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 September 26, 2020
or
☐ QUARTERLYTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019 or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE 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
DriveKansas 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 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, a small reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging‘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 October 26, 2019,31, 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:
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 |
|
|
|
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. | 8 | ||
Item 3. | Quantitative and Qualitative Disclosures | 12 | |
Item 4. | Controls and Procedures. | 12 | |
PART II. | OTHER INFORMATION | ||
Item 1. | Legal Proceedings. | 12 | |
Item 1A. | Risk Factors. | 13 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 13 | |
Item 3. | Defaults Upon Senior Securities. | 13 | |
Item 4. | Mine Safety Disclosures. | 13 | |
Item 5. | Other Information. | 13 | |
Item 6. | Exhibits. | 13 | |
Signatures. | 15 |
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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
U.S. PREMIUM BEEF, LLC
Balance Sheets
(thousands of dollars, except unit information)
Assets | September 28, 2019 | December 29, 2018 | September 26, 2020 |
| December 28, 2019 | ||||||||
(unaudited) | (unaudited) | ||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 75,378 | $ | 88,411 | $ | 86,395 | $ | 77,909 | |||||
Accounts receivable | 336 | 3 | |||||||||||
Due from affiliates | 32 | 21 | 162 | 41 | |||||||||
Other current assets | 12 | 27 | 7 | 26 | |||||||||
Total current assets | 75,422 | 88,459 | 86,900 | 77,979 | |||||||||
Property, plant, and equipment, at cost | 243 | 200 | 243 | 238 | |||||||||
Less accumulated depreciation | 196 | 183 | 207 | 195 | |||||||||
Net property, plant, and equipment | 47 | 17 | 36 | 43 | |||||||||
Right of use assets, net | 243 | - | 195 | 232 | |||||||||
Investment in National Beef Packing Company, LLC | 175,888 | 143,361 | 163,999 | 131,786 | |||||||||
Other assets | 43 | 69 | 13 | 43 | |||||||||
Total assets | $ | 251,643 | $ | 231,906 | $ | 251,143 | $ | 210,083 | |||||
Liabilities and Capital Shares and Equities | |||||||||||||
Liabilities and Members' Capital | |||||||||||||
Current liabilities: | |||||||||||||
Accounts payable - trade | $ | 9 | $ | 12 | $ | 14 | $ | 28 | |||||
Due to affiliates | 19 | 44 | 32 | 29 | |||||||||
Accrued compensation and benefits | 2,106 | 2,158 | 2,416 | 2,260 | |||||||||
Lease obligations | 48 | - | 42 | 49 | |||||||||
Other accrued expenses and liabilities | 140 | 515 | 354 | 1,307 | |||||||||
Distributions payable | - | 5,687 | 164 | 50 | |||||||||
Total current liabilities | 2,322 | 8,416 | 3,022 | 3,723 | |||||||||
Long-term liabilities: | |||||||||||||
Lease obligations | 195 | - | 153 | 183 | |||||||||
Other liabilities | 3,505 | 3,734 | 5,717 | 3,340 | |||||||||
Total long-term liabilities | 3,700 | 3,734 | 5,870 | 3,523 | |||||||||
Total liabilities | 6,022 | 12,150 | 8,892 | 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 | 245,621 | 219,756 | |||||||||||
Total capital shares and equities | 245,621 | 219,756 | |||||||||||
Total liabilities and capital shares and equities | $ | 251,643 | $ | 231,906 | |||||||||
Members' capital | |||||||||||||
Members' contributed capital, 735,385 Class A units and 755,385 Class B units | |||||||||||||
authorized, issued and outstanding | 242,251 | 202,837 | |||||||||||
Total members' capital | 242,251 | 202,837 | |||||||||||
Total liabilities and members' capital | $ | 251,143 | $ | 210,083 | |||||||||
See accompanying notes to financial statements. |
U.S. PREMIUM BEEF, LLC
Statements of Operations
(thousands of dollars, except per unit and per unit data)
13 weeks ended | 39 weeks ended | 13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | September 26, 2020 | September 28, 2019 | September 26, 2020 | September 28, 2019 | |||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||
Net sales | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||
Cost of sales | - | - | - | - | - | - | - | - | ||||||||||||||||||||||
Selling, general, and administrative expenses | 818 | 813 | 3,509 | 3,345 | 4,011 | 818 | 6,358 | 3,509 | ||||||||||||||||||||||
Depreciation and amortization | 4 | 3 | 13 | 9 | 4 | 4 | 13 | 13 | ||||||||||||||||||||||
Total costs and expenses | 822 | 816 | 3,522 | 3,354 | 4,015 | 822 | 6,371 | 3,522 | ||||||||||||||||||||||
Operating loss | (822 | ) | (816 | ) | (3,522 | ) | (3,354 | ) | (4,015 | ) | (822 | ) | (6,371 | ) | (3,522 | ) | ||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Other income: | ||||||||||||||||||||||||||||||
Interest income | 258 | 283 | 905 | 741 | 5 | 258 | 163 | 905 | ||||||||||||||||||||||
Interest expense | - | (3 | ) | (15 | ) | (9 | ) | - | - | (2 | ) | (15 | ) | |||||||||||||||||
Equity in net income of National Beef Packing Company, LLC | 41,866 | 29,463 | 78,823 | 68,147 | ||||||||||||||||||||||||||
Equity in income of National Beef Packing Company, LLC | 43,014 | 41,866 | 158,498 | 78,823 | ||||||||||||||||||||||||||
Other, net | 48 | 1 | 445 | 392 | 343 | 48 | 439 | 445 | ||||||||||||||||||||||
Total other income | 42,172 | 29,744 | 80,158 | 69,271 | 43,362 | 42,172 | 159,098 | 80,158 | ||||||||||||||||||||||
Net income | $ | 41,350 | $ | 28,928 | $ | 76,636 | $ | 65,917 | $ | 39,347 | $ | 41,350 | $ | 152,727 | $ | 76,636 | ||||||||||||||
Net income per unit: | ||||||||||||||||||||||||||||||
Income per unit: | ||||||||||||||||||||||||||||||
Basic and diluted | ||||||||||||||||||||||||||||||
Class A units | $ | 5.62 | $ | 3.93 | $ | 10.42 | $ | 8.96 | $ | 5.35 | $ | 5.62 | $ | 20.77 | $ | 10.42 | ||||||||||||||
Class B units | $ | 49.27 | $ | 34.47 | $ | 91.31 | $ | 78.54 | $ | 46.88 | $ | 49.27 | $ | 181.97 | $ | 91.31 | ||||||||||||||
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. | See accompanying notes to financial statements. |
U.S. PREMIUM BEEF, LLC
Statements of Cash Flows
(thousands of dollars)
39 weeks ended | |||||||
September 28, 2019 | September 29, 2018 | ||||||
(unaudited) | (unaudited) | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 76,636 | $ | 65,917 | |||
Adjustments to reconcile net income to net cash provided by | |||||||
operating activities: | |||||||
Depreciation and amortization | 13 | 9 | |||||
Equity in net income of National Beef Packing Company, LLC | (78,823 | ) | (68,147 | ) | |||
Distributions from National Beef Packing Company, LLC | 46,296 | 55,877 | |||||
Changes in assets and liabilities: | |||||||
Due from affiliates | (11 | ) | 118 | ||||
Other assets | 41 | 58 | |||||
Accounts payable | (3 | ) | (55 | ) | |||
Due to affiliates | (25 | ) | (360 | ) | |||
Accrued compensation and benefits | (281 | ) | (355 | ) | |||
Other accrued expenses and liabilities | (375 | ) | 50 | ||||
Net cash provided by operating activities | 43,468 | 53,112 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures, including interest capitalized | (43 | ) | (7 | ) | |||
Distributions from National Beef Packing Company, LLC | - | 18,256 | |||||
Net cash (used in)/provided by investing activities | (43 | ) | 18,249 | ||||
Cash flows from financing activities: | |||||||
Member distributions | (56,458 | ) | (111,987 | ) | |||
Net cash used in financing activities | (56,458 | ) | (111,987 | ) | |||
Net decrease in cash | (13,033 | ) | (40,626 | ) | |||
Cash and cash equivalents at beginning of the period | 88,411 | 119,074 | |||||
Cash and cash equivalents at end of the period | $ | 75,378 | $ | 78,448 | |||
Supplemental noncash disclosures of operating activities: | |||||||
Right of use assets and lease obligations | $ | 243 | $ | - | |||
Supplemental noncash disclosures of investing activities: | |||||||
Investment in National Beef Packing Company, LLC | $ | 23,691 | $ | - |
See accompanying notes to financial statements.
39 weeks ended | |||||||
September 26, 2020 | September 28, 2019 | ||||||
(unaudited) | (unaudited) | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 152,727 | $ | 76,636 | |||
Adjustments to reconcile net income to net cash provided by | |||||||
operating activities: | |||||||
Depreciation and amortization | 13 | 13 | |||||
Equity in net income of National Beef Packing Company, LLC | (158,498 | ) | (78,823 | ) | |||
Distributions from National Beef Packing Company, LLC | 126,285 | 46,296 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (333 | ) | - | ||||
Due from affiliates | (121 | ) | (11 | ) | |||
Other assets | 49 | 41 | |||||
Accounts payable | (14 | ) | (3 | ) | |||
Due to affiliates | 3 | (25 | ) | ||||
Accrued compensation and benefits | 2,533 | (281 | ) | ||||
Other accrued expenses and liabilities | (953 | ) | (375 | ) | |||
Net cash provided by operating activities | 121,691 | 43,468 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures, including interest capitalized | (6 | ) | (43 | ) | |||
Net cash used in investing activities | (6 | ) | (43 | ) | |||
Cash flows from financing activities: | |||||||
Member distributions | (113,199 | ) | (56,458 | ) | |||
Net cash used in financing activities | (113,199 | ) | (56,458 | ) | |||
Net increase (decrease) in cash | 8,486 | (13,033 | ) | ||||
Cash and cash equivalents at beginning of period | 77,909 | 88,411 | |||||
Cash and cash equivalents at end of period | $ | 86,395 | $ | 75,378 | |||
Supplemental noncash disclosures of operating activities: | |||||||
Right of use assets | $ | - | $ | 243 | |||
Supplemental noncash disclosures of financing activities: | |||||||
Investment in National Beef Packing Company, LLC | $ | - | $ | 23,691 | |||
See accompanying notes to financial statements. |
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 September 26, 2020, the Company’s balance sheet reflected Cash and cash equivalents of $86.4 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,Leases.Leucadia Transaction. He will continue to receive noncompetition payments of approximately $845,000 per year during calendar years 2020 and 2021.
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 September 26, 2020 and December 28, 2019, the recognitionCompany had accrued $1.4 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):
September 26, 2020 | December 28, 2019 | ||||
Current non-compete | $ | 848 | $ | 848 | |
Long-term non-compete | 515 | 1,089 | |||
$ | 1,363 | $ | 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 5.4 years (assuming the final 3-year renewal is exercised) and the Dodge City, KS office has a remaining term of approximately 1.3 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 September 26, 2020 and December 28, 2019, the present valueCompany had accrued $5.7 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 September 26, 2020 and December 28, 2019, the Company had accrued $1.0 million and $1.4 million, respectively, for the offices equaled $0.2 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 Obligations equal to that amount. The discount rate used to compute the present value was USPB’s incremental borrowing rate.sheet.
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.
(3) Members’ Capital
The following table represents a reconciliation of Members’ Capital for the thirty-nine week period ended September 28, 2019 (unaudited) (thousands of dollars).
Balance at December 29, 2018 | $ | 219,756 | |
Allocation of net income for the thirty-nine week period ended September 28, 2019 | 76,636 | ||
Member distributions | (50,771 | ) | |
Balance at September 28, 2019 | $ | 245,621 |
(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 net income or net loss to Class A units and the remainder is allocated to Class B units. For the thirteen and thirty-nine week periods ended September 28, 201926, 2020 and September 29, 2018,28, 2019, 10% of USPB’s net income was allocated to the Class A’s and 90% to the Class B’s. The net 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.
Income Per Unit Calculation | 13 weeks ended |
| 39 weeks ended | ||||||||
(thousands of dollars, except unit and per unit data) | September 26, 2020 | September 28, 2019 | September 26, 2020 | September 28, 2019 | |||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||
Basic and diluted earnings per unit: | |||||||||||
Income attributable to USPB available to | |||||||||||
unitholders (numerator) | |||||||||||
Class A | $ | 3,935 | $ | 4,135 | $ | 15,273 | $ | 7,664 | |||
Class B | $ | 35,412 | $ | 37,215 | $ | 137,454 | $ | 68,972 | |||
Weighted average outstanding units (denominator) | |||||||||||
Class A | 735,385 | 735,385 | 735,385 | 735,385 | |||||||
Class B | 755,385 | 755,385 | 755,385 | 755,385 | |||||||
Per unit amount | |||||||||||
Class A | $ | 5.35 | $ | 5.62 | $ | 20.77 | $ | 10.42 | |||
Class B | $ | 46.88 | $ | 49.27 | $ | 181.97 | $ | 91.31 |
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.
Net Income Per Unit Calculation | 13 weeks ended | 39 weeks ended | |||||||||
(thousands of dollars, except unit and per unit data) | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||
Basic and diluted earnings per unit: | |||||||||||
Net income attributable to USPB available to | |||||||||||
unitholders (numerator) | |||||||||||
Class A | $ | 4,135 | $ | 2,893 | $ | 7,664 | $ | 6,592 | |||
Class B | $ | 37,215 | $ | 26,035 | $ | 68,972 | $ | 59,325 | |||
Weighted average outstanding units (denominator) | |||||||||||
Class A | 735,385 | 735,385 | 735,385 | 735,385 | |||||||
Class B | 755,385 | 755,385 | 755,385 | 755,385 | |||||||
Per unit amount | |||||||||||
Class A | $ | 5.62 | $ | 3.93 | $ | 10.42 | $ | 8.96 | |||
Class B | $ | 49.27 | $ | 34.47 | $ | 91.31 | $ | 78.54 |
(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 (unaudited) (thousands of dollars):
Beginning investment at December 28, 2019 | $ | 131,786 | |
Equity in net income for thirty-nine week period | 158,498 | ||
Distributions | (126,285 | ) | |
Ending investment at September 26, 2020 | $ | 163,999 |
Below is a summary of the results of operations for NBP for the thirteen and thirty-nine week periods ended September 28, 201926, 2020 and September 29, 201828, 2019 (thousands of dollars):
13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | 13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | September 26, 2020 | September 28, 2019 | September 26, 2020 | September 28, 2019 | |||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||
Net sales | $ | 2,249,133 | $ | 1,880,561 | $ | 6,189,854 | $ | 5,605,170 | $ | 2,236,299 | $ | 2,249,133 | $ | 7,099,345 | $ | 6,189,854 | ||||||||||||||
Costs and expenses: | - | |||||||||||||||||||||||||||||
Cost of sales | 1,915,866 | 1,637,216 | 5,507,504 | 5,014,815 | 1,901,384 | 1,915,866 | 5,897,265 | 5,507,504 | ||||||||||||||||||||||
Selling, general, and administrative expenses | 20,545 | 18,540 | 59,941 | 51,364 | 20,728 | 20,545 | 59,961 | 59,941 | ||||||||||||||||||||||
Depreciation and amortization | 31,432 | 26,121 | 89,049 | 77,445 | 27,142 | 31,432 | 80,465 | 89,049 | ||||||||||||||||||||||
Total costs and expenses | 1,967,843 | 1,681,877 | 5,656,494 | 5,143,624 | 1,949,254 | 1,967,843 | 6,037,691 | 5,656,494 | ||||||||||||||||||||||
Operating income | 281,290 | 198,684 | 533,360 | 461,546 | 287,045 | 281,290 | 1,061,654 | 533,360 | ||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Interest income | 109 | 88 | 347 | 233 | 201 | 109 | 337 | 347 | ||||||||||||||||||||||
Interest expense | (2,985 | ) | (2,718 | ) | (9,127 | ) | (8,196 | ) | (1,012 | ) | (2,985 | ) | (7,582 | ) | (9,127 | ) | ||||||||||||||
Income before taxes | 278,414 | 196,054 | 524,580 | 453,583 | 286,234 | 278,414 | 1,054,409 | 524,580 | ||||||||||||||||||||||
Income tax expense | (657 | ) | (585 | ) | (1,637 | ) | (1,468 | ) | (868 | ) | (657 | ) | (2,872 | ) | (1,637 | ) | ||||||||||||||
Net income | $ | 277,757 | $ | 195,469 | $ | 522,943 | $ | 452,115 | $ | 285,366 | $ | 277,757 | $ | 1,051,537 | $ | 522,943 | ||||||||||||||
NBP's net income attributable to USPB | $ | 41,866 | $ | 29,463 | $ | 78,823 | $ | 68,147 | $ | 43,014 | $ | 41,866 | $ | 158,498 | $ | 78,823 |
(7) Income Taxes
On June 10, 2019, NBP announced thatEffective August 29, 2004, the transactionsCompany converted to acquire 100%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 ownership interests in Iowa Premium, LLC (Iowa Premium) had closed and it was the owner of Iowa Premium. As a part of the transactions, USPB entered into a Membership Interest Purchase Agreement (MIPA) between and among USPB, Iowa Premium, additional buyers identified therein, and Sysco Holdings, LLC (Sysco). The MIPA provided for USPB and each of the other members of NBP to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium. NBP served as representative for the buyers in connection with the transaction contemplated by the MIPA and delivered the purchase price funds to Sysco and its designees on behalf 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.individual members.
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 Although income taxes are assessed to the MIPA. Following the contribution, NBP’sindividual members, are no longer members of Iowa Premium, and NBPUSPB 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 arisingrequired to withhold state income taxes from the purchasecash distributions it makes to it members. As of September 26, 2020, Other accrued expenses and liabilities on the Iowa Premium ownership interests and the transferCompany’s balance sheet reflected state taxes payable of those interests to NBP.$286 thousand.
(6)(8) Long-term Debt and Loan Agreements
On August 16, 2019,July 13, 2020, USPB, and CoBank, ACB (“CoBank”), entered into ana 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, 2011.2011, as amended (the “Prior Agreements.”).
The AmendedCredit Agreement and RestatedPromissory Note provide for a $1 million Revolving Term Supplement provides forCommitment. That commitment carries a term of five years, maturing on June 30, 2025. All of the $1 million revolving credit commitment was available as of September 26, 2020. 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 reducesconditions of the commitment fee to 0.0%.Master Loan Agreement and the Revolving Term Loan Supplement continue the terms and conditions of the Prior Agreements without material modifications. The commitment hasAffirmation of Pledge Agreement provides CoBank with a remaining term of one year, maturing on September 29, 2020.first-priority security interest in USPB’s Membership Interests in, and Distributions from, National Beef Packing Company, LLC.
(7)(9) Members’ Capital
The following table represents a reconciliation of Members’ Capital for the thirteen and thirty-nine week periods ended September 26, 2020 and September 28, 2019 (unaudited) (thousands of dollars).
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 | |
Allocation of net income for the thirteen-week period ended September 26, 2020 | 39,347 | ||
Member distributions | |||
Class A ($8.60 per Class A unit) | (6,323 | ) | |
Class B ($75.34 Class B unit) | (56,911 | ) | |
Balance at September 26, 2020 | $ | 242,251 | |
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 | |
Allocation of net income for the thirteen-week period ended September 28, 2019 | 41,350 | ||
Member distributions | |||
Class A ($1.01 per Class A unit) | (742 | ) | |
Class B ($8.85 per Class B unit) | (6,683 | ) | |
Balance at September 28, 2019 | $ | 245,621 |
(10) Legal Proceedings
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 a couple offour class action lawsuits. The Class action lawsuits entitled In re Cattle Antitrust Litigation and Peterson et al. v. JBS USA Food Company Holdings, et al., and Pacific Agri-Products, Inc. v. JBS USA Food Company Holdings, et al., which allege, among other things, violations ofin 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.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 on 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 relief 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 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 vigorously defend itself.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.
(8)(11) Subsequent Events
USPB has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through November 8, 2019, the date the financial statements were available for issuance.issued and determined there were no such events to report.
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 from value-added production of consumer-ready beef and pork products, wet blue leather and transportation and logistics services.
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 timesthirteen-week period ended September 26, 2020 decreased 0.6%, compared to the same period in 2019, primarily due to lower average selling prices for beef products. Cost of amplesales decreased 0.8% for the thirteen-week period ended September 26, 2020, as compared to the same period in 2019, primarily due to lower prices for fed cattle, availability. NBP's fiscalwhich was partially offset by higher labor costs related to the coronavirus pandemic. The decrease in cost of sales was greater than the decrease in sales, resulting in a 2.7% increase in profitability in the third quarter period, as compared to the same period a 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.ago.
RevenuesSales in the thirty-nine week period ended September 28, 201926, 2020 increased approximately 10.4%14.7% in comparison to the same period in 2018,2019, primarily due to increasedhigher average selling prices for beef products and the additional volume in NBP’s beef processing and consumer-ready facilities along with revenues resulting from its acquisitionsthe June 2019 acquisition of the Ohio beef patty manufacturing facility in the first quarter of 2019 and the Iowa Premium in the second quarter of 2019.beef processing plant. Cost of sales increased by approximately 9.8%7.1% for the thirty-nine week period ended September 28, 2019,26, 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, higher incentive costs associated with higher profitability and consumer-ready facilities along withsignificantly higher labor costs related to the impactcoronavirus pandemic. Partially offsetting those increases in cost of its acquisition of the Ohio Beef patty manufacturing facility in the first quarter of 2019 and the Iowa Premium in the second quarter of 2019.sales were lower prices for fed cattle. Higher per unit beef processing margins, along withoffset in part lower total volume and higher volumes,costs, led to an 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 24% and 26%24% of its cattle requirements under this agreement during the thirty-nine weeks ended September 28, 201926, 2020 and September 29, 2018,28, 2019, respectively.
USPB Results of Operations
Thirteen-weeksThirteen weeks ended September 26, 2020 compared to thirteen weeks ended September 28, 2019 compared to thirteen-weeks ended September 29, 2018
Net Sales. There were no Net Salesnet sales in the thirteen-week periods ended September 28, 201926, 2020 and September 29, 2018.28, 2019.
Cost of Sales. There were no Costcost of Salessales in the thirteen-week periods ended September 28, 201926, 2020 and September 29, 2018.28, 2019.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately$4.0 million and $0.8 million for the thirteen-weeksthirteen-week periods ended September 26, 2020 and September 28, 2019, comparedrespectively, an increase of $3.2 million. The increase was primarily the result of higher phantom plan expenses, which increased due to approximatelyhigher unit transfer prices.
Operating Loss. Operating loss was $4.0 million and $0.8 million for the thirteen-weeksthirteen-week periods ended September 29, 2018.
Operating Loss.Operating loss was approximately $0.8 million for the thirteen-weeks ended26, 2020 and September 28, 2019, compared to approximately $0.8 million for the thirteen-weeks ended September 29, 2018.respectively.
Equity in Net Income of National Beef Packing Company, LLC. Equity in NBP net income was $43.0 million and $41.9 million for the thirteen-weeksthirteen-week periods ended September 26, 2020 and September 28, 2019, compared to $29.5 million for the thirteen-weeks ended September 29, 2018.respectively. The increase in fiscal year 20192020 is primarily due to lower depreciation expense, lower interest expense and higher gross margins at NBP and the acquisitions of Ohio Beef patty manufacturing facility in the first quarter of 2019 and Iowa Premium in the second quarter of 2019.NBP. USPB carries its 15.0729% investment in NBP under the equity method of accounting.
Interest Income. Interest income was less than $0.1 million and $0.3 million for the thirteen weeks ended September 28, 2019 compared to $0.3 million for the thirteen-weeks ended September 29, 2018.
Other, net.Other income was immaterial for the thirteen-week periods ended September 26, 2020 and September 28, 2019, respectively. The decrease is due to lower interest rates.
Other, net. Other income was $0.3 million and less than $0.1 million for the thirteen-week periods ended September 26, 2020 and September 29, 2018,28, 2019, respectively. The increase is primarily due to higher delivery right lease income.
Net income.Net income was $41.4$39.3 million and $28.9$41.4 million for the thirteen- weekthirteen-week periods ended September 28, 201926, 2020 and September 29, 2018,28, 2019, respectively.
Thirty-nine weeks ended September 28, 201926, 2020 compared to thirty-nine weeks ended September 29, 201828, 2019
Net Sales. There were no Net Salesnet sales in the thirty-nine week periods ended September 28, 201926, 2020 and September 29, 2018.28, 2019.
Cost of Sales. There were no Costcost of Salessales in the thirty-nine week periods ended September 28, 201926, 2020 and September 29, 2018.28, 2019.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately$6.4 million and $3.5 million for the thirty-nine weeksweek periods ended September 26, 2020 and September 28, 2019, compared torespectively, an increase of approximately $3.3 million for$2.9 million. The increase was primarily the thirty-nine weeks ended September 29, 2018. The $0.2 million increase is primarilyresult of higher phantom plan expenses, which increased due to higher accounting and health insurance expenses.unit transfer prices.
Operating Loss.Operating loss was approximately$6.4 million and $3.5 million for the thirty-nine weeksweek periods ended September 26, 2020 and September 28, 2019, compared to approximately $3.4 million for the thirty-nine weeks ended September 29, 2018.respectively.
Equity in Net Income of National Beef Packing Company, LLC. Equity in NBP net income was $158.5 million and $78.8 million for the thirty-nine weeksweek periods ended September 26, 2020 and September 28, 2019, compared to $68.1 million for the thirty-nine weeks ended September 29, 2018.respectively. The increase in fiscal year 2020 is primarily due to significantly higher gross margins at NBP. USPB carries its 15.0729% investment in NBP under the equity method of accounting.
Interest Income. Interest income was $0.2 million and $0.9 million for the thirty-nine weeksweek periods ended September 26, 2020 and September 28, 2019, compared to $0.7 million for the thirty-nine weeks ended September 29, 2018.respectively. The increase was primarilydecrease is due to higherlower interest rates.
Other, net.Other income was less than $0.4 million and $0.4 million for the thirty-nine week periods ended September 28, 201926, 2020 and September 29, 2018,28, 2019, respectively.
Net income.Net income was $76.6$152.7 million and $65.9$76.6 million for the thirty-nine week periods ended September 28, 201926, 2020 and September 29, 2018,28, 2019, respectively.
Liquidity and Capital Resources
As of September 28, 2019,26, 2020, we had net working capital (the excess of current assets over current liabilities) of approximately $73.1$83.9 million, which included cash and cash equivalents of $75.4$86.4 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. Our primary sources of liquidity for the first three quarters of fiscal yearyears 2020 and 2019 and fiscal year 2018 were cash and available borrowings under the Credit Agreement and Master Loan Agreement with CoBank.
As of September 28, 2019, USPB had no long-term debt outstanding. We had a $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 September 28, 2019.
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.
Operating Activities
Net cash provided by operating activities in the thirty-nine weeks ended September 28, 2019 was approximately $43.5 million compared to approximately $53.1 million in the thirty-nine weeks ended September 29, 2018. The $9.6 million change was primarily due to a lesser amount of distributions from NBP being classified as operating activities in the current period as opposed to the prior year.
Investing Activities
Net cash used in investing activities in the thirty-nine weeks ended September 28, 2019 was immaterial compared to net cash provided by investing activities of $18.2 million in the thirty-nine weeks ended September 29, 2018. The change was due to distributions from NBP classified as investing activities in the prior year.
Financing Activities
Net cash used in financing activities was $56.5 million in the thirty-nine weeks ended September 28, 2019 compared to $112.0 million in the thirty-nine weeks ended September 29, 2018. The change was the result of a lesser amount of distributions in the first three quarters of fiscal year 2019 compared to the same period in fiscal year 2018.
Master Loan Agreement
USPB’s Amended and Restated Revolving Term Supplement’s maturity date was June 30, 2020. On August 16, 2019, USPB andJune 24, 2020, CoBank entered into anunilaterally 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. 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 (“New Loan Agreements”). The New Loan Agreements 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, 2011.2011, as amended.
The Amended and Restated Revolving Term Supplement providesNew Loan Agreements provide for a $1 million revolving creditRevolving Term Commitment. That commitment and reduces the commitment fee to 0.0%. The commitment hascarries a remaining term of one year,five years, maturing on September 29, 2020.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.
All of the $1 million revolving credit commitment was available as of September 28, 2019.26, 2020. Borrowings under the revolving credit commitment currently bear interest at the base rate or LIBOR rate plus applicable margin.The applicable margin over LIBOR was 200 bps at September 28, 2019.26, 2020. USPB was in compliance with the financial covenant under its Credit Agreement as of September 26, 2020.
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.
We believe our cash 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 2019.
Operating Activities
Net cash provided by operating activities in the thirty-nine weeks ended September 26, 2020 was approximately $121.7 million compared to approximately $43.5 million in the thirty-nine weeks ended September 28, 2019. The $78.2 million change was primarily due to higher distributions from National Beef.
Investing Activities
Net cash used in investing activities in the thirty-nine week periods ended September 26, 2020 and September 28, 2019 were less than $0.1 million.
Financing Activities
Net cash used in financing activities was $113.2 million in the thirty-nine weeks ended September 26, 2020 compared to $56.5 million in the thirty-nine weeks ended September 28, 2019. The change was due to higher member distributions in fiscal year 2020.
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 September 28, 2019,26, 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 thirty-nine weeks ended September 28, 201926, 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 a couple offour class action lawsuits. The Class action lawsuits entitled In re Cattle Antitrust Litigation and Peterson et al. v. JBS USA Food Company Holdings, et al., and Pacific Agri-Products, Inc. v. JBS USA Food Company Holdings, et al., which allege, among other things, violations ofin 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.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 on 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 relief 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 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 vigorously defend itself.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.
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.
(a) | ||
executed | ||
No. 333-115164) filed with the SEC on | ||
10.5 | (b) | Amended and Restated Revolving Term Promissory Note between U.S. Premium Beef, LLC and CoBank, ACB executed July 13, 2020 (incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 333-115164) filed with the SEC on July 16, 2020). |
10.5 | (c) | Affirmation of Pledge Agreement between U.S. Premium Beef, LLC and CoBank, ACB executed July 13, 2020 (incorporated by reference to Exhibit 10.3 to Form 8-K (File No. 333-115164) filed with the SEC on July 16, 2020). |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley | |
Act of 2002 (filed herewith). | ||
** 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.
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: November 7, 20196, 2020
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