MGP INGREDIENTS INC (MGPI) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report may contain forward looking statements as well as historical information. All statements, other than statements of historical facts, regarding the prospects of our industries and our prospects, plans, financial position, mission, and strategy may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about our sources of cash being adequate; our capital expenditures; our ability to support our liquidity and operating needs through cash generated from operations; and our ability to obtain credit funding. Forward looking statements are usually identified by or are associated with such words as “intend,” “plan,” “believe,” “estimate,” “expect,” “anticipate,” “project,” “forecast,” “hopeful,” “should,” “may,” “will,” “could,” “encouraged,” “opportunities,” “potential,” and similar terminology. These forward-looking statements reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, our performance, our financial results, and our financial condition and are not guarantees of future performance.
All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. For information on these risks and uncertainties and other factors that could affect the Company’s business, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of this Report and our other filings with the Securities and Exchange Commission (the “SEC”). Forward-looking statements in this Report are
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made as of the date of this Report, and we undertake no obligation to update any forward-looking statements or information made in this Report, except as required by law.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations is designed to provide a reader of MGP’s consolidated financial statements with a narrative from the perspective of management. MGP’s MD&A is presented in the following sections:
•Overview
•Recent Developments
•Results of Operations
•Distilling Solutions Segment
•Branded Spirits Segment
•Ingredient Solutions Segment
•Cash Flow, Financial Condition and Liquidity
•Critical Accounting Estimates
•New Accounting Pronouncements
OVERVIEW
MGP is a leading producer and supplier of premium distilled spirits, branded spirits, and food ingredients. Distilled spirits include premium bourbon, rye, and other whiskeys (“brown goods”) and grain neutral spirits (“GNS”), including vodka and gin. Our distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP was also a producer of high quality industrial alcohol for use in both food and non-food applications, which was primarily produced at our distillery located in Atchison, Kansas, prior to its closure during December 2023. We have a portfolio of our own high quality branded spirits, which we produce through our distilleries and bottling facilities and sell to distributors. Our branded spirits products account for a range of price points from value products through ultra premium brands. Our 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. Our ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.
Our strategic plan is designed to leverage our history and strengths as well as the positive macro trends we see in the industries in which we compete, while providing better insulation from outside factors, including swings in commodity pricing.
Distilling Solutions Segment
Our Distilling Solutions segment mission is to cultivate lasting partnerships with customers across all product categories by leveraging our technical distilling expertise, strong sales and operating platform, aging whiskey inventory, and unique project development skills. The favorable macro industry trends we anticipate will benefit our business include the expansion in the U.S. of the distilled spirits’ share within beverage alcohol, particularly growth of the American whiskey category that has continued to expand over the past several years. These macro industry trends also include shifting sales mix to higher margin products, such as premium brown goods. Our Distilling Solutions segment is also subject to unfavorable macro industry trends, which include increased competition as industry participants seek to capitalize on consumer trends, inflation impacts on customers, overall American whiskey supply and consumer consumption patterns, as well as increased commodity prices. Our strategy for the Distilling Solutions segment is to further develop our existing customer relationships, expand our Kentucky whiskey sales platform, cultivate additional multi-national and craft customers for brown goods sales, and increase our global presence in the American whiskey market.
During 2023, we continued to focus on attracting customers and developing customer relationships for our premium beverage alcohol products as well as shifting our focus away from industrial alcohol, fuel grade alcohol, and white beverage alcohol. Distilling Solutions segment sales for 2023 increased 5 percent over the prior year.
Branded Spirits Segment
Our Branded Spirits segment mission is to align our product offering and enhance focus on growing spirits categories and price tiers. The favorable macro industry trends we anticipate will benefit our business include growth in high-end whiskey and tequila brands as well as growth in the U.S. across all spirit categories in the premium plus price tiers. Our Branded Spirits segment is also subject to unfavorable macro industry trends, which include inflation impacts on consumers, and increased
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competition as industry participants seek to capitalize on consumer trends. Our strategy for the Branded Spirits segment is to focus on the right brands at the right price points in the right spirits categories to maximize profit for the Company. Additionally, our strategy is to grow our overall points of distribution, increase innovation, build brand awareness, and continue to invest in our people. Branded Spirits segment sales for 2023 increased 7 percent over the prior year.
Ingredient Solutions Segment
Our Ingredient Solutions segment mission is to remain a strategic business partner of choice earning meaningful relationships through collaboration, innovation, and dedication to best-in-class customer service. The favorable macro industry trends we anticipate will benefit our business include growth and focus on high fiber, high protein, meat alternatives, plant-based protein, and non-GMO products. We continue to provide customer solutions, taking advantage of our position within growing consumer trends. Our strategy for the Ingredient Solutions segment is to expand and optimize our dietary fiber, plant proteins, and clean label starches; expand our extruded products platform; and continue to innovate and expand opportunities through research and development. Ingredient Solutions segment sales for 2023 increased 14 percent over the prior year.
RECENT DEVELOPMENTS
Acquisition of Penelope
On May 8, 2023, we 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 our 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, we enhanced our presence in the growing American whiskey category and expanded our 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 in the Branded Spirits segment (see Note 4, Business Combination for additional information).
Closure of the Atchison Distillery
On July 13, 2023, we announced the decision by our Board of Directors to approve the closure of our distillery located in Atchison, Kansas (the “Atchison Distillery”). The Atchison Distillery ceased operations in December 2023. The decision to close the Atchison Distillery is consistent with our plan to address profitability headwinds associated with our GNS and industrial alcohol products within the Distilling Solutions segment. During the year ended December 31, 2023, we recorded a $17,112 impairment of assets related to the Atchison Distillery closure, which was recorded in the impairment of long-lived assets and other line on the Consolidated Statement of Income. The impaired assets were recorded within the Distilling Solution segment. Additionally, we recorded $2,279 of expenses related to severance costs, inventory write offs, contract termination fees, consulting fees, and other miscellaneous expenses related to the Atchison Distillery closure, which were recorded in the impairment of long-lived assets and other line on the Consolidated Statement of Income for the year ended December 31, 2023 (see Note 6, Closure of the Atchison Distillery for additional information).
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RESULTS OF OPERATIONS
Consolidated results
The table below details the consolidated results for 2023, 2022 and 2021:
| Year Ended December 31, | % Increase (Decrease) | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | 2023 v. 2022 | 2022 v. 2021 | |||||||||||||||||
| Sales | $ | 836,523 | $ | 782,358 | $ | 626,720 | 7 | % | 25 | % | |||||||||||
| Cost of sales | 531,811 | 529,052 | 427,755 | 1 | 24 | ||||||||||||||||
| Gross profit | 304,712 | 253,306 | 198,965 | 20 | 27 | ||||||||||||||||
| Gross margin % | 36.4 | % | 32.4 | % | 31.7 | % | 4.0 | pp(a) | 0.7 | pp(a) | |||||||||||
| Advertising and promotion expenses | 38,213 | 29,714 | 16,098 | 29 | 85 | ||||||||||||||||
| SG&A expenses | 91,395 | 74,627 | 72,829 | 22 | 2 | ||||||||||||||||
| Impairment of long-lived assets and other | 19,391 | — | — | N/A | N/A | ||||||||||||||||
| Change in fair value of contingent consideration | 7,100 | — | — | N/A | N/A | ||||||||||||||||
| Insurance recoveries | — | — | (16,325) | N/A | N/A | ||||||||||||||||
| Operating income | 148,613 | 148,965 | 126,363 | — | 18 | ||||||||||||||||
| Operating margin % | 17.8 | % | 19.0 | % | 20.2 | % | (1.2) | pp | (1.2) | pp | |||||||||||
| Interest expense, net | (6,647) | (5,451) | (4,037) | 22 | 35 | ||||||||||||||||
| Other expense, net | (220) | (3,342) | (1,230) | (93) | 172 | ||||||||||||||||
| Income before income taxes | 141,746 | 140,172 | 121,096 | 1 | 16 | ||||||||||||||||
| Income tax expense | 34,616 | 31,300 | 30,279 | 11 | 3 | ||||||||||||||||
| Effective tax expense rate % | 24.4 | % | 22.3 | % | 25.0 | % | 2.1 | pp | (2.7) | pp | |||||||||||
| Net income | $ | 107,130 | $ | 108,872 | $ | 90,817 | (2) | % | 20 | % | |||||||||||
| Net income margin % | 12.8 | % | 13.9 | % | 14.5 | % | (1.1) | pp | (0.6) | pp | |||||||||||
| Basic EPS | $ | 4.82 | $ | 4.94 | $ | 4.37 | (2) | % | 13 | % | |||||||||||
| Diluted EPS | $ | 4.80 | $ | 4.92 | $ | 4.37 | (2) | % | 13 | % |
(a) Percentage points (“pp”).
Sales
2023 to 2022 - Sales for 2023 were $836,523, an increase of 7 percent compared to 2022, which was the result of increased sales in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments. Distilling Solutions segment sales increased 5 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol. Branded Spirits segment sales increased 7 percent, primarily due to increased sales of brands in the premium plus price tiers. Ingredient Solutions segment sales increased 14 percent due to increased sales across all Ingredient Solutions product lines.
2022 to 2021 - Sales for 2022 were $782,358, an increase of 25 percent compared to 2021, which was the result of increased sales in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments. Within the Distilling Solutions segment, sales were up 22 percent, primarily due to an increase in sales of brown goods within premium beverage alcohol. Total Branded Spirits segment sales increased 30 percent, due to an increase in sales across all price tier categories. Total Ingredient Solutions segment sales increased 28 percent, primarily due to increased sales of specialty wheat starches and proteins.
Gross profit
2023 to 2022 - Gross profit for 2023 was $304,712, an increase of 20 percent compared to 2022. The increase was driven by an increase in gross profit in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments. The Distilling Solutions segment gross profit increased by $18,682, or 15 percent. The Branded Spirits segment gross profit increased by $17,260, or 18 percent. The Ingredient Solutions segment gross profit increased by $15,464, or 49 percent.
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2022 to 2021 - Gross profit for 2022 was $253,306, an increase of 27 percent compared to 2021. The increase was driven by an increase in gross profit in Branded Spirits, Distilling Solutions, and Ingredient Solutions segments. The Branded Spirits segment gross profit increased by $32,877, or 52 percent. The Distilling Solutions segment gross profit increased by $12,176, or 11 percent, and the Ingredient Solutions segment gross profit increased by $9,288, or 42 percent.
Advertising and promotion expenses
2023 to 2022 - Advertising and promotion expenses for 2023 were $38,213, an increase of 29 percent compared to 2022. This increase was primarily driven by increased advertising and promotion investment in the Branded Spirits segment, primarily in the premium plus price tiers.
2022 to 2021 - Advertising and promotion expenses for 2022 were $29,714, an increase of 85 percent compared to 2021. This was primarily driven by an increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers. The increase was also driven by the assumption of Luxco’s advertising and promotion expenses for the full year of 2022.
SG&A expenses
2023 to 2022 - SG&A expenses for 2023 were $91,395, an increase of 22 percent compared to 2022. The increase in SG&A expenses was primarily due to higher personnel expenses and incentive compensation, inclusive of certain incremental costs incurred relating to our CEO transition, and business acquisition expenses related to the acquisition of Penelope.
2022 to 2021 - SG&A expenses for 2022 were $74,627, an increase of 2 percent compared to 2021. The increase in SG&A was driven by the assumption of Luxco’s SG&A expenses for the full year of 2022, as well as higher personnel and incentive compensation expense, partially offset by a decrease in advisory and other transaction costs in 2021 related to the merger with Luxco that did not recur in 2022.
Operating income
| Operating income | % Increase (Decrease) | ||||||
|---|---|---|---|---|---|---|---|
| Operating income for 2021 | $ | 126,363 | |||||
| Increase in gross profit - Branded Spirits segment(a) | 32,877 | 26 | pp(b) | ||||
| Increase in gross profit - Distilling Solutions segment(a) | 12,176 | 10 | pp | ||||
| Increase in gross profit - Ingredient Solutions segment(a) | 9,288 | 7 | pp | ||||
| Increase in advertising and promotion expenses | (13,616) | (11) | pp | ||||
| Increase in SG&A expenses | (1,798) | (1) | pp | ||||
| Decrease in insurance recoveries | (16,325) | (13) | pp | ||||
| Operating income for 2022 | 148,965 | 18 | % | ||||
| Increase in gross profit - Distilling Solutions segment(a) | 18,682 | 13 | pp(b) | ||||
| Increase in gross profit - Branded Spirits segment(a) | 17,260 | 12 | pp | ||||
| Increase in gross profit - Ingredient Solutions segment(a) | 15,464 | 10 | pp | ||||
| Increase in advertising and promotion expenses | (8,499) | (6) | pp | ||||
| Increase in SG&A expenses | (16,768) | (11) | pp | ||||
| Impairment of long-lived assets and other | (19,391) | (13) | pp | ||||
| Change in fair value of contingent consideration | (7,100) | (5) | pp | ||||
| Operating income for 2023 | $ | 148,613 | — | % |
(a) See segment discussion.
(b) Percentage points (“pp”).
2023 to 2022 - Operating income for 2023 decreased to $148,613 from $148,965 for 2022, primarily due to the impairment of assets and other expenses of $19,391 related to the closure of the Atchison Distillery, increased SG&A expenses and advertising and promotion expenses as discussed above, and the change in fair value of the contingent consideration of $7,100 related to the Penelope acquisition. These impacts were mostly offset by increased gross profit in all three segments.
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2022 to 2021 - Operating income for 2022 increased to $148,965 from $126,363 for 2021, due to increases in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments. These increases were partially offset by a decrease in insurance recoveries as well as increases in advertising and promotion expenses and SG&A expenses.
Income tax expense
2023 to 2022 - Income tax expense for 2023 was $34,616, for an effective tax rate for the year of 24.4 percent. Income tax expense for 2022 was $31,300, for an effective tax rate for the year of 22.3 percent. The 2.1 percentage point increase was primarily due to an increase in valuation allowances and lower tax credits.
2022 to 2021 - Income tax expense for 2022 was $31,300, for an effective tax rate for the year of 22.3 percent. Income tax expense for 2021 was $30,279, for an effective tax rate for the year of 25.0 percent. The 2.7 percentage point decrease was primarily due to an increase in state tax credits due to capital expenditures investments.
Basic and diluted EPS
| EPS | % Increase (Decrease) | ||||||
|---|---|---|---|---|---|---|---|
| Basic and Diluted EPS for 2021 | $ | 4.37 | |||||
| Change in operating income(a) | 1.12 | 26 | pp(b) | ||||
| Change in interest expense(a) | (0.06) | (1) | pp | ||||
| Change in other expense, net(a) | (0.08) | (2) | pp | ||||
| Change in weighted average shares outstanding(c) | (0.51) | (12) | pp | ||||
| Change in effective tax rate | 0.10 | 2 | pp | ||||
| Basic EPS for 2022 | 4.94 | 13 | % | ||||
| Impact of dilutive shares outstanding | (0.02) | — | pp | ||||
| Diluted EPS for 2022 | $ | 4.92 | 13 | % |
| EPS | % Increase (Decrease) | ||||||
|---|---|---|---|---|---|---|---|
| Basic EPS for 2022 | $ | 4.94 | |||||
| Change in operating income(a) | (0.02) | — | pp(b) | ||||
| Change in interest expense(a) | (0.04) | (1) | pp | ||||
| Change in other expense, net(a) | 0.11 | 2 | pp | ||||
| Change in weighted average shares outstanding(c) | (0.02) | — | pp | ||||
| Change in effective tax rate | (0.15) | (3) | pp | ||||
| Basic EPS for 2023 | 4.82 | (2) | % | ||||
| Impact of dilutive shares outstanding | (0.02) | (1) | pp | ||||
| Diluted EPS for 2023 | $ | 4.80 | (3) | % |
(a)Items are net of tax based on the effective tax rate for each base year.
(b)Percentage points (“pp”).
(c)Weighted average shares outstanding change primarily related to the vesting of employee restricted stock units (“RSUs”), our withholding and purchase of vested RSUs from employees to pay withholding taxes, and the granting of Common Stock to directors. Additionally, during 2021, the weighted average shares outstanding were impacted by the issuance of shares as part of the Merger consideration.
2023 to 2022 - Basic EPS decreased to $4.82 in 2023 from $4.94 in 2022, primarily due to the increase in effective tax rate, partially offset by a decrease in other expenses, net. Diluted EPS decreased to $4.80 in 2023 from $4.92 in 2022, primarily due to the above described changes in basic EPS as well as the impact of the dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.
2022 to 2021 - Basic EPS increased to $4.94 in 2022 from $4.37 in 2021, primarily due to the 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. Diluted EPS increased to $4.92 in 2022 from $4.37 in 2021, primarily due to the above described changes in basic EPS, partially offset by the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.
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DISTILLING SOLUTIONS SEGMENT
| DISTILLING SOLUTIONS SALES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Year-versus-Year Sales Change Increase/ (Decrease) | |||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||
| Brown Goods | $ | 289,191 | $ | 229,523 | $ | 59,668 | 26 | % | ||||||
| White Goods | 58,645 | 74,510 | (15,865) | (21) | ||||||||||
| Premium beverage alcohol | 347,836 | 304,033 | 43,803 | 14 | ||||||||||
| Industrial alcohol | 38,010 | 46,812 | (8,802) | (19) | ||||||||||
| Food grade alcohol | 385,846 | 350,845 | 35,001 | 10 | ||||||||||
| Fuel grade alcohol | 7,798 | 13,681 | (5,883) | (43) | ||||||||||
| Distillers feed and related co-products | 28,578 | 40,354 | (11,776) | (29) | ||||||||||
| Warehouse services | 28,632 | 23,598 | 5,034 | 21 | ||||||||||
| Total Distilling Solutions | $ | 450,854 | $ | 428,478 | $ | 22,376 | 5 | % | ||||||
| Change in Year-versus-Year Sales Attributed to: | ||||||||||||||
| Total(a) | Volume(b) | Net Price/Mix(c) | ||||||||||||
| Premium beverage alcohol | 14% | (8)% | 22% | |||||||||||
| Other Financial Information | ||||||||||||||
| Year Ended December 31, | Year-versus-Year Increase/(Decrease) | |||||||||||||
| 2023 | 2022 | Change | % Change | |||||||||||
| Gross profit | $ | 144,964 | $ | 126,282 | $ | 18,682 | 15 | % | ||||||
| Gross margin % | 32.2 | % | 29.5 | % | 2.7 | 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”).
2023 compared to 2022
Total Distilling Solutions sales for 2023 increased by $22,376, or 5 percent, compared to 2022. Sales of brown goods within premium beverage alcohol and warehouse services increased while white goods within premium beverage alcohol, distillers feed and related co-products, industrial alcohol, and fuel grade alcohol decreased compared to 2022. The increase in sales of brown goods was driven by higher average selling price and higher sales volume. This increase was partially offset by a decrease in sales of white goods, distillers feed and related co-products, industrial alcohol and fuel grade alcohol, which was driven primarily by lower sales volume in connection with the Atchison Distillery closure. The decreases in sales volume of white goods, distillers feed and related co-products, and industrial alcohol were partially offset by higher average selling price.
Gross profit increased year versus year by $18,682, or 15 percent. Gross margin for 2023 increased to 32.2 percent from 29.5 percent for 2022. The increase in gross profit was due primarily to increased average selling price and volume of higher margin brown goods. This increase was partially offset by larger gross profit losses in the Atchison Distillery.
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| DISTILLING SOLUTIONS SALES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Year-versus-Year Sales Change Increase/ (Decrease) | |||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||
| Brown Goods | $ | 229,523 | $ | 162,074 | $ | 67,449 | 42 | % | ||||||
| White Goods | 74,510 | 75,818 | (1,308) | (2) | ||||||||||
| Premium beverage alcohol | 304,033 | 237,892 | 66,141 | 28 | ||||||||||
| Industrial alcohol | 46,812 | 62,628 | (15,816) | (25) | ||||||||||
| Food grade alcohol | 350,845 | 300,520 | 50,325 | 17 | ||||||||||
| Fuel grade alcohol | 13,681 | 14,916 | (1,235) | (8) | ||||||||||
| Distillers feed and related co-products | 40,354 | 19,545 | 20,809 | 106 | ||||||||||
| Warehouse services | 23,598 | 17,523 | 6,075 | 35 | ||||||||||
| Total Distilling Solutions | $ | 428,478 | $ | 352,504 | $ | 75,974 | 22 | % | ||||||
| Change in Year-versus-Year Sales Attributed to: | ||||||||||||||
| Total(a) | Volume(b) | Net Price/Mix(c) | ||||||||||||
| Premium beverage alcohol | 28% | 12% | 16% | |||||||||||
| Other Financial Information | ||||||||||||||
| Year Ended December 31, | Year-versus-Year Increase/(Decrease) | |||||||||||||
| 2022 | 2021 | Change | % Change | |||||||||||
| Gross profit | $ | 126,282 | $ | 114,106 | $ | 12,176 | 11 | % | ||||||
| Gross margin % | 29.5 | % | 32.4 | % | (2.9) | 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”).
2022 compared to 2021
Total Distilling Solutions sales for 2022 increased by $75,974, or 22 percent, compared to 2021. Sales of brown goods within premium beverage alcohol, distillers feed and related co-products, and warehouse services increased while industrial alcohol, white goods within premium beverage alcohol, and fuel grade alcohol decreased compared to 2021. The increase in sales of brown goods was driven by higher sales volume and 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. Our warehouse services sales increased due to the increase in storage of our customer owned barreled whiskey and related warehouse services that we provide. These increases were partially offset by a decrease in sales of industrial alcohol and white goods, which were driven by lower sales volume, partially offset by higher average selling price.
Gross profit increased year versus year by $12,176, or 11 percent. Gross margin for 2022 decreased to 29.5 percent from 32.4 percent for 2021. 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 lower gross profit in industrial alcohol, white goods, and fuel grade alcohol, all of which were driven by higher input costs. The average selling price for these products also increased, but not enough to offset the higher input costs which caused a decrease in the gross margin percentage.
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BRANDED SPIRITS SEGMENT
| BRANDED SPIRITS SALES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Year-versus-Year Sales Change Increase/ (Decrease) | |||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||
| Ultra Premium | $ | 63,748 | $ | 48,245 | $ | 15,503 | 32 | % | ||||||
| Super Premium | 13,424 | 12,274 | 1,150 | 9 | ||||||||||
| Premium | 28,293 | 24,211 | 4,082 | 17 | ||||||||||
| Premium Plus | 105,465 | 84,730 | 20,735 | 24 | ||||||||||
| Mid | 75,676 | 82,530 | (6,854) | (8) | ||||||||||
| Value | 47,907 | 47,395 | 512 | 1 | ||||||||||
| Other | 24,885 | 23,284 | 1,601 | 7 | ||||||||||
| Total Branded Spirits | $ | 253,933 | $ | 237,939 | $ | 15,994 | 7 | % | ||||||
| Change in Year-versus-Year Sales Attributed to: | ||||||||||||||
| Total(a) | Volume(b) | Net Price/Mix(c) | ||||||||||||
| Branded Spirits | 7% | (6)% | 13% | |||||||||||
| Other Financial Information | ||||||||||||||
| Year Ended December 31, | Year-versus-Year Increase/(Decrease) | |||||||||||||
| 2023 | 2022 | Change | % Change | |||||||||||
| Gross profit | $ | 112,781 | $ | 95,521 | $ | 17,260 | 18 | % | ||||||
| Gross margin % | 44.4 | % | 40.1 | % | 4.3 | 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”).
2023 compared to 2022
Total Branded Spirits sales for 2023 increased by $15,994, or 7 percent, compared to 2022. Sales of brands within the premium plus price tiers as well as sales within the other category and the value price tier increased while sales of brands within the mid price tier decreased. The increase in sales of brands within the premium plus price tiers was primarily due to the acquisition of Penelope, an increase in average selling price, and an increase in sales volume. Sales within the value and other categories increased primarily due to an increase in average selling price. These increases were partially offset by decreased sales of brands within the mid price tier, primarily due to decreased sales volume as a result of sales shifting to higher margin accretive brands within the premium plus price tiers, partially offset by an increase in average selling price within the mid price tier.
Gross profit increased year versus year by $17,260, or 18 percent. Gross margin for 2023 increased to 44.4 percent compared to 40.1 percent for 2022. The increase in gross profit was primarily driven by contributions from the acquisition of Penelope as well as by higher average selling price in the premium plus price tiers, value, mid, and other price tiers. These increases were partially offset by increased input costs across all categories.
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| BRANDED SPIRITS SALES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Year-versus-Year Sales Change Increase/ (Decrease) | |||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||
| Ultra Premium | $ | 48,245 | $ | 27,722 | $ | 20,523 | 74 | % | ||||||
| Super Premium | 12,274 | 8,937 | 3,337 | 37 | ||||||||||
| Premium | 24,211 | 17,626 | 6,585 | 37 | ||||||||||
| Premium Plus | 84,730 | 54,285 | 30,445 | 56 | ||||||||||
| Mid | 82,530 | 71,292 | 11,238 | 16 | ||||||||||
| Value | 47,395 | 38,520 | 8,875 | 23 | ||||||||||
| Other | 23,284 | 19,469 | 3,815 | 20 | ||||||||||
| Total Branded Spirits | $ | 237,939 | $ | 183,566 | $ | 54,373 | 30 | % | ||||||
| Change in Year-versus-Year Sales Attributed to: | ||||||||||||||
| Total(a) | Volume(b) | Net Price/Mix(c) | ||||||||||||
| Branded Spirits | 30% | 17% | 13% | |||||||||||
| Other Financial Information | ||||||||||||||
| Year Ended December 31, | Year-versus-Year Increase/(Decrease) | |||||||||||||
| 2022 | 2021 | Change | % Change | |||||||||||
| Gross profit | $ | 95,521 | $ | 62,644 | $ | 32,877 | 52 | % | ||||||
| Gross margin % | 40.1 | % | 34.1 | % | 6.0 | 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”).
2022 compared to 2021
Total Branded Spirits sales for 2022 increased by $54,373, or 30 percent compared to 2021. Sales across all pricing tiers increased compared to 2021, primarily due to the additional brands acquired as part of the Merger that occurred on April 1, 2021. Additionally, sales increased in the premium plus price tiers due primarily to increased sales of American whiskey brands.
Gross profit increased year versus year by $32,877, or 52 percent. Gross margin for 2022 increased to 40.1 percent compared to 34.1 percent for 2021. The increase in gross profit was primarily driven by volume associated with the additional brands acquired as part of the Merger, increased average net price and mix 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. Additionally, gross profit increased due to increased sales of American whiskey brands within our premium plus price tiers.
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INGREDIENT SOLUTIONS SEGMENT
| INGREDIENT SOLUTIONS SALES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Year-versus-Year Sales Change Increase/ (Decrease) | |||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||
| Specialty wheat starches | $ | 66,050 | $ | 62,567 | $ | 3,483 | 6 | % | ||||||
| Specialty wheat proteins | 48,291 | 39,313 | 8,978 | 23 | ||||||||||
| Commodity wheat starches | 16,413 | 14,023 | 2,390 | 17 | ||||||||||
| Commodity wheat proteins | 982 | 38 | 944 | 2,484 | ||||||||||
| Total Ingredient Solutions | $ | 131,736 | $ | 115,941 | $ | 15,795 | 14 | % | ||||||
| Change in Year-versus-Year Sales Attributed to: | ||||||||||||||
| Total(a) | Volume(b) | Net Price/Mix(c) | ||||||||||||
| Total Ingredient Solutions | 14% | (6)% | 20% | |||||||||||
| Other Financial Information | ||||||||||||||
| Year Ended December 31, | Year-versus-year Increase/(Decrease) | |||||||||||||
| 2023 | 2022 | Change | % Change | |||||||||||
| Gross profit | $ | 46,967 | $ | 31,503 | $ | 15,464 | 49 | % | ||||||
| Gross margin % | 35.7 | % | 27.2 | % | 8.5 | 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”).
2023 compared to 2022
Total Ingredient Solutions sales for 2023 increased by $15,795, or 14 percent, compared to 2022. The increase in Ingredient Solutions sales was driven by increases in sales in all product lines. The higher sales of specialty wheat proteins was driven by higher average selling price and higher sales volume. Additionally, sales of specialty wheat starches and commodity wheat starches increased primarily due to higher average selling price, partially offset by lower sales volume.
Gross profit increased year versus year by $15,464, or 49 percent. Gross margin for 2023 increased to 35.7 percent from 27.2 percent for 2022. The increase in gross profit was primarily driven by higher average selling price across all product categories, partially offset by higher input costs for specialty wheat starches and proteins.
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| INGREDIENT SOLUTIONS SALES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | Year-versus-Year Sales Change Increase/ (Decrease) | |||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||
| Specialty wheat starches | $ | 62,567 | $ | 47,758 | $ | 14,809 | 31 | % | ||||||
| Specialty wheat proteins | 39,313 | 31,485 | 7,828 | 25 | ||||||||||
| Commodity wheat starches | 14,023 | 10,014 | 4,009 | 40 | ||||||||||
| Commodity wheat proteins | 38 | 1,393 | (1,355) | (97) | ||||||||||
| Total Ingredient Solutions | $ | 115,941 | $ | 90,650 | $ | 25,291 | 28 | % | ||||||
| Change in Year-versus-Year Sales Attributed to: | ||||||||||||||
| Total(a) | Volume(b) | Net Price/Mix(c) | ||||||||||||
| Total Ingredient Solutions | 28% | 9% | 19% | |||||||||||
| Other Financial Information | ||||||||||||||
| Year Ended December 31, | Year-versus-year Increase/(Decrease) | |||||||||||||
| 2022 | 2021 | Change | % Change | |||||||||||
| Gross profit | $ | 31,503 | $ | 22,215 | $ | 9,288 | 42 | % | ||||||
| Gross margin % | 27.2 | % | 24.5 | % | 2.7 | 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”).
2022 compared to 2021
Total Ingredient Solutions sales for 2022 increased by $25,291, or 28 percent, compared to 2021. The increase in Ingredient Solutions sales was primarily driven by higher sales of specialty wheat starches and proteins primarily due to higher average selling prices and higher sales volume. Additionally, the increase in Ingredient Solutions sales was driven by higher sales of commodity wheat starches primarily due to higher average selling price. These increases were partially offset by a decrease in sales of commodity wheat proteins due to lower sales volume.
Gross profit increased year versus year by $9,288, or 42 percent. Gross margin for 2022 increased to 27.2 percent from 24.5 percent for 2021. The increase in gross profit was primarily driven by higher average selling price and higher sales volumes of specialty wheat starches and proteins. These increases were partially offset by higher input costs for all product lines within the segment.
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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 (see Note 7, Corporate Borrowings) provide the primary sources of cash to fund operating needs and capital expenditures. These same sources of cash are used to fund stockholder 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 mergers and acquisitions, and anticipated operating requirements for the next 12 months and beyond.
| Cash Flow Summary | Year Ended December 31, | Changes, Year versus Year-Increase / (Decrease) | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | 2023 v. 2022 | 2022 v. 2021 | |||||||||||||||
| Cash provided by operating activities | $ | 83,783 | $ | 88,936 | $ | 88,263 | $ | (5,153) | $ | 673 | |||||||||
| Cash used in investing activities | (159,242) | (47,813) | (182,619) | (111,429) | 134,806 | ||||||||||||||
| Cash provided by (used in) financing activities | 45,924 | (14,764) | 94,287 | 60,688 | (109,051) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 34 | (38) | (25) | 72 | (13) | ||||||||||||||
| Increase (decrease) in cash and cash equivalents | $ | (29,501) | $ | 26,321 | $ | (94) | $ | (55,822) | $ | 26,415 |
Operating Activities. Cash provided by operating activities was $83,783 during the year ended December 31, 2023. The cash provided by operating activities during 2023 resulted primarily from net income of $107,130 and adjustments for non-cash or non-operating charges of $56,263, including depreciation and amortization, impairment of long-lived assets and other, share-based compensation, partially offset by uses of cash due to changes in operating assets and liabilities of $79,610. The primary drivers of the changes in operating assets and liabilities were $46,921 use of cash related to an increase in inventories, primarily barreled distillate, and $32,397 use of cash related to an increase in receivables.
Cash provided by operating activities was $88,936 during the year ended December 31, 2022. The cash provided by operating activities during 2022 resulted primarily from net income of $108,872, adjustments for non-cash or non-operating charges of $30,382, including depreciation and amortization, share-based compensation, equity method investment loss, and by uses of cash due to changes in operating assets and liabilities of $50,318. The primary drivers of the changes in operating assets and liabilities were $44,350 use of cash related to an increase in inventories, primarily barreled distillate, and $16,786 use of cash related to an increase in receivables, partially offset by $10,626 of cash provided by an increase in accounts payable related to the timing of cash disbursements.
Investing Activities. Cash used in investing activities for the year ended December 31, 2023 was $159,242, which primarily resulted from $103,712 related to the acquisition of Penelope and additions to property, plant and equipment of $55,267 (see “Capital Spending”).
Cash used in investing activities for the year ended December 31, 2022 was $47,813, which primarily resulted from additions to property, plant and equipment of $45,323 (see “Capital Spending”).
Capital Spending. We manage capital spending to support our business growth plans. We have incurred $61,108, $47,859, and $51,691 of capital expenditures and have paid $55,267, $45,323, and $47,389 for capital expenditures for the years ended December 31, 2023, 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 $85,800 in capital expenditures for 2024, which we expect to use for facility improvement and expansion, facility sustenance projects, and environmental health and safety projects.
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Financing Activities. Cash provided by financing activities for the year ended December 31, 2023 was $45,924, primarily due to net proceeds on long-term debt of $57,400 (see Long-Term and Short-Term Debt), partially offset by payments of dividends and dividend equivalents of $10,675 (see Note 9, Equity and EPS for additional information).
Cash used in financing activities for the year ended December 31, 2022 was $14,764, primarily due to payments of dividends and dividend equivalents of $10,646 (see Note 9, Equity and EPS for additional information), and principal payments on long-term debt of $3,403 (see Long-Term and Short-Term Debt).
Treasury Purchases. 22,592 RSUs vested and converted to common shares during the year ended December 31, 2023, of which we withheld and purchased for treasury 8,437 shares valued at $801 to cover payment of associated withholding taxes.
29,376 RSUs vested and converted to common shares during the year ended December 31, 2022, of which we withheld and purchased for treasury 9,031 shares valued at $715 to cover payment of associated withholding taxes.
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 Board-approved dividends) and the overall cost of capital. Total debt was $287,249 (net of unamortized loan fees of $6,601) at December 31, 2023 and $230,335 (net of unamortized loan fees of $6,115) at December 31, 2022. Net borrowings / (payments) on all debt for 2023 and 2022 were $57,400, and $(3,403), respectively (see Note 7, Corporate Borrowings for additional information).
Dividends and Dividend Equivalents. See Note 9, Equity and EPS for further discussion.
On February 22, 2024, we announced a dividend payable to stockholders of record of our Common Stock, resulting in dividend equivalents payable to RSU holders, of $0.12 per share and per RSU. The dividend and dividend equivalent are payable on March 29, 2024 to stockholders of record and RSU holders on March 15, 2024.
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.
Our principal sources of cash are product sales and borrowings on our various debt agreements. Under these agreements, we must meet certain financial covenants and restrictions, and at December 31, 2023, we met those covenants and restrictions.
At December 31, 2023, our current assets exceeded our current liabilities by $400,191, largely due to our inventories, at cost, of $346,853. At December 31, 2023, our cash balance was $18,388, and we have used our various debt agreements for liquidity purposes, with $337,000 available under our Credit Agreement for additional borrowings and $220,400 available under the Note Purchase Agreement (see Note 7, Corporate Borrowings for additional information). 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, dividend payments as well as potential mergers and acquisitions. Subject to market conditions, we could also fund future mergers and acquisitions through the issuance of additional shares of Common Stock. In addition, we have strong operating results such that we believe financial institutions should provide sufficient credit funding to meet our short-term financing requirements, if needed.
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Contractual Obligations
The following table provides information on the amounts and payments of our contractual obligations at December 31, 2023:
| Payments due by period | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total | Short-Term (a) | Long-Term | ||||||||
| Long-term debt | $ | 293,850 | $ | 6,400 | $ | 287,450 | ||||
| Interest on long-term debt (c) | 71,677 | 4,841 | 66,836 | |||||||
| Operating leases | 16,092 | 3,702 | 12,390 | |||||||
| Purchase commitments | 126,893 | 115,011 | (b) | 11,882 | ||||||
| Other | 863 | 205 | 658 | |||||||
| Total | $ | 509,375 | $ | 130,159 | $ | 379,216 |
(a)Short-term obligation payments are due within 12 months from the current year end.
(b)Includes open purchase order commitments related to raw materials and packaging used in the ordinary course of business of 101,872.
(c)Excludes variable interest on long-term debt
Industrial Revenue Bonds
We are in the process of completing several projects that have been financed using industrial revenue bonds in the state of Kentucky. Traditionally, industrial revenue bonds have been used as an economic development tool in the state to attract desirable businesses, including business in the bourbon industry, and have allowed a 15 to 40 year real property tax abatement on our renovated and newly-constructed warehouse buildings and distilleries in Kentucky. As of December 31, 2023, approximately $50,000 of our facilities in Nelson County, Kentucky and approximately $30,900 of our facilities in Williamstown, Kentucky were financed with industrial revenue bonds. The city then leased the facilities back to us under a capital lease, the terms of which provide for the payment of basic rent in an amount sufficient to pay principal and interest on the bonds. Our obligation to pay rent under the lease is in the same amount and due on the same date as the obligation to pay debt service on the bonds which we hold. The lease permits us to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be canceled. At the bonds’ maturity, the facilities will revert to us without costs. If we were to present the bonds for cancellation prior to maturity, a nominal fee could be incurred. We may not be able to use industrial revenue bonds in the future due to legislative, regulatory, and related changes in the state of Kentucky.
We recorded the land and buildings as assets in property, plant, and equipment, net, on our Consolidated Balance Sheets. Because we own all outstanding bonds, have a legal right to set-off, and intend to set-off the corresponding lease and interest payments, we have netted the capital lease obligation with the bond asset. No amount for our obligation under the capital lease is reflected on our Consolidated Balance Sheets, nor do we reflect an amount for the corresponding industrial revenue bond asset (see Note 11, Commitments and Contingencies for additional information).
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles 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 rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment. We have identified the most critical accounting policies which involve the most complex and subjective judgments. These should be read in conjunction with the significant accounting policies discussed in Note 1, Nature of Operations and Summary of Significant Accounting Policies.
Business Combinations. The acquisition of Penelope was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such, we allocated the consideration paid for the business to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market. Critical estimates used in determining the fair value include, but are not limited to 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. The trade names and
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distributor relationships acquired were recorded at fair value 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 name and distributor relationship.
Contingent Consideration. The estimated fair value of the contingent consideration obligation at the Acquisition date was determined using a Monte Carlo simulation approach. This approach requires significant assumptions, including projected net sales, discount rates, and volatility rates. The contingent consideration liability is measured on a quarterly basis and recorded at fair value. The changes in fair value of the obligation result from changes in the key assumptions between measurement dates, such as projected net sales, discount rates, and volatility rates. The adjustment to fair value is recorded in the change in fair value of contingent consideration line on the Consolidated Statements of Income.
Goodwill and Other Intangible Assets. The Company tests goodwill and indefinite-lived intangible assets 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. We have the option to evaluate qualitative factors to assess if goodwill and indefinite-lived intangible assets are impaired before quantifying the fair value of the reporting unit. Management judgment is required in the evaluation of qualitative factors, 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. To the extent that the carrying amount exceeds fair value, an impairment of goodwill is recognized and allocated to the reporting units. Based on the impairment tests performed by the Company during the fourth quarter 2023, we believe none of our goodwill or indefinite-lived intangible assets are impaired and are not currently at risk of impairment.
NEW ACCOUNTING PRONOUNCEMENTS
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1, Nature of Operations and Summary of Significant Accounting Policies.