Description of the transaction. On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, and subsequently completed the merger on April 1, 2021 (the “Merger”). Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. As a result of the Merger, MGP increased its scale and market position in the branded-spirits sector and believes it strengthened its platform for future growth of higher valued-added products.

Following the Merger, the Luxco Companies became wholly-owned subsidiaries of MGP and are included within the Branded Spirits segment. The aggregate consideration paid by the Company in connection with the Merger was $237,500 in cash (less assumed indebtedness) and 5,007,833 shares of common stock of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”). The Company Shares were valued at $296,213 and represented approximately 22.8 percent of the Company’s outstanding common stock immediately following the closing of the Merger. The Merger Consideration is subject to customary purchase price adjustments, including working capital, a portion of which may be paid in common stock.

The preliminary Merger Consideration will increase or decrease to the extent that actual closing date working capital exceeds or is less than the contractually agreed upon working capital target. In addition, the preliminary Merger Consideration will be increased for any acquired cash. In connection with the closing of the Merger on April 1, 2021, the preliminary purchase price adjustments increased the cash consideration paid by approximately $75 and increased stock consideration by approximately $159.

The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with borrowings under the Company’s existing Credit Agreement which was drawn down on April 1, 2021. See Note 5, Corporate Borrowings, for further details.

For tax purposes, the transaction was structured partially as a tax-free reorganization and partially as a taxable acquisition, as defined in the Internal Revenue Code. The Company anticipates the amount transferred in a tax deferred manner, under the tax-free reorganization rules, will not create additional tax basis for the Company. The taxable component of the transaction will create additional tax basis and a corresponding future tax deduction for the Company.

The Merger was accounted for as a business combination in accordance with Accounting Standard Codification 805 “ASC 805”), Business Combinations, and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value of the assets acquired and liabilities assumed are based upon a preliminary assessment of fair value and may change as valuations for certain tangible assets, intangible assets and contingent liabilities are finalized and the associated income tax impacts are determined. The Company expects to finalize the purchase price allocation as soon as practicable, but no longer than one year from the acquisition date.

Purchase Price Allocation. The following table summarizes the preliminary allocation of the consideration paid for Luxco to the preliminary estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.


Consideration:
Cash, net of assumed debt	$	150,078
Value of MGP Common Stock issued at close (a)	296,372
Fair value of total consideration transferred	$	446,450

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	479
Receivables	29,675
Inventory	90,854
Prepaid expenses	1,454
Property, plant and equipment, net	41,279
Investments in joint ventures	5,085
Intangible assets (b)	219,500
Other assets	4,257
Total assets	392,583
Current maturities of long-term debt (c)	87,497
Accounts payable	14,453
Federal and state liquor taxes payable	8,352
Accrued expenses and other	2,832
Other noncurrent liabilities	784
Deferred income taxes	57,720
Total liabilities	171,638
Goodwill	225,505
Total	$	446,450

(a) The Company issued 5,007,833 shares of MGP Common Stock which was valued at $59.15 per share on April 1, 2021. The value of MGP Common Stock includes the preliminary working capital adjustment of $159.

In accordance with ASC 805 assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates and market comparable, among others. The fair value of work-in-process and finished goods inventory was determined using the comparative sales method and raw materials was determined using the replacement cost method.

Goodwill of $225,505 represents the excess of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed. No Goodwill is expected to be deductible for tax purposes. The Intangible assets acquired includes indefinite-lived intangible assets, trade names, with an estimated fair value of $178,100 and definite-lived intangible assets, distributor relationships, with an estimated fair value of $41,400 and a useful life of 20 years. The trade names and distributor relationships acquired by the Company have been adjusted to the estimated fair values using the relief from royalty method and multi-period earnings method, respectively. Management and a third party valuation team performed a preliminarily valuation analysis to determine the fair value of each trade name and distributor relationship.

Operating Results. The operating results of Luxco were consolidated with the Company’s operating results subsequent to the merger date. During the quarter and year to date ended June 30, 2021, the Company recorded $59,298 of Sales and $6,520 of Income before income taxes, attributable to Luxco on it’s Condensed Consolidated Statement of Income. During the quarter and year to date ended June 30, 2021, the Company has incurred $6,738 and $8,628, respectively, of transaction related costs, which are included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income.

Pro Forma Information. The following table summarizes the unaudited pro forma financial results for the quarter and year to date ended June 30, 2021 and 2020, as if the Merger had occurred on January 1, 2020:


	Pro Forma Financial Information
	Quarter Ended June 30,				Year to Date Ended June 30,
	2021		2020		2021		2020
Sales	$	174,939	$	141,686	$	349,461	$	289,894
Net income	28,124		12,589		34,419		15,990
Basic and diluted earnings per share	1.28		0.57		1.56		0.72

The pro forma results are adjusted for items that are non-recurring in nature and directly attributable to the Merger, including the income tax effect of the adjustments. Merger related costs incurred by the Company of $6,738 and $8,628 for the quarter and year to date ended June 30, 2021, respectively, were excluded and $6,738 is assumed to have been incurred on January 1, 2020. Merger related costs incurred by Luxco of $3,132 were excluded from the year to date ended June 30, 2021 pro forma results. A non-recurring expense of $2,529 for the quarter and year to date ended June 30, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed and included in the results for the year to date ended June 30, 2020. Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives.

The summary pro forma financial information is for informational purposes only, is based on estimates and assumptions, and does not purport to represent what the Company’s consolidated results of operations actually would have been if the Merger had occurred at an earlier date, and such data does not purport to project the Company’s results of operations for any future period. The basic and diluted shares outstanding used to calculate the pro forma net income per share amounts presented above have been adjusted to assume shares issued at the closing of the Merger were outstanding since January 1, 2020.