 | 2.84 | Condensed Consolidated Statements of Comprehensive Income (Unaudited) Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Quarter Ended June 30: | Metric | Q2 2023 ($ thousands) | Q2 2022 ($ thousands) | | :--- | :--- | :--- | | Net income attributable to MGP Ingredients, Inc. | 32,126 | 25,560 | | Other comprehensive income (loss) | 67 | (443) | | Comprehensive income attributable to MGP Ingredients, Inc. | 32,193 | 25,117 | | Comprehensive income | 32,031 | 24,919 | Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Year to Date Ended June 30: | Metric | YTD 2023 ($ thousands) | YTD 2022 ($ thousands) | | :--- | :--- | :--- | | Net income attributable to MGP Ingredients, Inc. | 63,197 | 62,997 | | Other comprehensive income (loss) | 135 | (675) | | Comprehensive income attributable to MGP Ingredients, Inc. | 63,332 | 62,322 | | Comprehensive income | 63,131 | 62,058 | Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheets (Unaudited): | Metric | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Total current assets | 520,849 | 454,162 | | Total assets | 1,395,129 | 1,158,211 | | Total current liabilities | 118,651 | 105,375 | | Total liabilities | 588,007 | 412,567 | | Total equity | 807,122 | 745,644 | Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows (Unaudited) - Year to Date Ended June 30: | Metric | YTD 2023 ($ thousands) | YTD 2022 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 20,156 | 43,019 | | Net cash used in investing activities | (135,589) | (19,484) | | Net cash provided by (used in) financing activities | 89,462 | (7,649) | | Increase (decrease) in cash and cash equivalents | (25,930) | 15,847 | | Cash and cash equivalents, end of period | 21,959 | 37,415 | Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - Total MGP Ingredients, Inc. stockholders' equity increased from $745,644 thousand at December 31, 2022, to $808,403 thousand at June 30, 2023, driven by net income and share-based compensation, partially offset by dividends and treasury stock repurchases[21] - For the year to date ended June 30, 2023, net income contributed $63,197 thousand to equity, while dividends and dividend equivalents resulted in a reduction of $5,325 thousand[21][19] Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Accounting Policies and Basis of Presentation This note outlines MGP Ingredients, Inc.'s core business segments and details key accounting policies for financial statement presentation, including inventory, revenue, income taxes, and business combinations - MGP Ingredients, Inc. operates in three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions[27] - On June 1, 2023, the Company acquired Penelope Bourbon LLC, enhancing its presence in the premium plus American whiskey category[26][54] Inventory Composition (in thousands): | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Finished goods | $56,807 | $47,073 | | Barreled distillate | $234,566 | $199,040 | | Raw materials | $37,200 | $29,931 | | Total | $343,826 | $289,722 | Note 2. Revenue This note details the Company's revenue recognition policies and disaggregates sales across its Distilling Solutions, Branded Spirits, and Ingredient Solutions segments - Revenue from product sales is recognized at the point of delivery when control transfers to the customer, while revenue from warehouse and contract bottling services is recognized over time as services are rendered[34][36][51] Sales by Segment - Quarter Ended June 30 (in thousands): | Segment | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Distilling Solutions | $116,865 | $107,138 | | Branded Spirits | $57,616 | $58,566 | | Ingredient Solutions | $34,520 | $29,278 | | Total Sales | $209,001 | $194,982 | Sales by Segment - Year to Date Ended June 30 (in thousands): | Segment | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | | Distilling Solutions | $230,088 | $218,647 | | Branded Spirits | $114,499 | $114,317 | | Ingredient Solutions | $65,424 | $57,253 | | Total Sales | $410,011 | $390,217 | Note 3. Business Combination This note details the June 1, 2023, acquisition of Penelope Bourbon LLC, including the cash consideration, potential earn-out, and preliminary purchase price allocation for goodwill and intangible assets - MGP acquired Penelope Bourbon LLC on June 1, 2023, for $105,000 thousand in cash, plus potential earn-out consideration up to $110,800 thousand[54][55] - The acquisition resulted in $99,419 thousand in goodwill and $55,800 thousand in identifiable intangible assets, including trade names ($33,700 thousand) and distributor relationships ($22,100 thousand)[60][62] - The estimated fair value of the contingent consideration obligation at acquisition was $63,900 thousand, determined using a Monte Carlo simulation with Level 3 unobservable inputs[60][65] Note 4. Goodwill and Intangible Assets This note details definite-lived intangible assets, primarily distributor relationships, and outlines changes in goodwill and indefinite-lived intangible assets, significantly impacted by the Penelope acquisition - Definite-lived intangible assets, primarily distributor relationships, have a carrying value of $58,750 thousand (net of $4,750 thousand accumulated amortization) and a useful life of 20 years[66][67] Changes in Goodwill by Business Segment (in thousands): | Segment | December 31, 2022 | Acquisitions | June 30, 2023 | | :--- | :--- | :--- | :--- | | Branded Spirits | $226,294 | $99,419 | $325,713 | | Total | $226,294 | $99,419 | $325,713 | Changes in Trade Name Intangible Assets by Business Segment (in thousands): | Segment | December 31, 2022 | Acquisitions | June 30, 2023 | | :--- | :--- | :--- | :--- | | Branded Spirits | $178,990 | $33,700 | $212,690 | | Total | $178,990 | $33,700 | $212,690 | Note 5. Corporate Borrowings This note details the Company's increased outstanding indebtedness, including revolver draws for the Penelope acquisition, Convertible Senior Notes, and Senior Secured Notes, confirming compliance with debt covenants Outstanding Indebtedness (in thousands): | Description | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Credit Agreement - Revolver | $98,000 | $— | | Convertible Senior Notes | $201,250 | $201,250 | | Note Purchase Agreement (Series A & Senior Secured Notes) | $32,800 | $35,200 | | Total indebtedness outstanding | $332,050 | $236,450 | - The Company utilized $105,000 thousand from its Credit Agreement revolver to finance the Penelope acquisition, resulting in $98,000 thousand outstanding borrowings as of June 30, 2023, with $302,000 thousand still available[71] - MGP has $201,250 thousand in 1.88% Convertible Senior Notes due 2041 and $32,800 thousand in Senior Secured Notes under a Note Purchase Agreement, with $120,000 thousand available under the shelf facility[72][74] Note 6. Income Taxes This note details the Company's income tax expense and effective tax rates, noting an increase in 2023 primarily due to higher income before taxes and lower tax credits Income Tax Expense and Effective Tax Rate: | Period | Income Tax Expense ($ thousands) | Effective Tax Rate | | :--- | :--- | :--- | | Q2 2023 | $10,804 | 25.3% | | Q2 2022 | $7,339 | 22.4% | | YTD 2023 | $20,459 | 24.5% | | YTD 2022 | $18,504 | 22.8% | - The increase in the effective tax rate for both the quarter and year-to-date periods in 2023 compared to 2022 was primarily driven by higher income before income taxes and lower tax credits, partially offset by state income taxes and foreign subsidiary income taxes[76][77] Note 7. Equity and EPS This note presents basic and diluted EPS computations, showing an increase in Q2 2023 EPS and a slight year-to-date diluted EPS decrease due to Convertible Senior Notes Earnings Per Common Share (EPS): | Period | Basic EPS | Diluted EPS | | :--- | :--- | :--- | | Q2 2023 | $1.44 | $1.44 | | Q2 2022 | $1.15 | $1.15 | | YTD 2023 | $2.84 | $2.83 | | YTD 2022 | $2.84 | $2.84 | - Diluted EPS for YTD 2023 was slightly lower than YTD 2022 due to the dilutive impact of the Convertible Senior Notes, as the average market price per share exceeded the conversion price of $96.24[80] - Common shares outstanding increased from 21,994,042 at December 31, 2022, to 22,014,374 at June 30, 2023, reflecting issuance of common stock and repurchases for tax withholding on equity-based compensation[82] Note 8. Commitments and Contingencies This note briefly states that the Company is involved in various legal and regulatory proceedings and accrues estimated costs for contingencies when a loss is probable and can be reasonably estimated - The Company accrues estimated costs for contingencies when management believes a loss is probable and can be reasonably estimated, related to various legal and regulatory proceedings[83] Note 9. Employee and Non-Employee Benefit Plans This note describes the Company's share-based compensation plans and the Executive Deferred Compensation Plan, detailing unvested RSUs and EDC plan investment gains - As of June 30, 2023, 226,684 unvested RSUs were outstanding under the Company's long-term incentive plans[85] - The Executive Deferred Compensation Plan (EDC Plan) generated a gain on investments of $211 thousand for Q2 2023 and $390 thousand year-to-date, compared to losses in the prior year[86] EDC Plan Investments and Liabilities (in thousands): | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | EDC Plan investments (Other assets) | $2,979 | $2,176 | | EDC Plan current liabilities (Accrued expenses and other) | $650 | $510 | | EDC Plan non-current liabilities (Other noncurrent liabilities) | $2,621 | $2,191 | Note 10. Operating Segments This note details the Company's three operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions, providing summarized financial information including sales and gross profit - The Company operates through three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions, with Corporate covering non-direct expenses[89][90] Sales to Customers by Segment - Quarter Ended June 30 (in thousands): | Segment | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Distilling Solutions | $116,865 | $107,138 | | Branded Spirits | $57,616 | $58,566 | | Ingredient Solutions | $34,520 | $29,278 | | Total | $209,001 | $194,982 | Gross Profit by Segment - Quarter Ended June 30 (in thousands): | Segment | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Distilling Solutions | $38,678 | $29,780 | | Branded Spirits | $26,003 | $20,960 | | Ingredient Solutions | $11,614 | $8,484 | | Total | $76,295 | $59,224 | Note 11. Subsequent Events This note discloses a quarterly dividend declaration and the Board's approval to close the Atchison, Kansas distillery by January 2024, with expected pre-tax charges - On August 3, 2023, a quarterly dividend of $0.12 per share and per RSU was announced, payable September 1, 2023[93] - The Company's Board of Directors approved the closure of the Atchison, Kansas distillery, anticipated by January 2024, with expected pre-tax charges of $23,000 to $31,000 thousand in 2023[94][98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, discussing consolidated and segment-specific results for the quarter and year-to-date periods ended June 30, 2023, compared to 2022. It also covers recent developments, liquidity, cash flows, and capital spending, highlighting the impact of the Penelope acquisition and the planned Atchison distillery closure CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS - The report contains forward-looking statements regarding industry prospects, financial plans, and strategic initiatives, including the Atchison distillery closure, capital expenditures, and liquidity, which are subject to risks and uncertainties[95][96] RECENT DEVELOPMENTS - The Company completed the acquisition of Penelope Bourbon LLC on June 1, 2023, expanding its premium plus American whiskey portfolio[97] - The Board approved the closure of the Atchison, Kansas distillery by January 2024 to address profitability challenges in grain neutral spirits and industrial alcohol products, with expected pre-tax charges of $23,000 to $31,000 thousand in 2023[98] OVERVIEW - MGP is a leading producer and supplier of premium distilled spirits (bourbon, rye, GNS), branded spirits (value to ultra-premium), and food ingredients (protein and starch) for consumer packaged goods[99] RESULTS OF OPERATIONS This section analyzes the Company's consolidated financial performance, including sales, gross profit, operating income, and net income, for the quarter and year-to-date periods Consolidated Results (Quarter Ended June 30) Consolidated sales increased 7% to $209,001 thousand in Q2 2023, with gross profit up 29% to $76,295 thousand, and net income growing 26% to $31,964 thousand Consolidated Financial Highlights - Quarter Ended June 30 (in thousands, except percentages): | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $209,001 | $194,982 | 7% | | Gross profit | $76,295 | $59,224 | 29% | | Gross margin % | 36.5% | 30.4% | +6.1 pp | | Operating income | $44,143 | $35,306 | 25% | | Net income | $31,964 | $25,362 | 26% | | Basic/Diluted EPS | $1.44 | $1.15 | 25% | | Advertising and promotion expenses | $8,639 | $6,065 | 42% | | SG&A expenses | $23,513 | $17,853 | 32% | - The increase in operating income was primarily due to higher gross profit across all segments, partially offset by increased advertising and promotion expenses (up 42%) and SG&A expenses (up 32%), including Penelope acquisition costs[104][105][107][108] Consolidated Results (Year to Date Ended June 30) Year-to-date consolidated sales increased 5% to $410,011 thousand, gross profit grew 12% to $146,119 thousand, while operating income and net income remained stable Consolidated Financial Highlights - Year to Date Ended June 30 (in thousands, except percentages): | Metric | YTD 2023 | YTD 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $410,011 | $390,217 | 5% | | Gross profit | $146,119 | $131,045 | 12% | | Gross margin % | 35.6% | 33.6% | +2.0 pp | | Operating income | $85,702 | $85,386 | —% | | Net income | $62,996 | $62,733 | —% | | Basic EPS | $2.84 | $2.84 | —% | | Diluted EPS | $2.83 | $2.84 | —% | | Advertising and promotion expenses | $16,372 | $11,569 | 42% | | SG&A expenses | $44,045 | $34,090 | 29% | - Operating income remained flat year-over-year despite increased gross profit, primarily due to a 42% increase in advertising and promotion expenses and a 29% rise in SG&A expenses, including business acquisition costs[114][115][116][117] SEGMENT RESULTS This section provides a detailed analysis of the financial performance for each of the Company's operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions Distilling Solutions Distilling Solutions sales increased 9% to $116,865 thousand in Q2 2023, with gross profit up 30% to $38,678 thousand, driven by brown goods and warehouse services Distilling Solutions Sales - Quarter Ended June 30 (in thousands): | Product/Service | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Brown goods | $73,124 | $56,331 | 30% | | White goods | $16,816 | $17,441 | (4)% | | Industrial alcohol | $10,065 | $12,885 | (22)% | | Warehouse services | $6,747 | $5,902 | 14% | | Total Distilling Solutions | $116,865 | $107,138 | 9% | Distilling Solutions Gross Profit - Quarter Ended June 30 (in thousands): | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Gross profit | $38,678 | $29,780 | 30% | | Gross margin % | 33.1% | 27.8% | +5.3 pp | - Year-to-date sales for Distilling Solutions increased 5% to $230,088 thousand, primarily from brown goods and warehouse services, while gross profit increased 4% to $71,706 thousand, with gross margin slightly decreasing to 31.2% due to higher input costs[129][131][132] Branded Spirits Branded Spirits sales decreased 2% to $57,616 thousand in Q2 2023, despite a 52% rise in ultra-premium sales, while gross profit increased 24% to $26,003 thousand Branded Spirits Sales - Quarter Ended June 30 (in thousands): | Price Tier | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Ultra premium | $14,372 | $9,435 | 52% | | Mid | $17,090 | $23,301 | (27)% | | Value | $11,578 | $12,908 | (10)% | | Total Branded Spirits | $57,616 | $58,566 | (2)% | Branded Spirits Gross Profit - Quarter Ended June 30 (in thousands): | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Gross profit | $26,003 | $20,960 | 24% | | Gross margin % | 45.1% | 35.8% | +9.3 pp | - Year-to-date sales for Branded Spirits were in line with the prior year, but gross profit increased 11% to $50,596 thousand, with gross margin improving to 44.2%, driven by higher average selling prices in the ultra-premium and premium tiers, including the newly acquired Penelope brands[140][144][145] Ingredient Solutions Ingredient Solutions sales increased 18% to $34,520 thousand in Q2 2023, with gross profit surging 37% to $11,614 thousand, driven by higher prices and volumes in specialty proteins and starches Ingredient Solutions Sales - Quarter Ended June 30 (in thousands): | Product | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Specialty wheat proteins | $12,588 | $10,109 | 25% | | Commodity wheat starches | $4,837 | $3,130 | 55% | | Total Ingredient Solutions | $34,520 | $29,278 | 18% | Ingredient Solutions Gross Profit - Quarter Ended June 30 (in thousands): | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Gross profit | $11,614 | $8,484 | 37% | | Gross margin % | 33.6% | 29.0% | +4.6 pp | - Year-to-date sales for Ingredient Solutions increased 14% to $65,424 thousand, and gross profit increased 44% to $23,817 thousand, with gross margin improving to 36.4%, primarily driven by higher average selling prices across all product categories[154][158][159] CASH FLOW, FINANCIAL CONDITION, AND LIQUIDITY This section analyzes the Company's cash flow activities, financial condition, and liquidity, including operating, investing, and financing cash flows, debt, and capital spending Cash Flow Summary Cash and cash equivalents decreased by $25,930 thousand year-to-date, primarily due to increased cash used in investing activities, largely for the Penelope acquisition Cash Flow Summary - Year to Date Ended June 30 (in thousands): | Activity | YTD 2023 | YTD 2022 | Change | | :--- | :--- | :--- | :--- | | Operating activities | $20,156 | $43,019 | $(22,863) | | Investing activities | $(135,589) | $(19,484) | $(116,105) | | Financing activities | $89,462 | $(7,649) | $97,111 | | Increase (decrease) in cash | $(25,930) | $15,847 | $(41,777) | Operating Activities Cash from operating activities decreased to $20,156 thousand year-to-date, mainly due to increased cash used for inventories and accounts receivable - Net cash provided by operating activities decreased by $22,863 thousand year-over-year, primarily due to a $59,881 thousand use of cash in operating assets and liabilities[163][164] - Key drivers of cash use in operating assets and liabilities included a $41,020 thousand increase in inventories and a $35,833 thousand increase in receivables, partially offset by a $22,328 thousand increase in accounts payable[164] Investing Activities Cash used in investing activities significantly increased to $135,589 thousand year-to-date, primarily driven by the Penelope acquisition and capital expenditures - Cash used in investing activities increased by $116,105 thousand year-over-year, primarily due to the $104,398 thousand acquisition of Penelope and $30,055 thousand in capital expenditures[163][166] Capital Spending Capital expenditures for YTD 2023 were $30,055 thousand, with full-year 2023 projections of $63,000 thousand for facility improvements, expansion, and the Atchison Distillery closure Capital Expenditures Paid (in thousands): | Period | Amount | | :--- | :--- | | YTD June 30, 2023 | $30,055 | | YTD June 30, 2022 | $18,087 | - Expected capital expenditures for 2023 are approximately $63,000 thousand, covering facility improvements, expansion, sustaining projects, EHS, and the Atchison Distillery closure[167] Financing Activities Cash from financing activities significantly increased to $89,462 thousand year-to-date, primarily due to net proceeds from debt, partially offset by dividends and treasury stock purchases - Net cash provided by financing activities increased by $97,111 thousand year-over-year, primarily due to $95,600 thousand in net proceeds from debt[163][168] - Financing activities included $5,337 thousand in dividend payments and $801 thousand in treasury stock purchases for YTD 2023[168] Treasury Purchases The Company repurchased 8,437 common shares for $801 thousand year-to-date to cover tax withholding on vested equity-based compensation, comparable to the prior year Treasury Stock Purchases for Tax Withholding: | Period | Shares Repurchased | Value ($ thousands) | | :--- | :--- | :--- | | YTD June 30, 2023 | 8,437 | $801 | | YTD June 30, 2022 | 9,025 | $713 | Dividends and Dividend Equivalents Total dividends and dividend equivalents paid year-to-date were $5,337 thousand, consistent with the prior year, with a subsequent quarterly dividend of $0.12 per share announced Total Dividends and Dividend Equivalents Paid (in thousands): | Period | Amount | | :--- | :--- | | YTD June 30, 2023 | $5,337 | | YTD June 30, 2022 | $5,322 | - A quarterly dividend of $0.12 per share and per RSU was declared on August 3, 2023, payable on September 1, 2023[173] Long-Term and Short-Term Debt Total debt, net of unamortized loan fees, increased to $325,104 thousand at June 30, 2023, reflecting funding for operations, investments, and the Penelope acquisition Total Indebtedness Outstanding, Net (in thousands): | Date | Amount | | :--- | :--- | | June 30, 2023 | $325,104 | | December 31, 2022 | $230,335 | Financial Condition and Liquidity The Company maintains strong liquidity with current assets exceeding liabilities by $402,198 thousand and significant borrowing capacity, expected to fund operations, capital, and M&A - At June 30, 2023, current assets exceeded current liabilities by $402,198 thousand, with inventories at $343,826 thousand[177] - The Company has $21,959 thousand in cash and cash equivalents, $302,000 thousand available under its Credit Agreement, and up to $120,000 thousand potentially available under the Note Purchase Agreement for liquidity[177] - Management anticipates that current cash sources and borrowing capacity will be adequate to meet budgeted capital expenditures, potential M&A, and operating requirements for the next 12 months and beyond[162][177] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the Company's exposure to market risks, specifically commodity price risk and interest rate risk. It outlines how these risks are monitored and managed, noting that commodity supply contracts meet the normal purchases and sales exception, and details the potential impact of interest rate changes on variable-rate debt and the fair value of fixed-rate debt Commodity Costs - The Company is exposed to commodity price risk from grain, wheat flour, and natural gas used in production, which are managed through supply contracts meeting the normal purchases and sales exception under ASC 815[179] Interest Rate Exposures - A 100 basis point increase in market interest rates would increase annual interest expense on variable-rate debt by $361 thousand, based on June 30, 2023, outstanding borrowings[181] - A 100 basis point increase in market rates would decrease the fair value of outstanding fixed-rate debt by $28,795 thousand, while a 100 basis point decrease would increase it by $36,219 thousand[181] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of June 30, 2023, based on evaluations by the CEO and CFO. It also states that there were no material changes in internal control over financial reporting during the fiscal quarter Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023, ensuring timely and accurate reporting[182] Changes in Internal Control - There were no changes in internal control over financial reporting during the fiscal quarter ended June 30, 2023, that materially affected or are reasonably likely to materially affect it[183] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to the Company's Annual Report on Form 10-K for further information on legal and regulatory proceedings, as well as Note 8 in the current report - Information on legal and regulatory proceedings is referenced to the Annual Report on Form 10-K for the year ended December 31, 2022, and Note 8 of this report[185] Item 1A. Risk Factors This section updates the risk factors previously disclosed in the Company's Annual Report on Form 10-K, specifically highlighting the risk that the planned closure of the Atchison, Kansas distillery may not achieve anticipated benefits, could disrupt business, and adversely affect financial results - A new risk factor highlights that the planned closure of the Atchison, Kansas distillery by January 2024 may not achieve anticipated profitability improvements or other benefits, potentially disrupting business and adversely affecting financial results[187] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities during the quarter ended June 30, 2023. It also details issuer purchases of equity securities, which were solely for tax withholding on vested Restricted Stock Units (RSUs) - No unregistered sales of equity securities occurred during the quarter ended June 30, 2023[188] - Issuer purchases of equity securities during the quarter were exclusively for tax withholding on vested RSUs awarded under the 2014 Plan[190] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[191] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[192] Item 5. Other Information This section reports that none of the Company's directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2023 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2023[193] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications (Rule 13a-14(a) and 18 U.S.C. 1350), and financial information formatted in iXBRL - Exhibits include CEO and CFO Certifications (31.1, 31.2, 32.1, 32.2) and financial information formatted in iXBRL (101, 104)[194]