MGP INGREDIENTS INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollar amounts in thousands, unless otherwise noted) (form 10-Q)

CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS


This Report on Form 10-Q contains forward looking statements as well as
historical information. All statements, other than statements of historical
facts, regarding the prospects of our industry and our prospects, plans,
financial position, and strategic plan may constitute forward looking
statements. In addition, forward looking statements are usually identified by or
are associated with such words as "intend," "plan," "believe," "estimate,"
"expect," "anticipate," "hopeful," "should," "may," "will," "could,"
"encouraged," "opportunities," "potential," and/or the negatives or variations
of these terms or similar terminology. Forward looking statements are based on
current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from those expressed or
implied in the forward looking statements. A detailed discussion of risks and
uncertainties that could cause actual results and events to differ materially
from such forward looking statements is included in the section titled "Risk
Factors" (Item 1A) of our Annual Report on Form 10-K for the year ended December
31, 2021 and the additional risk factors included in this Form 10-Q in Part II,
Item 1A. Forward looking statements are made as of the date of this report, and
we undertake no obligation to update or revise publicly any forward looking
statements, whether because of new information, future events or otherwise.

Overview


MGP 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 ("GNS"), including vodka and gin. We are also
a top producer of high quality industrial alcohol for use in both food and
non-food applications. Our distilled spirits are either packaged and sold under
our own brands to distributors, sold, directly or indirectly, to manufacturers
of other branded spirits, or direct to consumer. Our Branded Spirits consist of
producing, importing, bottling and rectifying distilled spirits through our
distilleries and bottling facilities. The Company's protein and starch food
ingredients provide a host of functional, nutritional, and sensory benefits for
a wide range of food products to serve the packaged goods industry.

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and accompanying notes included in this Form
10-Q, as well as our audited consolidated financial statements and accompanying
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations - General, set forth in our Annual Report on Form 10-K for
the year ended December 31, 2021.


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RESULTS OF OPERATIONS

Consolidated Results


The table below details the consolidated results for the quarters ended June 30,
2022 and 2021:
                                                       Quarter Ended June 30,
                                                       2022                2021                      2022 v. 2021
Sales                                             $   194,982$ 174,939                                  11  %
Cost of sales                                         135,758            118,112                                  15
Gross profit                                           59,224             56,827                                   4
  Gross margin %                                         30.4  %            32.5  %                             (2.1)   pp(a)
Advertising and promotion expenses                      6,065              3,371                                  80
Selling, general, and administrative ("SG&A")
expenses                                               17,859             25,793                                 (31)
Other operating (income) expense, net                      (6)                 -                                    N/A
Operating income                                       35,306             27,663                                  28
  Operating margin %                                     18.1  %            15.8  %                              2.3    pp
Interest expense, net                                  (1,543)            (1,104)                                (40)
Other income (expense), net                            (1,062)               (88)                             (1,107)
Income before income taxes                             32,701             26,471                                  24
Income tax expense                                      7,339              6,412                                  14
  Effective tax expense rate %                           22.4  %            24.2  %                             (1.8)   pp
Net income                                        $    25,362$  20,059                                  26  %
  Net income margin %                                    13.0  %            11.5  %                              1.5    pp

(a) Percentage points (“pp”).


Sales - Sales for quarter ended June 30, 2022 were $194,982, an increase of 11
percent compared to the year-ago quarter, which was the result of increased
sales in the Distilling Solutions and Ingredient Solutions segments, partially
offset by decreased sales in the Branded Spirits segment. Within the Distilling
Solutions segment, sales were up 19 percent, primarily due to an increase in the
sales of brown goods within premium beverage alcohol. Within the Ingredient
Solutions segment, sales were up 21 percent, primarily due to increased sales of
specialty wheat starches and proteins. Within the Branded Spirits segment, sales
were down 3 percent, due to decreased sales of mid and other price tiers (see
Segment Results).

Gross profit - Gross profit for quarter ended June 30, 2022 was $59,224, an
increase of 4 percent compared to the year-ago quarter. The increase was driven
by an increase in gross profit in the Branded Spirits and Ingredient Solutions
segments, partially offset by a decrease in Distilling Solutions segment gross
profit. In the Branded Spirits segment, gross profit increased by $2,526, or 14
percent. In the Ingredient Solutions segment, gross profit increased by $2,076,
or 32 percent. In the Distilling Solutions segment, gross profit declined by
$2,205, or 7 percent (see Segment Results).

Advertising and promotion expenses - Advertising and promotion expenses for
quarter ended June 30, 2022 were $6,065, an increase of 80 percent compared to
the year-ago quarter, primarily driven by increased advertising and promotion
investment in the Branded Spirits segment, specifically in the ultra premium,
super premium and premium price tiers.

SG&A expenses - SG&A expenses for quarter ended June 30, 2022 were $17,859, a
decrease of 31 percent compared to the year-ago quarter, primarily due to the
one-time acquisition costs in 2021 related to the Merger with Luxco that did not
recur in 2022.
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Operating income - Operating income for quarter ended June 30, 2022 increased to
$35,306 from $27,663 for quarter ended June 30, 2021, primarily due to an
increase in gross profit in the Branded Spirits and Ingredient Solutions
segments as well as a decrease in the previously described SG&A expenses. These
were partially offset by an increase in the previously described Advertising and
promotion expenses and a decrease in gross profit in the Distilling Solutions
segment.

Operating income, quarter versus quarter                         Operating Income               Change
Operating income for quarter ended June 30, 2021                $         

27,663

Increase in gross profit - Branded Spirits segment(a)                      2,526                        9    pp(b)
Increase in gross profit - Ingredient Solutions
segment(a)                                                                 2,076                        8    pp
Decrease in gross profit - Distilling Solutions
segment(a)                                                                (2,205)                      (8)   pp
Increase in Advertising and promotion expenses                            (2,694)                     (10)   pp
Decrease in SG&A expenses                                                  7,934                       29    pp
Increase in Other operating income (expense), net                              6                        -    pp
Operating income for quarter ended June 30, 2022                $         35,306                       28  %



(a) See segment discussion.
(b) Percentage points ("pp").

Income tax expense - Income tax expense for quarter ended June 30, 2022 was
$7,339, for an effective tax rate of 22.4 percent. Income tax expense for the
quarter ended June 30, 2021, was $6,412, for an effective tax rate of 24.2
percent. The increase in Income tax expense, quarter versus quarter, was due to
higher Income before income taxes. The decrease in effective tax rate, quarter
versus quarter, was due to favorable tax benefits, related to certain tax
credits concerning our capital spend, and related to our foreign operations.

Earnings per common share (“EPS”) – EPS was $1.15 for quarter ended June 30, 2022compared to $0.91 for quarter ended June 30, 2021. The change in EPS, quarter versus quarter, was primarily due to an increase in Operating income.


                                                                    Basic 

and

Change in basic and diluted EPS, quarter versus quarter            Diluted EPS               Change
Basic and diluted EPS for quarter ended June 30, 2021            $        

0.91

Increase in Operating income(a)                                           0.26                      28    pp(b)
Increase in other income (expense), net(a)                               (0.03)                     (3)   pp
Tax: Change in effective tax rate                                         0.04                       4    pp
Change in income allocated to participating securities                   (0.01)                     (1)   pp
Change in interest expense, net(a)                                       (0.02)                     (2)   pp

Basic and diluted EPS for quarter ended June 30, 2022            $        1.15                      26  %


(a) Item is net of tax based on the effective tax rate for the base year (2021). (b) Percentage points (“pp”).



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The table below details the consolidated results for year to date ended June 30,
2022 and 2021:
                                                  Year to Date Ended June 30,
                                                   2022                  2021                       2022 v. 2021
Sales                                        $     390,217$  283,262                                  38  %
Cost of sales                                      259,172              194,136                                  34
Gross profit                                       131,045               89,126                                  47
  Gross margin %                                      33.6   %             31.5  %                              2.1    pp(a)
Advertising and promotion expenses                  11,569                4,224                                 174
SG&A expenses                                       34,125               36,739                                  (7)
Other operating income, net                            (35)                   -                                    N/A
Operating income                                    85,386               48,163                                  77
  Operating margin %                                  21.9   %             17.0  %                              4.9    pp
Interest expense, net                               (3,141)              (1,592)                                (97)
Other income (expense), net                         (1,008)                 (58)                             (1,638)
Income before income taxes                          81,237               46,513                                  75
Income tax expense                                  18,504               11,027                                  68
  Effective tax expense rate %                        22.8   %             23.7  %                             (0.9)   pp
Net income                                   $      62,733$   35,486                                  77  %
  Net income margin %                                 16.1   %             12.5  %                              3.6    pp

(a) Percentage points (“pp”).


Sales - Sales for year to date ended June 30, 2022 were $390,217, an increase of
38 percent compared to the year-ago period, which was the result of increased
sales in the Branded Spirits, Distilling Solutions and Ingredient Solutions
segments. Within the Branded Spirits segment, sales were up 87 percent,
primarily due to the additional brands acquired as part of the April 1, 2021
Merger. Within the Distilling Solutions segment, sales were up 22 percent,
primarily due to an increase in the sales of brown goods within premium beverage
alcohol and distillers feed and related co-products. Within the Ingredient
Solutions segment, sales were up 32 percent, primarily due to increased sales of
specialty wheat starches and proteins, and commodity wheat starches (see Segment
Results).

Gross profit - Gross profit for year to date ended June 30, 2022 was $131,045,
an increase of 47 percent compared to the year-ago period. The increase was
driven by an increase in gross profit in the Branded Spirits, Distilling
Solutions, and Ingredient Solutions segments. In the Branded Spirits segment,
gross profit increased by $27,222, or 147 percent. In the Distilling Solutions
segment, gross profit increased by $8,483, or 14 percent. In the Ingredient
Solutions segment, gross profit increased by $6,214, or 60 percent (see Segment
Results).

Advertising and promotion expenses - Advertising and promotion expenses for year
to date ended June 30, 2022 were $11,569, an increase of 174 percent compared to
the year-ago period, primarily driven by the assumption of Luxco's Advertising
and promotion expenses.

SG&A expenses - SG&A expenses for year to date ended June 30, 2022 were $34,125,
a decrease of 7 percent compared to the year-ago period. The decrease in SG&A
expenses was driven primarily by the one-time acquisition costs in 2021 related
to the Merger with Luxco that did not recur in 2022, partially offset by the
assumption of Luxco's SG&A expenses.

Operating income - Operating income for year to date ended June 30, 2022
increased to $85,386 from $48,163 for year to date period ended June 30, 2021,
primarily due to an increase in gross profit in the Branded Spirits, Distilling
Solutions, and Ingredient Solutions segments as well as a decrease in the
previously described SG&A expenses. These were partially offset by an increase
in the above-described Advertising and promotion expenses.
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Operating income, year to date versus year to date              Operating Income               Change

Operating income for year to date ended June 30, 2021 $48,163 Increase in gross profit – Branded Spirits segment(a)

                    27,222                       57    pp(b)
Increase in gross profit - Distilling Solutions
segment(a)                                                                8,483                       17    pp
Increase in gross profit - Ingredient Solutions
segment(a)                                                                6,214                       13    pp
Increase in Advertising and promotion expenses                           (7,345)                     (15)   pp
Decrease in SG&A expenses                                                 2,614                        5    pp
Increase in Other operating income (expense), net                            35                        -    pp

Operating income for year to date ended June 30, 2022 $85,386

                       77  %


(a) See segment discussion.
(b) Percentage points ("pp").

Income tax expense - Income tax expense for year to date ended June 30, 2022 was
$18,504, for an effective tax rate of 22.8 percent. Income tax expense for the
year to date ended June 30, 2021, was $11,027, for an effective tax rate of 23.7
percent. The increase in Income tax expense, year to date versus year to date,
was primarily due to higher Income before income taxes. The decrease in
effective tax rate, year to date versus year to date, was due to favorable tax
benefits, related to certain tax credits concerning our capital spend, and
related to our foreign operations.

Earnings per common share - EPS was $2.84 for year to date ended June 30, 2022,
compared to $1.81 for year to date ended June 30, 2021. EPS increased, year to
date versus year to date, primarily due to an increase in operating income,
partially offset by an increase in shares outstanding as a result of shares
issued as part of the consideration paid for the Merger.
Change in basic and diluted EPS, year to date versus              Basic and
year to date                                                     Diluted EPS               Change

Basic and diluted EPS for year to date ended June 30, 2021

                                                           $        

1.81

Increase in operating income(a)                                         1.60                      88    pp(b)
Change in interest expense, net(a)                                     (0.07)                     (4)   pp
Increase in other income (expense), net(a)                             (0.03)                     (1)   pp
Tax: Change in effective tax rate                                       0.04                       2    pp
Change in weighted average shares outstanding                          (0.51)                    (28)   pp

Basic and diluted EPS for year to date ended June 30, 2022

                                                           $        2.84                      57  %


(a) Item is net of tax based on the effective tax rate for the base year (2021). (b) Percentage points (“pp”).

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SEGMENT RESULTS

Distilling Solutions

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended June 30, 2022 and 2021.

DISTILLING SOLUTIONS SALES

                                                                                   Quarter versus Quarter Sales Change
                                       Quarter Ended June 30,                              Increase/(Decrease)
                                     2022                  2021                    $ Change                     % Change
Brown goods                     $     56,331$    43,766          $               12,565                        29  %
White goods                           17,441               18,205                            (764)                       (4)
Premium beverage alcohol              73,772               61,971                          11,801                        19
Industrial alcohol                    12,885               14,770                          (1,885)                      (13)
Food grade alcohol                    86,657               76,741                           9,916                        13
Fuel grade alcohol                     3,312                4,753                          (1,441)                      (30)
Distillers feed and related
co-products                           11,267                4,672                           6,595                       141
Warehouse services                     5,902                4,182                           1,720                        41
Total Distilling Solutions      $    107,138$    90,348          $               16,790                        19  %

                                       Change in Quarter versus Quarter Sales Attributed to:
                                   Total (a)            Volume(b)              Net Price/Mix(c)
Premium beverage alcohol              19%                  (5)%                       24%

                                                                 Other Financial Information
                                       Quarter Ended June 30,              

Quarter versus Quarter Increase / (Decrease)

                                     2022                  2021                    $ Change                     % Change
Gross profit                    $     29,780$    31,985          $               (2,205)                       (7) %
Gross margin %                          27.8  %              35.4  %                                                   (7.6)   pp(d)


(a) Total sales change is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points ("pp").

Total sales of Distilling Solutions for quarter ended June 30, 2022 increased by
$16,790, or 19 percent, compared to the prior year quarter. Sales of brown goods
within premium beverage alcohol, distillers feed and related co-products, and
warehouse services increased while industrial alcohol, fuel grade alcohol and
white goods within premium beverage alcohol decreased compared to the prior year
quarter. The increase in sales of brown goods was driven by higher average
selling price. The increase in sales of distillers feed and related co-products
was due to higher average selling price, partially offset by lower sales
volumes, both of which primarily resulted from the previously disclosed dryer
fire at our Atchison facility which occurred in 2020. These increases were
partially offset by a decrease in sales of industrial alcohol, fuel grade
alcohol and white goods which was driven primarily by lower sales volume.

Gross profit decreased quarter versus quarter by $2,205, or 7 percent. Gross
margin for the quarter ended June 30, 2022 decreased to 27.8 percent from 35.4
percent for the prior year quarter. The decrease in gross profit was primarily
due to higher input costs for industrial alcohol, white goods, and fuel grade
alcohol. The average selling price for these products also increased, but not
enough to offset the higher input costs. This decrease in gross profit was
partially offset by an increase in brown goods gross profit, as increased
average selling price offset the higher input costs.




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The following tables show selected financial information for the Distilling Solutions segment for the year to date ended June 30, 2022 and 2021.

DISTILLING SOLUTIONS SALES

                                                                                     Year to Date versus Year to Date
                                      Year to Date Ended June 30,                    Sales Change Increase/(Decrease)
                                       2022                  2021                   $ Change                   % Change
Brown Goods                      $     118,476$   86,807          $            31,669                        36  %
White Goods                             37,527               34,862                        2,665                         8
Premium beverage alcohol               156,003              121,669                       34,334                        28
Industrial alcohol                      24,380               32,106                       (7,726)                      (24)
Food grade alcohol                     180,383              153,775                       26,608                        17
Fuel grade alcohol                       6,594                7,270                         (676)                       (9)
Distillers feed and related
co-products                             20,184                9,644                       10,540                       109
Warehouse services                      11,486                8,283                        3,203                        39
Total Distilling Solutions       $     218,647$  178,972          $            39,675                        22  %

                                  Change in Year to Date versus Year to Date Sales Attributed to:
                                     Total(a)              Volume(b)            Net Price/Mix(c)
Premium beverage alcohol                28%                   8%                      20%

                                                                 Other Financial Information
                                                                               Year to Date versus Year to Date Increase /
                                      Year to Date Ended June 30,                               (Decrease)
                                       2022                  2021                   $ Change                   % Change
Gross profit                     $      68,713$   60,230          $             8,483                        14  %
Gross margin %                            31.4   %             33.7  %                                                (2.3)   pp(d)



(a) Total sales change is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points ("pp").

Total sales of Distilling Solutions for year to date ended June 30, 2022
increased by $39,675, or 22 percent compared to the year-ago period. Sales of
brown goods within premium beverage alcohol, distillers feed and related
co-products, warehouse services and white goods within premium beverage alcohol
increased while industrial alcohol and fuel grade alcohol decreased compared to
the prior year to date period. The increase in sales of brown goods was driven
by higher average selling price and higher sales volume. The increase in sales
of distillers feed and related co-products was due to higher average selling
price, partially offset by lower sales volumes, both of which primarily resulted
from the previously disclosed dryer fire at our Atchison facility which occurred
in 2020. The increase in sales of white goods was driven by higher average
selling price, partially offset by lower sales volume. These increases were
partially offset by a decrease in sales of industrial alcohol which was driven
by lower sales volume primarily due to the discontinuing of third party sales
and marketing services, partially offset by higher average selling price.

Gross profit for year to date ended June 30, 2022 increased by $8,483, or 14
percent compared to the year-ago period. Gross margin for year to date ended
June 30, 2022 decreased to 31.4 percent from 33.7 percent for the prior year
period. The increase in gross profit was due primarily to higher average selling
price and higher sales volume on brown goods. These increases were partially
offset by higher input costs for industrial alcohol, white goods, and fuel grade
alcohol. The average selling price for these products also increased, but not
enough to offset the higher input costs.


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Branded Spirits

The following tables show selected financial information for the Branded Spirits
segment for the quarters ended June 30, 2022 and 2021.

BRANDED SPIRITS SALES

                                                                                           Quarter versus Quarter Sales Change
                                              Quarter Ended June 30,                               Increase/(Decrease)
                                             2022                  2021                    $ Change                     % Change
Ultra premium                          $      9,435$     8,002          $                1,433                        18  %
Super premium                                 3,226                 3,184                              42                         1
Premium                                       5,775                 5,303                             472                         9
Mid                                          23,301                25,407                          (2,106)                       (8)
Value                                        12,908                13,228                            (320)                       (2)
Other                                         3,921                 5,302                          (1,381)                      (26)
Total Branded Spirits$     58,566$    60,426          $               (1,860)                       (3) %

                                               Change in Quarter versus Quarter Sales Attributed to:
                                          Total (a)             Volume(b)              Net Price/Mix(c)
Total Branded Spirits                        (3)%                  (9)%                       6%

                                                                         Other Financial Information
                                              Quarter Ended June 30,        

Quarter versus Quarter Increase / (Decrease)

                                             2022                  2021                    $ Change                     % Change
Gross profit                           $     20,960$    18,434          $                2,526                        14  %
Gross margin %                                 35.8   %              30.5  %                                                    5.3    pp(d)


(a) Total sales change is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points ("pp").

Total sales of Branded Spirits for quarter ended June 30, 2022 decreased by
$1,860, or 3 percent compared to the prior year quarter. Sales decreased
primarily due to a decrease in sales of brands within the mid price tier as a
result of the re-opening of on-premise locations during the prior year period as
well as a change in product mix. Sales in the other price tier decreased due to
the timing of certain contracted private label sales. These decreases were
partially offset by an increase in the ultra premium price tier due primarily to
increased sales of American whiskey brands.

Gross profit increased quarter versus quarter by $2,526, or 14 percent. Gross
margin for the quarter ended June 30, 2022 increased to 35.8 percent from 30.5
percent for the prior year quarter. The increase in gross profit was primarily
driven by a required step up in value of certain assets due to purchase
accounting related to the Merger in 2021 that did not recur in 2022. Of the
purchase accounting step ups, $2,529 was associated with marking the finished
goods inventory to fair value and fully flowed through in the prior year period.










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The following tables show selected financial information for the Branded Spirits
segment for year to date ended June 30, 2022 and 2021.

BRANDED SPIRITS SALES

                                                                                        Year to Date versus Year to Date Sales Change
                                             Year to Date Ended June 30,                             Increase/(Decrease)
                                              2022                   2021                     $ Change                     % Change
Ultra premium                          $       22,032$     8,128          $                13,904                       171  %
Super premium                                   6,172                 3,595                            2,577                        72
Premium                                        11,915                 5,329                            6,586                       124
Mid                                            42,574                25,407                           17,167                        68
Value                                          24,207                13,228                           10,979                        83
Other                                           7,417                 5,309                            2,108                        40
Total Branded Spirits$      114,317$    60,996          $                53,321                        87  %

                                           Change in Year to Date versus 

Year to Date Sales Attributed to:

                                           Total (a)              Volume(b)               Net Price/Mix(c)
Total Branded Spirits                         87%                    66%                        21%

                                                                          Other Financial Information
                                                                                         Year to Date versus Year to Date Increase /
                                             Year to Date Ended June 30,                                  (Decrease)
                                              2022                   2021                     $ Change                     % Change
Gross profit                           $       45,742$    18,520          $                27,222                       147  %
Gross margin %                                   40.0   %              30.4  %                                                     9.6    pp(d)


(a) Total sales change is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points ("pp").

Total sales of Branded Spirits for year to date ended June 30, 2022 increased by
$53,321, or 87 percent compared to the year-ago period. Sales across all pricing
tiers increased compared to the year-ago period, primarily due to the additional
brands acquired as part of the Merger.

Gross profit for year to date ended June 30, 2022 increased by $27,222, or 147
percent. Gross margin for year to date ended June 30, 2022 increased 9.6 percent
to 40.0 percent from 30.4 percent for the prior year. The increase in gross
profit was primarily driven by the additional brands acquired as part of the
Merger as well as a required step up in value of certain assets due to purchase
accounting related to the Merger in 2021 that did not recur in 2022. Of the
purchase accounting step ups, $2,529 was associated with marking the finished
goods inventory to fair value and fully flowed through in the prior year period.


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Ingredient Solutions

The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended June 30, 2022 and 2021.

INGREDIENT SOLUTIONS SALES

                                                                                     Quarter versus Quarter Sales Change Increase /
                                                Quarter Ended June 30,                                 (Decrease)
                                               2022                  2021                  $ Change                   % Change
Specialty wheat starches                 $     16,001$    12,598          $            3,403                        27  %
Specialty wheat proteins                       10,109                 8,352                       1,757                        21
Commodity wheat starches                        3,130                 2,663                         467                        18
Commodity wheat proteins                           38                   552                        (514)                      (93)
Total Ingredient Solutions               $     29,278$    24,165          $            5,113                        21  %

                                               Change in Quarter versus Quarter Sales Attributed to:
                                             Total(a)             Volume(b)            Net Price/Mix(c)
Total Ingredient Solutions                     21%                    1%                      20%

                                                                         Other Financial Information
                                                Quarter Ended June 30,     

Quarter versus Quarter Increase / (Decrease)

                                               2022                  2021                  $ Change                   % Change
Gross profit                             $      8,484$     6,408          $            2,076                        32  %
Gross margin %                                   29.0   %              26.5  %                                                2.5    pp(d)



(a) Total sales change is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points ("pp").

Total Ingredient Solutions sales for quarter ended June 30, 2022 increased by
$5,113, or 21 percent, compared to the prior year quarter. The increase was
primarily driven by higher sales of specialty wheat starches due to higher
average selling prices and higher sales volume. Specialty wheat proteins
increased due to higher average selling price, partially offset by lower sales
volume. These increases were partially offset by a decrease in commodity wheat
proteins due to lower sales volume.

Gross profit increased quarter versus quarter by $2,076, or 32 percent. Gross
margin for the quarter ended June 30, 2022 increased to 29.0 percent from 26.5
percent for the prior year quarter. The increase in gross profit was primarily
driven by higher average selling price of specialty wheat proteins and starches,
and commodity wheat starches, partially offset by higher input costs for
specialty wheat starches and proteins, and commodity starches.

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The following tables show selected financial information for the Ingredient Solutions segment for the year to date June 30, 2022 and 2021.

                                                                              INGREDIENT SOLUTIONS SALES
                                                                                          Year to Date versus Year to Date Sales Change
                                                Year to Date Ended June 30,                            Increase/(Decrease)
                                                 2022                  2021                     $ Change                     % Change
Specialty wheat starches                   $      31,204$   22,820          $                 8,384                        37  %
Specialty wheat proteins                          19,528               14,398                            5,130                        36
Commodity wheat starches                           6,483                4,946                            1,537                        31
Commodity wheat proteins                              38                1,130                           (1,092)                      (97)
Total Ingredient Solutions                 $      57,253$   43,294          $                13,959                        32  %

                                              Change in Year to Date versus

Year to Date Sales Attributed to:

                                               Total(a)              Volume(b)              Net Price/Mix(c)
Total Ingredient Solutions                        32%                   11%                       21%

                                                                             Other Financial Information
                                                                                           Year to Date versus Year to Date Increase /
                                                Year to Date Ended June 30,                                 (Decrease)
                                                 2022                  2021                     $ Change                     % Change
Gross profit                               $      16,590$   10,376          $                 6,214                        60  %
Gross margin %                                      29.0   %             24.0  %                                                     5.0    pp(d)



(a) Total sale changes is calculated by taking the difference between current
period sales dollars and prior period sales dollars, divided by prior period
sales dollars.
(b) Volume change is calculated by taking the difference between current period
sales volume and prior period sales volume, multiplied by prior period sales per
unit. The product is then divided by prior period sales dollars.
(c) Price/Mix change is calculated by taking the difference between current
period sales-per-unit and prior period sales-per unit, multiplied by current
period sales volume. The product is then divided by prior period sales dollars.
(d) Percentage points ("pp").

Total Ingredient Solutions sales for year to date ended June 30, 2022 increased
by $13,959, or 32 percent, compared to the prior year period. The increase in
Ingredient Solutions sales was primarily driven by higher sales of specialty
wheat starches and proteins, primarily due to higher average selling price and
higher sales volume. Commodity wheat starches increased due to higher average
selling price, partially offset by lower sales volume. These increases were
partially offset by a decrease in sales of commodity wheat proteins due to lower
sales volume.

Gross profit increased by $6,214, or 60 percent for year to date ended June 30,
2022 compared to the prior year period. Gross margin for the year to date ended
June 30, 2022 increased to 29.0 percent from 24.0 percent for the prior year
period. The increase in gross profit was primarily driven by higher average
selling price and higher sales volumes of specialty wheat starches and proteins.
Gross profit in the prior year to date period was impacted by a temporary
curtailment of natural gas usage due to extreme weather conditions which caused
the Company to shut down the Atchison facilities for several days.


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CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY

We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.


Operating cash flow and borrowings through our Credit Agreement, Convertible
Senior Notes and Note Purchase Agreement (Note 5) provide the primary sources of
cash to fund operating needs and capital expenditures. These same sources of
cash are used to fund shareholder dividends and other discretionary uses. Our
overall liquidity reflects our strong business results and an effective cash
management strategy that takes into account liquidity management, economic
factors, and tax considerations. We expect our sources of cash to be adequate to
provide for budgeted capital expenditures, potential merger or acquisitions, and
anticipated operating requirements for the foreseeable future.

Cash Flow Summary

                                                        Year to Date Ended June 30,             Changes, year versus
                                                                                                   year Increase /
                                                        2022                   2021                  (Decrease)

Cash provided by operating activities             $       43,019$     47,454          $           (4,435)

Cash used in investing activities                        (19,484)             (170,235)                    150,751

Cash provided by (used in) financing
activities                                                (7,649)              138,359                    (146,008)

Effect of exchange rate changes on cash                      (39)                    3                         (42)

Increase in cash and cash equivalents             $       15,847$     15,581          $              266



Cash increased $15,847 for year to date ended June 30, 2022compared to an increase of $15,581 for year to date ended June 30, 2021for a net increase in cash of $266period versus period.


Operating Activities. Cash provided by operating activities for year to date
ended June 30, 2022 was $43,019. The cash provided by operating activities
resulted primarily from net income of $62,733, adjustments for non-cash or
non-operating charges of $13,262, including depreciation and amortization, and
share-based compensation, partially offset by cash used in operating assets and
liabilities of $32,976. The primary drivers of the changes in operating assets
and liabilities were $27,508 use of cash related to an increase in inventories,
primarily due to an increase in barreled distillate and finished goods
inventory, $13,142 use of cash related to increased accounts receivables, net
due to increased sales during the year to date period, as well as timing of
customer payments, and $4,791 use of cash related to accrued expenses and other
primarily related to increase in incentive compensation. These uses of cash were
partially offset, primarily, by $11,438 cash provided by an increase in accounts
payable.

Cash provided by operating activities for year to date ended June 30, 2021 was
$47,454. The cash provided by operating activities resulted primarily from net
income of $35,486, adjustments for non-cash or non-operating charges of $11,555,
including depreciation and amortization, and share-based compensation, as well
as cash provided by operating assets and liabilities of $413. The primary
drivers of the changes in operating assets and liabilities, excluding the asset
and liability balances acquired as part of the Merger were $7,987 provided by
accrued expenses and other primarily related to legally committed insurance
recovery amounts obtained prior to contingencies related to the insurance claim
being resolved, and $7,531 cash provided by accounts receivables, net due to
increased sales during the quarter as well as an increase in insurance
recoveries receivable. These sources of cash were partially offset by $12,996
use of cash related to decrease in accounts payable.

Investing Activities. Cash used in investing activities for year to date ended
June 30, 2022 was $19,484, which primarily resulted from additions to property,
plant and equipment of $18,087 (see Capital Spending). Cash used in investing
activities for year to date ended June 30, 2021 was $170,235, which primarily
resulted from $149,599 related to the Merger with Luxco, and additions to
property, plant and equipment of $18,336 (see Capital Spending).

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Capital Spending. We manage capital spending to support our business growth
plans. We have incurred $14,553 and $14,961 of capital expenditures and have
paid $18,087 and $18,336 for capital expenditures for year to date ended June
30, 2022 and 2021, respectively. The difference between the amount of capital
expenditures incurred and amount paid is due to the change in capital
expenditures in accounts payable. We expect approximately $47,200 in capital
expenditures in 2022, which will be used for facility improvement and expansion,
facility sustaining projects, and environmental health and safety projects.

Financing Activities. Cash used in financing activities for year to date ended
June 30, 2022 was $7,649, due to payments of dividends and dividend equivalents
of $5,322 (see Dividends and Dividend Equivalents), net payments on debt of
$1,614 (see Long-Term and Short-Term Debt) and purchases of treasury stock of
$713 (see Treasury Purchases).

Cash provided by financing activities for year to date ended June 30, 2021 was
$138,359, due to net proceeds from debt of $231,328 (see Long-term and
Short-term Debt), partially offset by $87,497 payment on assumed debt as part of
the Merger, payments of dividends and dividend equivalents of $4,707 (see
Dividends and Dividend Equivalents) and purchases of treasury stock of $765 (see
Treasury Purchases).

Treasury Purchases. 29,356 RSUs vested and converted to common shares for employees during year to date ended June 30, 2022of which we withheld and purchased for treasury 9,025 shares valued at $713 to cover payment of associated withholding taxes.


38,009 RSUs vested and converted to common shares for employees during year to
date ended June 30, 2021, of which we withheld and purchased for treasury 11,865
shares valued at $765 to cover payment of associated withholding taxes.

Share Repurchases. On February 25, 2019, our Board of Directors approved a
$25,000 share repurchase authorization commencing February 27, 2019, through
February 27, 2022. The Company did not repurchase any shares during 2022 prior
to the expiration of the program on February 27, 2022.

Dividends and Dividend Equivalents

                                                          Dividend and 

Dividend Equivalent Information (per Share and Unit)

                                                                                                                    Dividend          Dividend equivalent
 Declaration date             Record date               Payment date             Declared           Paid            payment              payment(a)(b)              Total payment(b)
2022
February 22, 2022         March 11, 2022            March 25, 2022             $    0.12$ 0.12$   2,638          $                23          $           2,661
May 5, 2022               May 20, 2022              June 3, 2022                    0.12            0.12              2,638                           23                      2,661

                                                                               $    0.24$ 0.24$   5,276          $                46          $           5,322

2021
February 23, 2021         March 12, 2021            March 26, 2021             $    0.12$ 0.12$   2,033          $                19          $           2,052
May 3, 2021               May 21, 2021              June 4, 2021                    0.12            0.12              2,635                           20                      2,655

                                                                               $    0.24$ 0.24$   4,668          $                39          $           4,707

(a) Dividend equivalent payments on unvested participating securities. (b) Includes estimated forfeitures.


On August 4, 2022, our Board of Directors declared a quarterly dividend payable
to stockholders of record as of August 19, 2022, of the Company's Common Stock,
and a dividend equivalent payable to holders of certain RSUs as of August 19,
2022, of $0.12 per share and per unit, payable on September 2, 2022.

Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate
after evaluating a number of factors, including cash flow expectations, cash
requirements for ongoing operations, investment and financing plans (including
brand development and share repurchase activities) and the overall cost of
capital. Total debt was $231,953 (net of unamortized loan fees of $6,286) at
June 30, 2022, and $233,399 (net of unamortized loan fees of $6,454) at December
31, 2021.

Financial Condition and Liquidity. Our principal uses of cash in the ordinary
course of business are for input costs used in our production processes,
salaries, capital expenditures, and investments supporting our strategic plan,
such as the aging of barreled distillate and potential mergers and acquisitions.

Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels.

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Our principal sources of cash are product sales and borrowing on our various
debt agreements. Under our debt agreements, we must meet certain financial
covenants and restrictions, and at June 30, 2022, we met those covenants and
restrictions.

At June 30, 2022, our current assets exceeded our current liabilities by
$329,268, largely due to our inventories, at cost, of $272,948. At June 30,
2022, our cash balance was $37,415 and we have used our Credit Agreement,
Convertible Senior Notes and Note Purchase Agreement for liquidity purposes,
with $400,000 under our Credit Agreement remaining for additional borrowings and
up to $120,000 potentially available under the Note Purchase Agreement. We
anticipate being able to support our short-term liquidity and operating needs
largely through cash generated from operations. We regularly assess our cash
needs and the available sources to fund these needs. We utilize short-term and
long-term debt to fund discretionary items, such as capital investments and
dividend payments. In addition, we have strong operating results such that we
believe financial institutions should provide sufficient credit funding to meet
short-term financing requirements, if needed.

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