UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2019
27, 2020 or
☐ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____.________.
Commission file number 333-115164
U.S. PREMIUM BEEF, LLC
(Exact name of registrant as specified in its charter)
DELAWARE | 20-1576986 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
12200 North Ambassador Drive
Kansas City, MO 64163
(Address of principal executive offices)
Telephone: (866) 877-2525
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☑ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer☐ Accelerated Filer☐ Non-Accelerated Filer☑Small Reporting Company☐ Emerging Growth Company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☑
The registrant’s units are not traded on an exchange or in any public market. As of July 27, 2019,25, 2020, there were 735,385 Class A units and 755,385 Class B units outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchanges on which registered |
N/A | N/A | N/A |
TABLE OF CONTENTS
PART I. | FINANCIAL INFORMATION | Page No. | |
Item 1. | Financial Statements (unaudited). | 1 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition | ||
and Results of Operations. | 9 | ||
Item 3. | Quantitative and Qualitative Disclosures | 13 | |
Item 4. | Controls and Procedures. | 13 | |
PART II. | OTHER INFORMATION | ||
Item 1. | Legal Proceedings. | 13 | |
Item 1A. | Risk Factors. | 14 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 14 | |
Item 3. | Defaults Upon Senior Securities. | 14 | |
Item 4. | Mine Safety Disclosures. | 14 | |
Item 5. | Other Information. | 14 | |
Item 6. | Exhibits. | 15 | |
Signatures. | 16 |
Unless the context indicates or otherwise requires, the terms “USPB”, “the Company”, “we”, “our”, and “us” refer to U.S. Premium Beef, LLC. As used in this report, the terms “NBP” and “National Beef” refer to National Beef Packing Company, LLC, a Delaware limited liability company.
ii
Item 1. Financial Statements (unaudited).
1
U.S. PREMIUM BEEF, LLC
Balance Sheets
(thousands of dollars, except unit information)
Assets | June 29, 2019 | December 29, 2018 | June 27, 2020 | December 28, 2019 | ||||||||
(unaudited) | (unaudited) | |||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 59,685 | $ | 88,411 | $ | 31,843 | $ | 77,909 | ||||
Accounts receivable | 275 | 3 | ||||||||||
Due from affiliates | 4 | 21 | 15 | 41 | ||||||||
Other current assets | 19 | 27 | 13 | 26 | ||||||||
Total current assets | 59,708 | 88,459 | 32,146 | 77,979 | ||||||||
Property, plant, and equipment, at cost | 243 | 200 | 243 | 238 | ||||||||
Less accumulated depreciation | 192 | 183 | 203 | 195 | ||||||||
Net property, plant, and equipment | 51 | 17 | 40 | 43 | ||||||||
Right of use assets, net | 251 | - | 208 | 232 | ||||||||
Investment in National Beef Packing Company, LLC | 157,508 | 143,361 | 239,417 | 131,786 | ||||||||
Other assets | 43 | 69 | 12 | 43 | ||||||||
Total assets | $ | 217,561 | $ | 231,906 | $ | 271,823 | $ | 210,083 | ||||
Liabilities and Capital Shares and Equities | ||||||||||||
Liabilities and Members' Capital | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable - trade | $ | 35 | $ | 12 | $ | 75 | $ | 28 | ||||
Due to affiliates | 3 | 44 | - | 29 | ||||||||
Accrued compensation and benefits | 1,741 | 2,158 | 1,612 | 2,260 | ||||||||
Lease obligations | 50 | - | 44 | 49 | ||||||||
Other accrued expenses and liabilities | 76 | 515 | 577 | 1,307 | ||||||||
Distributions payable | 49 | 5,687 | - | 50 | ||||||||
Total current liabilities | 1,954 | 8,416 | 2,308 | 3,723 | ||||||||
Long-term liabilities: | ||||||||||||
Lease obligations | 201 | - | 164 | 183 | ||||||||
Other liabilities | 3,710 | 3,734 | 3,213 | 3,340 | ||||||||
Total long-term liabilities | 3,911 | 3,734 | 3,377 | 3,523 | ||||||||
Total liabilities | 5,865 | 12,150 | 5,685 | 7,246 | ||||||||
Commitments and contingencies | - | - | - | - | ||||||||
Capital shares and equities: | ||||||||||||
Members' capital, 735,385 Class A units and 755,385 Class B units authorized, | ||||||||||||
issued and outstanding | 211,696 | 219,756 | ||||||||||
Total capital shares and equities | 211,696 | 219,756 | ||||||||||
Total liabilities and capital shares and equities | $ | 217,561 | $ | 231,906 | ||||||||
Members' capital | ||||||||||||
Members' contributed capital, 735,385 Class A units and 755,385 Class B units | ||||||||||||
authorized, issued and outstanding | 266,138 | 202,837 | ||||||||||
Total members' capital | 266,138 | 202,837 | ||||||||||
Total liabilities and members' capital | $ | 271,823 | $ | 210,083 | ||||||||
See accompanying notes to financial statements. |
2
U.S. PREMIUM BEEF, LLC
Statements of Operations
(thousands of dollars, except per unit and per unit data)
13 weeks ended | 26 weeks ended | 13 weeks ended | 26 weeks ended | |||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | |||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||
Net sales | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||
Cost of sales | - | - | - | - | - | - | - | - | ||||||||||||||||||||||
Selling, general, and administrative expenses | 887 | 1,089 | 2,691 | 2,531 | 1,221 | 887 | 2,347 | 2,691 | ||||||||||||||||||||||
Depreciation and amortization | 4 | 3 | 9 | 6 | 4 | 4 | 9 | 9 | ||||||||||||||||||||||
Total costs and expenses | 891 | 1,092 | 2,700 | 2,537 | 1,225 | 891 | 2,356 | 2,700 | ||||||||||||||||||||||
Operating loss | (891 | ) | (1,092 | ) | (2,700 | ) | (2,537 | ) | (1,225 | ) | (891 | ) | (2,356 | ) | (2,700 | ) | ||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Other income: | ||||||||||||||||||||||||||||||
Interest income | 263 | 265 | 647 | 458 | 7 | 263 | 158 | 647 | ||||||||||||||||||||||
Interest expense | (3 | ) | (3 | ) | (15 | ) | (6 | ) | - | (3 | ) | (2 | ) | (15 | ) | |||||||||||||||
Equity in net income of National Beef Packing Company, LLC | 25,194 | 28,338 | 36,957 | 38,684 | ||||||||||||||||||||||||||
Equity in income of National Beef Packing Company, LLC | 102,385 | 25,194 | 115,484 | 36,957 | ||||||||||||||||||||||||||
Other, net | 185 | 280 | 396 | 390 | 37 | 185 | 96 | 396 | ||||||||||||||||||||||
Total other income | 25,639 | 28,880 | 37,985 | 39,526 | 102,429 | 25,639 | 115,736 | 37,985 | ||||||||||||||||||||||
Comprehensive income | $ | 24,748 | $ | 27,788 | $ | 35,285 | $ | 36,989 | ||||||||||||||||||||||
Net income | $ | 101,204 | $ | 24,748 | $ | 113,380 | $ | 35,285 | ||||||||||||||||||||||
Comprehensive Income per unit: | ||||||||||||||||||||||||||||||
Income per unit: | ||||||||||||||||||||||||||||||
Basic and diluted | ||||||||||||||||||||||||||||||
Class A units | $ | 3.37 | $ | 3.78 | $ | 4.80 | $ | 5.03 | $ | 13.76 | $ | 3.37 | $ | 15.42 | $ | 4.80 | ||||||||||||||
Class B units | $ | 29.49 | $ | 33.11 | $ | 42.04 | $ | 44.07 | $ | 120.58 | $ | 29.49 | $ | 135.09 | $ | 42.04 | ||||||||||||||
Outstanding weighted-average Class A and Class B units: | ||||||||||||||||||||||||||||||
Basic and diluted | ||||||||||||||||||||||||||||||
Class A units | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | ||||||||||||||||||||||
Class B units | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | ||||||||||||||||||||||
See accompanying notes to financial statements. |
3
U.S. PREMIUM BEEF, LLC
Statements of Cash Flows
(thousands of dollars)
26 weeks ended | 26 weeks ended | |||||||||||||
June 29, 2019 | June 30, 2018 | June 27, 2020 | June 29, 2019 | |||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||
Cash flows from operating activities: | ||||||||||||||
Comprehensive income | $ | 35,285 | $ | 36,989 | ||||||||||
Adjustments to reconcile comprehensive income to net cash used in | ||||||||||||||
Net income | $ | 113,380 | $ | 35,285 | ||||||||||
Adjustments to reconcile net income to net cash provided by | ||||||||||||||
operating activities: | ||||||||||||||
Depreciation and amortization | 9 | 6 | 9 | 9 | ||||||||||
Equity in net income of National Beef Packing Company, LLC | (36,957 | ) | (38,684 | ) | (115,484 | ) | (36,957 | ) | ||||||
Distributions from National Beef Packing Company, LLC | 22,810 | 38,684 | 7,853 | 22,810 | ||||||||||
Changes in assets and liabilities: | ||||||||||||||
Accounts receivable | (272 | ) | - | |||||||||||
Due from affiliates | 17 | 133 | 26 | 17 | ||||||||||
Other assets | 34 | 50 | (164 | ) | 34 | |||||||||
Accounts payable | 23 | (26 | ) | 47 | 23 | |||||||||
Due to affiliates | (41 | ) | (384 | ) | (29 | ) | (41 | ) | ||||||
Accrued compensation and benefits | (441 | ) | (535 | ) | (775 | ) | (441 | ) | ||||||
Other accrued expenses and liabilities | (438 | ) | (173 | ) | (522 | ) | (438 | ) | ||||||
Net cash provided by operating activities | 20,301 | 36,060 | 4,069 | 20,301 | ||||||||||
Cash flows from investing activities: | ||||||||||||||
Capital expenditures | (43 | ) | (7 | ) | ||||||||||
Distributions from National Beef Packing Company, LLC | - | 18,256 | ||||||||||||
Net cash (used in)/provided by investing activities | (43 | ) | 18,249 | |||||||||||
Capital expenditures, including interest capitalized | (6 | ) | (43 | ) | ||||||||||
Net cash used in investing activities | (6 | ) | (43 | ) | ||||||||||
Cash flows from financing activities: | ||||||||||||||
Member distributions | (48,984 | ) | (91,742 | ) | (50,129 | ) | (48,984 | ) | ||||||
Net cash used in financing activities | (48,984 | ) | (91,742 | ) | (50,129 | ) | (48,984 | ) | ||||||
Net decrease in cash | (28,726 | ) | (37,433 | ) | (46,066 | ) | (28,726 | ) | ||||||
Cash and cash equivalents at beginning of the period | 88,411 | 119,074 | ||||||||||||
Cash and cash equivalents at end of the period | $ | 59,685 | $ | 81,641 | ||||||||||
Cash and cash equivalents at beginning of period | 77,909 | 88,411 | ||||||||||||
Cash and cash equivalents at end of period | $ | 31,843 | $ | 59,685 | ||||||||||
Supplemental noncash disclosures of operating activities: | ||||||||||||||
Right of use assets | $ | 251 | $ | - | $ | - | $ | 251 | ||||||
Supplemental noncash disclosures of investing activities: | ||||||||||||||
Supplemental noncash disclosures of financing activities: | ||||||||||||||
Investment in National Beef Packing Company, LLC | $ | 23,691 | $ | - | $ | - | $ | 23,691 | ||||||
See accompanying notes to financial statements. |
4
U.S. PREMIUM BEEF, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Interim Financial Statements
Basis of Presentation
The accompanying unaudited Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), for interim financial information; therefore, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included using management’s best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments. For further information, refer to the audited Financial Statements and Notes to Financial Statements, which are included in the Company’s Annual Report on Form 10-K on file with the Securities and Exchange Commission (SEC), for the fiscal year ended December 29, 2018.28, 2019. The results of operations for the interim periods presented are not necessarily indicative of the results for a full fiscal year.
USPB’s 15.0729% investment in NBP is accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control.
(2) Accounting Policies
Accounting for Investment in NBP.On December 30, 2011, USPB sold the majority of its ownership interest in NBP to Leucadia. On that date, USPB’s investment in NBP was measured at fair value and has since been carried under the equity method of accounting. USPB’s 15.0729% investment in NBP is accounted for using the equity method of accounting as the Company has the ability to exercise significant influence but does not have financial or operational control.
Operating losses, diminished cash flows, economic and industry events, pandemics, such as coronavirus disease (COVID-19), and a variety of other factors may result in a decrease in the value of the investment, which is other than temporary. Such potential decreases in value, if deemed other than temporary, will cause the Company to record an impairment charge, which may have an impact on the trading values of USPB’s Class A and Class B units. However, NBP’s plants are all operational at the present time; it has been designated as an essential business during the COVID-19 pandemic; and its results of operations are highly profitable, as reflected in Note 6. As a result, we believe the fair value of our investment in NBP exceeds the carrying value.
AccountingCash and Cash Equivalents.The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of June 27, 2020, the Company’s balance sheet reflected Cash and cash equivalents of $31.8 million.
(3) Noncompetition Agreements
The former CEO’s employment agreement provided for Leases.In February 2016,him to receive noncompetition payments in connection with the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02,Leucadia Transaction. He will continue to receive noncompetition payments of approximately $845,000 per year during calendar years 2020 and 2021.
Leases. The new standard requirescurrent CEO’s employment agreement provides for him to receive noncompetition payments for a twelve-month period following his termination of employment with USPB.
As of June 27, 2020 and December 28, 2019, the recognitionCompany had accrued $1.6 million and $1.9 million, respectively, for the noncompetition agreements. The current and long-term portion of all leases thatthe accrued amounts are longer than one yearincluded in Accrued compensation and benefits and Other liabilities, respectively, on the balance sheet, which will resultsheet. The table below summarizes the current and long-term portions of the accrued non-compete amounts (thousands of dollars):
5
June 27, 2020 | December 28, 2019 | |||||
Current non-compete | $ | 848 | $ | 848 | ||
Long-term non-compete | 718 | 1,089 | ||||
$ | 1,566 | $ | 1,937 |
(4) Employee Compensation Plans
In September 2010, USPB’s Board of Directors approved a management phantom unit plan and subsequently awarded phantom units in the recognition of a right of use assetfiscal years 2010 and a corresponding lease liability. The new standard was effective for annual and interim periods beginning after December 15, 2018; USPB implemented the new standard effective December 30, 2018.
Upon review of its lease arrangements, USPB determined that its two office leases were subject to the new leasing standard. The Kansas City, MO office lease has a remaining term of approximately 5.5 years (assuming the final 3-year renewal is exercised) and the Dodge City, KS office has a remaining term of approximately 1.5 years. Neither lease agreement provides for renewals beyond the remaining terms. The monthly lease payment for the Kansas City office is $3,790, subject to annual Consumer Price Index adjustments, which are capped at 3% per year. The monthly lease payment for the Dodge City office is $1,018, which is not subject to adjustment. Both offices are used for general office use only.2013. As of June 29,27, 2020 and December 28, 2019, the present valueCompany had accrued $2.6 million and $2.3 million, respectively, for the management phantom awards. The current and long-term portion of the remaining operating lease paymentsaccrued amounts are included in Accrued compensation and benefits and Other liabilities on the balance sheet.
USPB provides its employees the opportunity to earn cash incentives and bonuses. As of June 27, 2020 and December 28, 2019, the Company had accrued $0.7 million and $1.4 million, respectively, for the offices equaled $0.3 millioncash incentive and USPB’sbonus plans. The accrued amounts are included in Accrued compensation and benefits on the balance sheet reflected Right of Use Assets and Lease Liabilities equal to that amount. The discount rate used to compute the present value was USPB’s incremental borrowing rate.
USPB elected the package of practical expedients permitted under the transition guidance, which allows us to accept: 1) the original determination of whether a contract contained a lease, 2) a subsequent review of existing contracts is not necessary, and 3) USPB does not have to reassess the initial direct costs assigned to leases under previous leasing guidance. The new guidance did not have a material impact on our financial statements.
sheet.
(3) Members’ Capital
The following table represents a reconciliation of Members’ Capital for the twenty-six week period ended June 29, 2019 (thousands of dollars).
Balance at December 29, 2018 | $ | 219,756 | |
Allocation of comprehensive income for the twenty-six week period ended June 29, 2019 | 35,285 | ||
Member distributions | (43,345 | ) | |
Balance at June 29, 2019 | $ | 211,696 |
(4)(5) Earnings Per Unit
Under the LLC structure, earnings of the Company are to be allocated to unitholders based on their proportionate share of underlying equity. Earnings Per Unit (EPU) has been presented in the accompanying Statements of Operations and in the table that follows.
Basic EPU excludes dilution and is computed by first allocating a portion of USPB’s comprehensivenet income or comprehensivenet loss to Class A units and the remainder is allocated to Class B units. For the thirteen and twenty-six week periods ended June 29, 201927, 2020 and June 30, 2018,29, 2019, 10% of USPB’s comprehensivenet income was allocated to the Class A’s and 90% to the Class B’s. The comprehensivenet income allocated to the Class A and Class B units were then divided by the weighted-average number of Class A and Class B units outstanding for the period to determine the basic EPU for each respective class of unit.
Diluted EPU reflects the potential dilution that could occur to the extent that any outstanding dilutive Class A or Class B units were exercised. There are no potentially dilutive Class A or Class B units outstanding.
Comprehensive Income Per Unit Calculation | 13 weeks ended | 26 weeks ended | ||||||||||||||||||||
Income Per Unit Calculation | 13 weeks ended | 26 weeks ended | ||||||||||||||||||||
(thousands of dollars, except unit and per unit data) | June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | ||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||
Basic and diluted earnings per unit: | ||||||||||||||||||||||
Comprehensive income attributable to USPB available to | ||||||||||||||||||||||
Income attributable to USPB available to | ||||||||||||||||||||||
unitholders (numerator) | ||||||||||||||||||||||
Class A | $ | 2,475 | $ | 2,779 | $ | 3,529 | $ | 3,699 | $ | 10,120 | $ | 2,475 | $ | 11,338 | $ | 3,529 | ||||||
Class B | $ | 22,273 | $ | 25,009 | $ | 31,757 | $ | 33,290 | $ | 91,084 | $ | 22,273 | $ | 102,042 | $ | 31,757 | ||||||
Weighted average outstanding units (denominator) | ||||||||||||||||||||||
Class A | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | 735,385 | ||||||||||||||
Class B | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | 755,385 | ||||||||||||||
Per unit amount | ||||||||||||||||||||||
Class A | $ | 3.37 | $ | 3.78 | $ | 4.80 | $ | 5.03 | $ | 13.76 | $ | 3.37 | $ | 15.42 | $ | 4.80 | ||||||
Class B | $ | 29.49 | $ | 33.11 | $ | 42.04 | $ | 44.07 | $ | 120.58 | $ | 29.49 | $ | 135.09 | $ | 42.04 |
(5)(6) Investment in National Beef Packing Company, LLC
USPB’s 15.0729% investment in NBP is accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. The table below summarizes the changes to USPB’s investment in NBP (thousands of dollars):
6
Beginning Investment at December 28, 2019 | $ | 131,786 | |
Equity in net income for twenty-six week period | 115,484 | ||
Distributions from National Beef Packing Company, LLC | (7,853 | ) | |
Ending Investment at June 27, 2020 | $ | 239,417 |
Below is a summary of the results of operations for NBP for the thirteen and twenty-six week periods ended June 29, 201927, 2020 and June 30, 201829, 2019 (thousands of dollars):
13 weeks ended | 26 weeks ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | 13 weeks ended | 26 weeks ended | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | |||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||
Net sales | $ | 2,113,648 | $ | 1,942,690 | $ | 3,940,720 | $ | 3,724,609 | $ | 2,677,697 | $ | 2,113,648 | $ | 4,863,046 | $ | 3,940,720 | ||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||
Cost of sales | 1,890,238 | 1,706,825 | 3,591,638 | 3,377,599 | 1,947,262 | 1,890,238 | 3,995,881 | 3,591,638 | ||||||||||||||||||||||
Selling, general, and administrative expenses | 22,425 | 18,132 | 39,395 | 32,825 | 20,859 | 22,425 | 39,233 | 39,395 | ||||||||||||||||||||||
Depreciation and amortization | 29,722 | 25,805 | 57,617 | 51,324 | 26,795 | 29,722 | 53,323 | 57,617 | ||||||||||||||||||||||
Total costs and expenses | 1,942,385 | 1,750,762 | 3,688,650 | 3,461,748 | 1,994,916 | 1,942,385 | 4,088,437 | 3,688,650 | ||||||||||||||||||||||
Operating income | 171,263 | 191,928 | 252,070 | 262,861 | 682,781 | 171,263 | 774,609 | 252,070 | ||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Interest income | 120 | 78 | 238 | 146 | 56 | 120 | 137 | 238 | ||||||||||||||||||||||
Interest expense | (3,587 | ) | (3,370 | ) | (6,142 | ) | (5,478 | ) | (2,323 | ) | (3,587 | ) | (6,571 | ) | (6,142 | ) | ||||||||||||||
Income before taxes | 167,796 | 188,636 | 246,166 | 257,529 | 680,514 | 167,796 | 768,175 | 246,166 | ||||||||||||||||||||||
Income tax expense | (646 | ) | (629 | ) | (980 | ) | (883 | ) | (1,250 | ) | (646 | ) | (2,004 | ) | (980 | ) | ||||||||||||||
Net income | $ | 167,150 | $ | 188,007 | $ | 245,186 | $ | 256,646 | $ | 679,264 | $ | 167,150 | $ | 766,171 | $ | 245,186 | ||||||||||||||
NBP's net income attributable to USPB | $ | 25,194 | $ | 28,338 | $ | 36,957 | $ | 38,684 | $ | 102,385 | $ | 25,194 | $ | 115,484 | $ | 36,957 |
(7) Income Taxes
Effective August 29, 2004, the Company converted to an LLC, and under this structure, taxes are not assessed at the Company level as the results of operations are included in the taxable income of the individual members.
Although income taxes are assessed to the individual members, USPB is required to withhold state income taxes from the cash distributions it makes to it members. As of June 27, 2020, Other accrued expenses and liabilities on the Company’s balance sheet reflected state taxes payable of $0.4 million.
(8) Long-term Debt and Loan Agreements
On August 16, 2019, USPB and CoBank entered into an Amended and Restated Revolving Term Supplement to the Master Loan Agreement dated July 26, 2011. The Amended and Restated Revolving Term Supplement provides for a $1 million revolving credit commitment and reduces the commitment fee to 0.0%. The commitments original maturity date was June 30, 2020. On June 10, 2019, NBP announced that24, 2020, CoBank unilaterally extended the transactionsTerm Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to acquire 100% of the ownership interests in Iowa Premium, LLC (Iowa Premium) had closed and it was the owner of Iowa Premium. As a part of the transactions,including August 31, 2020. USPB and CoBank entered into a Membership Interest Purchasenew Credit Agreement (MIPA) between and among USPB, Iowa Premium, additional buyers identified therein, and Sysco Holdings, LLC (Sysco)on July 13, 2020 (see Note 11 – Subsequent Events).
(9) Members’ Capital
The MIPA provided for USPB and eachfollowing table represents a reconciliation of the other members of NBP to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium. NBP served as representativeMembers’ Capital for the buyers in connection with the transaction contemplated by the MIPAthirteen and delivered the purchase price funds to Syscotwenty-six-week periods ended June 27, 2020 and its designees on behalfJune 29, 2019 (unaudited) (thousands of the buyers. The funds used to consummate the transaction were provided by way of a permitted distribution from NBP to its Members. USPB’s proportionate share of the distribution from NBP was approximately $23.7 million. Immediately following the purchase, the transactions provided for by the Contribution Agreement were completed.dollars).
The Contribution Agreement provided for (i) USPB to contribute to NBP all of USPB’s ownership interest in Iowa Premium; and (ii) NBP to assume USPB’s obligations under the MIPA and to indemnify USPB for any claims against USPB that may arise out of the MIPA. The contribution took place immediately following the closing of the purchase of Iowa Premium ownership by NBP’s members pursuant to the MIPA. Following the contribution, NBP’s members are no longer members of Iowa Premium, and NBP is the sole member and 100% owner of Iowa Premium and is responsible for all obligations under the MIPA. NBP indemnified its members, including USPB, for any and all liabilities arising from the purchase of the Iowa Premium ownership interests and the transfer of those interests to NBP.7
Balance at December 28, 2019 | $ | 202,837 | |
Allocation of net income for the thirteen-week period ended March 28, 2020 | 12,176 | ||
Balance at March 28, 2020 | $ | 215,013 | |
Allocation of net income for the thirteen-week period ended June 27, 2020 | 101,204 | ||
Member distributions | |||
Class A ($6.81 per Class A unit) | (5,008 | ) | |
Class B ($59.67 per Class B unit) | (45,071 | ) | |
Balance at June 27, 2020 | $ | 266,138 | |
Balance at December 29, 2018 | $ | 219,756 | |
Allocation of net income for the thirteen-week period ended March 30, 2019 | 10,538 | ||
Member distributions | |||
Class A ($5.00 per Class A unit) | (3,675 | ) | |
Class B ($43.78 per Class B unit) | (33,071 | ) | |
Balance at March 30, 2019 | $ | 193,548 | |
Allocation of net income for the thirteen-week period ended June 29, 2019 | 24,748 | ||
Member distributions | |||
Class A ($0.90 per Class A unit) | (660 | ) | |
Class B ($7.86 per Class B unit) | (5,940 | ) | |
Balance at June 29, 2019 | $ | 211,696 |
(6) Subsequent Events(10) Legal Proceedings
USPB is not currently involved in any litigation. See PART II. Item 1. for information concerningHowever, because its ownership interest in NBP is USPB’s largest asset and because of the cattle procurement and distribution relationship between USPB and NBP, litigation involving NBP may impact USPB.
NBP is a defendant in four class action lawsuits in the United States District Court, Minnesota District alleging that it violated the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws (the “Antitrust Cases”). The Antitrust Cases are entitled In re Cattle Antitrust Litigation, which was filed originally on April 23, 2019; Peterson et al. v. JBS USA Food Company Holdings, et al., which was filed originally on April 26, 2019; Samuels v. Cargill, Inc., et al, which was filed originally o April 26, 2019; and Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020. The plaintiffs in the Antitrust Cases seek treble damages and other legal proceedingsrelief under the Sherman Antitrust Act, the Packers & Stockyards Act, the Commodities Exchange Act and attorneys’ fees. NBP is also a defendant in two class action lawsuits filed involving NBP.on January 7, 2020, alleging that it misrepresented the origin of its products in violation of the New Mexico Unfair Practices Act (the “Labelling Cases”). The Labelling Cases are entitled Thornton v. Tyson Foods, Inc., et al., filed in the New Mexico Second Judicial District Court, Bernalillo County, and Lucero v. Tyson Foods, et al., filed in the New Mexico Thirteenth Judicial District Court, Sandoval County. The Labelling Cases were subsequently removed to the United States District Court, New Mexico District. The plaintiffs in the Labelling Cases seek treble damages and other relief and attorneys’ fees. NBP believes it has meritorious defenses to the claims in the Antitrust Cases and the Labelling Cases and intends to defend these cases vigorously. There can be no assurances, however, as to the outcome of these matters or the impact on NBP’s consolidated financial position, results of operations and cash flows.
NBP is a party to various other lawsuits and claims arising out of the operation of its business. Management believes the ultimate resolution of such matters should not have a material adverse effect on NPB’s financial condition, results of operations or liquidity.
USPB is not able to assess what impact, if any, the actions described above will have on NBP or USPB.
(11) Subsequent Events
USPB has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through August 8, 2019, the date the financial statements were issued and determined there were no such events to report.
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On July 13, 2020, USPB, and CoBank, ACB (“CoBank”), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (“Promissory Note”), and an Affirmation of Pledge Agreement. The Credit Agreement, Amended and Restated Revolving Term Promissory Note, and Affirmation of Pledge Agreement replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, Pledge Agreement, and Security Agreement dated July 26, 2011, as amended (the “Prior Agreements.”). The Prior Agreements carried a “Term Expiration Date” of June 30, 2020, but on June 24, 2020, CoBank unilaterally extended the Term Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to and including August 31, 2020.
The Credit Agreement and the Amended and Restated Revolving Term Promissory Note provide for a $1 million Revolving Term Commitment. That commitment carries a term of five years, maturing on June 30, 2025. The Promissory Note defines Interest as equal to the One-Month LIBOR Index Rate or if LIBOR quotes are no longer available, for issuance.CoBank will replace the LIBOR Index Rate with a replacement benchmark rate. The other terms and conditions of the Master Loan Agreement and the Revolving Term Loan Supplement continue the terms and conditions of the Prior Agreements without material modifications. The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, National Beef Packing Company, LLC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this report.
Disclosure Regarding Forward-Looking Statements
This report contains “forward-looking statements,” which are subject to a number of risks and uncertainties, many of which are beyond our control. Forward-looking statements are typically identified by the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and similar expressions. Actual results could differ materially from those contemplated by these forward-looking statements as a result of many factors, including economic conditions generally and in our principal markets, the availability and prices of live cattle and commodities, food safety issues, livestock disease, including the identification of cattle with Bovine Spongiform Encephalopathy, product contamination and recall concerns, competitive practices and consolidation in the cattle production and processing industries and among our customers, actions of domestic or foreign governments, hedging risk, changes in interest rates and foreign currency exchange rates, trade barriers and exchange controls, consumer demand and preferences, the costs and risks associated with operations during public health crises, such as the COVID-19 pandemic, the cost of compliance with environmental and health laws, loss of key customers, loss of key employees, labor relations, and consolidation among our customers.
In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this report will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Please review Part II. Item 1A,Risk Factors, included in this report, for other important factors that could cause actual results to differ materially from those in any such forward-looking statements.
Investment in National Beef Packing Company, LLC
NBP processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. The largest share of NBP’s revenue is generated from the sale of boxed beef and beef by-products. NBP operates threealso generates revenues through value-added production of its consumer-ready products.
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NBP has two beef processing facilities three consumer-ready facilities, a fresh and frozen hamburger manufacturing facilitylocated in southwest Kansas and a third facility in central Iowa. In addition, NBP operates one of the largest hide tanning facilities in the world, selling wet blue tanning facility, all located inleather to tanners that produce finished leather for the U.S. NBP ownsautomotive, luxury goods, apparel and furniture industries. Other streams of revenue include sales through its subsidiary, Kansas City Steak Company, LLC, which sells portioned beef and other products directly to customersconsumers through the internet, direct mail and direct response television. NBP also ownstelevision, a refrigeratedfresh and livestockfrozen hamburger manufacturing facility, and service revenues generated by National Carriers, Inc., a wholly owned transportation and logistics company that provides transportation servicesis one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for NBP and third parties.a variety of other customers.
NBP’s profitability typically fluctuates seasonally as well as cyclically, based on the availability of fed cattle. Its profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products coupled with its overall volume. NBP operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. NBP’s profitability typically fluctuates seasonally, with relatively higher margins
Sales in the spring and summer months and during times of ample cattle availability. NBP's fiscal year consists of 52 or 53 weeks, ending on the last Saturday in December and its quarters range from twelve to fourteen weeks ending on the last Saturday of March, June, September and December.
Revenues in the twenty-six weektwenty-six-week period ended June 29, 201927, 2020 increased approximately 6%23.4% in comparison to the same period in 2018,2019, primarily due to increasedmuch higher average selling prices for beef products and the additional volume in NBP’s beef processing and consumer-ready facilities along with revenue resulting from itsthe June 2019 acquisition of the OhioIowa Premium beef patty manufacturing facility in the first quarter of 2019.processing plant. Cost of sales increased by approximately 6%11.3% for the twenty-six weektwenty-six-week period ended June 29, 2019,27, 2020, as compared to the same period in 2018,2019, primarily due to increased volume in NBP’sresulting from the June 2019 acquisition of Iowa Premium beef processing plant and consumer-ready facilities along with the impact of its acquisition of the Ohio beef patty manufacturing facility in the first quarter of 2019. Lowerhigher labor costs. Higher volumes and higher per unit beef processing margins offset, in part, by higher volumes led to modestly loweran increase in overall profitability in the 20192020 period, as compared to the 20182019 period.
Operating losses, material decreases in cash flows, economic and industry events, pandemics, such as coronavirus disease (COVID-19), and a variety of other factors may result in a decrease in the value of USPB’s investment in NBP, which is other than temporary. Such potential decreases in value, if deemed other than temporary, will cause the Company to record an impairment charge, which may have an impact on the trading values of USPB’s Class A and Class B units. However, NBP’s plants are all operational at the present time; it has been designated as an essential business during the COVID-19 pandemic; and its results of operations are highly profitable, as reflected in Note 6. As a result, we believe the fair value of our investment in NBP exceeds the carrying value.
On June 10, 2019, USPB and NBP entered into the First Amended and Restated Cattle Purchase and Sale Agreement (A&R Agreement) with USPB. The terms and conditions of the A&R Agreement are substantially the same as those of the Cattle Purchase and Sale Agreement dated December 30, 2011. Per the terms and conditions of the A&R Agreement, NBP is required to purchase through USPB from its owners and associates, and USPB is required to sell and deliver from its owners and associates to NBP, a base amount of 735,385 (subject to adjustment) head of cattle per year with prices based on those published by the U.S. Department of Agriculture, subject to adjustments for cattle performance. NBP obtained approximately 25%24% and 28%25% of its cattle requirements under this agreement during the twenty-six weeks ended June 27, 2020 and June 29, 2019, and June 30, 2018, respectively.
USPB Results of Operations
Thirteen-weeks ended June 29, 201927, 2020 compared to thirteen-weeks ended June 30, 201829, 2019
Net Sales. There were no Net Salesnet sales in the thirteen-week periods ended June 29, 201927, 2020 and June 30, 2018.29, 2019.
Cost of Sales. There were no Costcost of Salessales in the thirteen-week periods ended June 29, 201927, 2020 and June 30, 2018.29, 2019.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately$1.2 million and $0.9 million for the thirteen-weeksthirteen-week periods ended June 27, 2020 and June 29, 2019, compared torespectively, an increase of approximately $1.1 million for$0.3 million. The increase was the thirteen-weeks ended June 30, 2018. The $0.2 million decrease is primarilyresult of higher phantom plan expenses, due to lower expenses for the phantomhigher unit plans.transfer prices, and accounting expenses.
Operating Loss.Operating loss was approximately$1.2 million and $0.9 million for the thirteen-weeksthirteen-week periods ended June 27, 2020 and June 29, 2019, compared to approximately $1.1 million for the thirteen-weeks ended June 30, 2018.respectively.
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Equity in Net Income of National Beef Packing Company, LLC. Equity in NBP net income was $102.4 million and $25.2 million for the thirteen-weeksthirteen-week periods ended June 27, 2020 and June 29, 2019, compared to $28.3 million for the thirteen-weeks ended June 30, 2018.respectively. The reductionincrease in fiscal year 20192020 is primarily due to lowersignificantly higher gross margins at NBP. USPB carries its 15.0729% investment in NBP under the equity method of accounting.
Interest Income. Interest income was $0.3 million for the thirteen weeks ended June 29, 2019 compared to $0.3 million for the thirteen-weeks ended June 30, 2018.
Other, net.Other income was $0.2less than $0.1 million and $0.3 million for the thirteen-week periods ended June 29, 201927, 2020 and June 30, 2018,29, 2019, respectively. The decrease is due to lower cash balances and lower interest rates.
Other, net. Other income was less than $0.1 million and $0.2 million for the thirteen-week periods ended June 27, 2020 and June 29, 2019, respectively. The decrease is primarily due to lower delivery right lease income on Company owned cattle delivery rights.income.
Comprehensive Income.Net income. ComprehensiveNet income was $24.7$101.2 million and $27.8$24.7 million for the thirteen- weekthirteen-week periods ended June 27, 2020 and June 29, 2019, respectively.
Twenty-six-weeks ended June 27, 2020 compared to twenty-six-weeks ended June 29, 2019 and June 30, 2018, respectively.
Twenty-six weeks ended June 29, 2019 compared to twenty-six weeks ended June 30, 2018
Net Sales. There were no Net Salesnet sales in the twenty-six weektwenty-six-week periods ended June 29, 201927, 2020 and June 30, 2018.29, 2019.
Cost of Sales. There were no Costcost of Salessales in the twenty-six weektwenty-six-week periods ended June 29, 201927, 2020 and June 30, 2018.29, 2019.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately$2.3 million and $2.7 million for the twenty-six weekstwenty-six-week periods ended June 27, 2020 and June 29, 2019, compared torespectively, a decrease of approximately $2.5 million for$0.4 million. The decrease was the twenty-six weeks ended June 30, 2018. The $0.2 million increase is primarily due toresult of lower phantom plan and legal expenses, which were partially offset by higher accounting and bonus expenses.
Operating Loss.Operating loss was approximately$2.4 million and $2.7 million for the twenty-six weekstwenty-six-week periods ended June 27, 2020 and June 29, 2019, compared to approximately $2.5 million for the twenty-six weeks ended June 30, 2018.respectively.
Equity in Net Income of National Beef Packing Company, LLC. Equity in NBP net income was $115.5 million and $37.0 million for the twenty-six weekstwenty-six-week periods ended June 27, 2020 and June 29, 2019, compared to $38.7 million for the twenty-six weeks ended June 30, 2018.respectively. The reductionincrease in fiscal year 20192020 is primarily due to significantly higher selling, general and administrative expensesgross margins at NBP. USPB carries its 15.0729% investment in NBP under the equity method of accounting.
Interest Income. Interest income was less than $0.2 million and $0.6 million for the twenty-six weekstwenty-six-week periods ended June 27, 2020 and June 29, 2019, compared to $0.5 million for the twenty-six weeks ended June 30, 2018.respectively. The increase was primarilydecrease is due to higherlower cash balances and lower interest rates.
Other, net.Other income was $0.4less than $0.1 million and $0.4 million for the twenty-six weektwenty-six-week periods ended June 27, 2020 and June 29, 2019, and June 30, 2018, respectively. The decrease is primarily due to lower delivery right lease income.
Comprehensive Income.Net income. ComprehensiveNet income was $35.3$113.4 million and $37.0$35.3 million for the twenty-six weektwenty-six-week periods ended June 29, 201927, 2020 and June 30, 2018,29, 2019, respectively.
Liquidity and Capital Resources
As of June 29, 2019,27, 2020, we had net working capital (the excess of current assets over current liabilities) of approximately $57.8$29.8 million, which included cash and cash equivalents of $59.7$31.8 million. As of December 29, 2018,28, 2019, we had net working capital of approximately $80.0$74.3 million, which included cash and cash equivalents of $88.4$77.9 million. The decrease in working capital is primarily due to timing of the receipt of tax distributions from NBP. During the second quarter, USPB continued to make distributions to its members, but NBP delayed the majority of the tax distributions to its members, including USPB, until July 2020. Our primary sources of liquidity for the first two quarters of fiscal year 20192020 and fiscal year 20182019 were cash and available borrowings under the Master Loan Agreement with CoBank.
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As of June 29, 2019,27, 2020, USPB had no long-term debt outstanding. We had a $5.0$1.0 million revolving term loan with CoBank all of which was available. USPB was in compliance with the financial covenant under its Master Loan Agreement as of June 29, 2019.27, 2020.
On July 13, 2020, USPB, and CoBank, ACB (“CoBank”), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (“Promissory Note”), and an Affirmation of Pledge Agreement. The Credit Agreement, Amended and Restated Revolving Term Promissory Note, and Affirmation of Pledge Agreement replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, Pledge Agreement, and Security Agreement dated July 26, 2011, as amended (the “Prior Agreements.”). The Prior Agreements carried a “Term Expiration Date” of June 30, 2020, but on June 24, 2020, CoBank unilaterally extended the Term Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to and including August 31, 2020.
The Credit Agreement and the Amended and Restated Revolving Term Promissory Note provide for a $1 million Revolving Term Commitment. That commitment carries a term of five years, maturing on June 30, 2025. The Promissory Note defines Interest as equal to the One-Month LIBOR Index Rate or if LIBOR quotes are no longer available, CoBank will replace the LIBOR Index Rate with a replacement benchmark rate. The other terms and conditions of the Master Loan Agreement and the Revolving Term Loan Supplement continue the terms and conditions of the Prior Agreements without material modifications. The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, National Beef Packing Company, LLC.
We believe our cash and available borrowings under our Master Loan Agreement will be sufficient to support our cash needs for the foreseeable future. For a review of our obligations that affect liquidity, please see the “Cash Payment Obligations” table in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for fiscal year 2018.2019.
Operating Activities
Net cash used inprovided by operating activities in the twenty-six weekstwenty-six-weeks ended June 29, 201927, 2020 was approximately $20.3$4.1 million compared to approximately $36.1$20.3 million in the twenty-six weekstwenty-six-weeks ended June 30, 2018.29, 2019. The $15.8$16.2 million change was primarily due to a lesser amount ofsmaller distributions being classified as operating activities in the current period as opposed to the prior year.from National Beef.
Investing Activities
Net cash used in investing activities in the twenty-six weekstwenty-six-week periods ended June 27, 2020 and June 29, 2019 was immaterial compared to net cash provided by investing activities of $18.2 million in the twenty-six weeks ended June 30, 2018. The change was due to distributions from National Beef classified as investing activities in the prior year.were less than $0.1 million.
Financing Activities
Net cash used in financing activities was $50.1 million in the twenty-six-weeks ended June 27, 2020 compared to $49.0 million in the twenty-six weekstwenty-six-weeks ended June 29, 2019 compared to $91.7 million in the twenty-six weeks ended June 30, 2018.2019. The change was the result of fewer member distribution checks clearingdue to slightly higher distributions in the first two quarters of fiscal year 2019 compared to the first two quarters of fiscal year 2018.2020.
Master Loan Agreement
On June 13, 2017,August 16, 2019, USPB and CoBank entered into aan Amended and Restated Revolving Term Loan Supplement to the Master Loan Agreement dated July 26, 2011. The Amended and Restated Revolving Term Loan Supplement provides for a $5$1 million revolving credit commitment.commitment and reduces the commitment fee to 0.0%. The new commitment carries a term of three years, maturing oncommitments original maturity date was June 30, 2020. On June 24, 2020, CoBank unilaterally extended the Term Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to and including August 31, 2020.
All of the $5$1 million revolving credit commitment was available as of June 29, 2019.27, 2020. Borrowings under the revolving credit commitment bear interest at the base rate or LIBOR rate plus applicable margin.The applicable margin over LIBOR was 200 bps at June 29, 2019.27, 2020.
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On December 30, 2011, in connection with the closing of the Leucadia Transaction, the Company and CoBank entered into the Consent and First Amendment to Pledge Agreement and Security Agreement, by which CoBank agreed to (i) consent to the Membership Interest Sale and the PA Distribution, (ii) release its security interest in, and liens on, the Membership Interests being sold pursuant to the Membership Interest Sale, (iii) consent to the NBP Pledge and (iv) consent to the amendments and restatements of the NBP Operating Agreement and the PA Newco Operating Agreement. The NBP Pledge grants NBP a perfected security interest in and to USPB’s membership interests in, and distributions from, NBP, subject only to the prior first priority security interest held by CoBank.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The principal market risks affecting USPB’s business are exposure to interest rate risk, to the extent the Company has debt outstanding. As of June 29, 2019,27, 2020, the Company did not have any outstanding debt.
Item 4. Controls and Procedures.
We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the Financial Statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in alerting them, in a timely manner, to material information required to be included in our periodic Securities and Exchange Commission filings. There have been no changes in our internal controls over financial reporting during the twenty-six weeks ended June 29, 201927, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events.
PART II. OTHER INFORMATION
USPB is not currently involved in any litigation. However, because its ownership interest in NBP is USPB’s largest asset and because of the cattle procurement and distribution relationship between USPB and NBP, litigation involving NBP may impact USPB.
NBP has recently been named asis a defendant in two matters.
On April 23, 2019 and thereafter, a series of putativefour class action lawsuits were filed in the United States District Court, Minnesota District of Illinois, against Tyson Foods, Inc., Tyson Fresh Meats, Inc., JBS S.A., JBS USA Food Company, Swift Beef Company, JBS Packerland, Inc., Cargill, Incorporated, Cargill Meat Solutions Corporation, Marfrig Global Foods S.A., NBP, and John Does 1-10 alleging unjust enrichment, violations of antitrust laws,that it violated the Sherman Antitrust Act, the Packers and Stockyards Act, and the Commodity Exchange Act.Act, and various state laws (the “Antitrust Cases”). The cases were consolidated on July 15, 2019 into one caseAntitrust Cases are entitled In re Cattle Antitrust Litigation.Litigation, which was filed originally on April 23, 2019; Peterson et al. v. JBS USA Food Company Holdings, et al., which was filed originally on April 26, 2019; Samuels v. Cargill, Inc., et al, which was filed originally o April 26, 2019; and Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020. The class is seeking injunctiveplaintiffs in the Antitrust Cases seek treble damages and other relief under the Sherman Antitrust Act, the Packers & Stockyards Act, the Commodities Exchange Act and various damages. USPB believes this lawsuit is without merit, and understands thatattorneys’ fees. NBP is vigorously defending it.
On July 15, 2019, an amended putativealso a defendant in two class action lawsuit waslawsuits filed on January 7, 2020, alleging that it misrepresented the origin of its products in violation of the New Mexico Unfair Practices Act (the “Labelling Cases”). The Labelling Cases are entitled Thornton v. Tyson Foods, Inc., et al., filed in the New Mexico Second Judicial District Court, Bernalillo County, and Lucero v. Tyson Foods, et al., filed in the New Mexico Thirteenth Judicial District Court, Sandoval County. The Labelling Cases were subsequently removed to the United States District Court, District of Minnesota, against JBS USA Food Company Holdings, Tyson Foods, Inc., Cargill, Inc., and NBP alleging unjust enrichment, violations of unfair competition, antitrust, and consumer protection laws,New Mexico District. The plaintiffs in the Labelling Cases seek treble damages and other causesrelief and attorneys’ fees. NBP believes it has meritorious defenses to the claims in the Antitrust Cases and the Labelling Cases and intends to defend these cases vigorously. There can be no assurances, however, as to the outcome of action. The classthese matters or the impact on NBP’s consolidated financial position, results of operations and cash flows.
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NBP is seeking injunctive relief pursuant to federal law and damages pursuanta party to various state antitrust, unfair competition, unjust enrichment,other lawsuits and consumer protection laws. USPBclaims arising out of the operation of its business. Management believes this lawsuit is also without merit, and understands that NBP is vigorously defending it.the ultimate resolution of such matters should not have a material adverse effect on NPB’s financial condition, results of operations or liquidity
USPB is not able to assess what impact, if any, the actions described above will have on NBP or USPB.
TheExcept for the risk factors discussed below, the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 29, 201828, 2019 have not materially changed. Please refer to the Company’s report on Form 10-K for the fiscal year ended December 29, 201828, 2019 to consider those risk factors.
USPB’s investment in NBP could become impaired.
USPB’s investment in NBP is carried under the equity method of accounting. Although NBP’s results from operations are currently highly profitable, pandemic events such as COVID-19, industry trends, and other economic factors could have a negative impact on NBP’s operations and cash flows. As a result, the fair market value of USPB’s investment in NBP could decrease to a level that is less than the carrying value. If such situation is deemed to not be temporary, USPB would record an impairment charge, which may have an impact on the trading values of USPB’s Class A and Class B units.
If the COVID-19 pandemic adversely affects NBP’s ability to keep the cattle slaughter at normal levels, the ability of USPB members to deliver cattle for processing based on their ownership of Class A units may be impacted.
COVID-19 temporarily caused NBP to reduce fed cattle slaughter at several of its beef processing plants. If NBP is unable to maintain the slaughter at normal levels for an extended period, USPB members may be delayed in delivering their cattle or may be required to deliver to a different NBP processing plant. As the right and obligation to deliver cattle is associated with ownership of USPB’s Class A units, such a result may impact the value or liquidity of Class A units.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
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** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
U.S. Premium Beef, LLC | |
By: | /s/ Stanley D. Linville |
Stanley D. Linville | |
Chief Executive Officer | |
(Principal Executive Officer) | |
By: | /s/ Scott J. Miller |
Scott J. Miller | |
Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
Date: August 8, 20197, 2020
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