Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2023

or

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)

12200 North Ambassador Drive

Kansas City, MO 64163

(Address of principal executive offices)

Telephone: (866) 877-2525

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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 growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 28, 2023, there were 735,385 Class A units and 755,385 Class B units outstanding.

TABLE OF CONTENTS

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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

U.S. Premium Beef, LLC

Balance Sheets

(thousands of dollars, except unit information)

See accompanying notes to financial statements.

U.S. Premium Beef, LLC

Statements of Operations

(thousands of dollars, except unit and per unit information)

See accompanying notes to financial statements.

U.S. Premium Beef, LLC

Statements of Cash Flows

(thousands of dollars)

See accompanying notes to financial statements.

U.S. PREMIUM BEEF, LLC

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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, livestock disease, including the identification of cattle with bovine spongiform encephalopathy (BSE), competitive practices and consolidation in the cattle production and processing industries, actions of domestic or foreign governments, hedging risk, changes in interest rates and foreign currency exchange rates, consumer demand and preferences, 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.

Overview

USPB provides an integrated cattle production, processing and marketing system for the benefit of our unitholders and associates. As the basis of that system, our Class A unitholders have a guaranteed right plus an obligation (on a one head per Class A unit per delivery year basis) to deliver cattle to USPB pursuant to a Uniform Cattle Delivery and Marketing Agreement. USPB facilitates the delivery of cattle to NBP for processing and subsequent product distribution and marketing. Shortly after the cattle are processed, cattle suppliers receive, at no extra charge, individual animal carcass data previously considered proprietary by many processors. This carcass data assists producers in refining production methodologies to improve product quality and enhance producer returns.

USPB and NBP are parties to a First Amended and Restated Cattle Purchase and Sale Agreement June 10, 2019. Under this agreement, NBP must purchase through us from our Class A Members and associates, and we must sell and deliver from our Class A Members and associates to NBP, a base amount of 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 26% and 24% of its cattle requirements under this agreement during the thirty-nine week periods ended September 30, 2023 and September 24, 2022, respectively.

USPB’s results of operation depend substantially on the operations of NBP, in which we hold a 15.0729% interest. Our fiscal year ends on the last Saturday in December, which results in a 52-53 week year.

Investment in National Beef Packing Company, LLC

NBP processes and markets a comprehensive line of fresh beef, case-ready products, and beef by-products 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 has two beef slaughter and processing facilities located in southwest Kansas and a third located in central Iowa. In addition, NBP operates a leather tannery, three case-ready manufacturing facilities, a fresh and frozen hamburger manufacturing facility and a transportation and logistics company that provides refrigerated and livestock transportation across the U.S.

NBP’s profitability typically fluctuates seasonally as well as cyclically, based on the availability of fed cattle and the demand for beef and beef by-products. Its profitability is dependent, in large part, on the spread between its cost for fed 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 dynamic commodity market and 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 revenues in the fourteen-week period ended September 30, 2023 increased approximately 18.6% compared to the thirteen-week period ending September 24, 2022. Cost of Sales increased by approximately 28.8% for the fourteen-week period ended September 30, 2023, compared to the thirteen-week period ended September 24, 2022, primarily due to higher fed cattle prices and the extra week of operations in the 2023 period. Lower per unit beef processing margins led to a decrease in overall profitability in the 2023 period, compared to the 2022 period.

NBP’s revenues in the thirty-nine-week period ended September 30, 2023 increase approximately 0.9% compared to the thirty-nine-week period ending September 24, 2022. Cost of Sales increased by approximately 11.4% for the thirty-nine-week period ended September 30, 2023, compared to the thirty-nine-week period ending September 24, 2022, primarily due to higher fed cattle prices offset, in part, by lower volume and reduced incentive expense. Lower per unit beef processing margins, along with a decrease in volume, led to a decrease in overall profitability in the 2023 period, compared to the 2022 period.

USPB Results of Operations

Fourteen-weeks ended September 30, 2023 compared to thirteen-weeks ended September 24, 2022

Net Sales. There were no Net Sales in the fourteen-week period ended September 30, 2023 and thirteen-week period ended September 24, 2022.

Cost of Sales. There were no Cost of Sales in the fourteen-week period ended September 30, 2023 and thirteen-week-period ended September 24, 2022.

Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses were approximately $0.8 million for the fourteen-weeks ended September 30, 2023 compared to approximately $2.0 million for the thirteen-weeks ended September 24, 2022, a decrease of approximately $1.2 million. The decrease was primarily the result of lower phantom plan and bonus expenses. 

Operating Loss. Operating loss was approximately $0.8 million for the fourteen-weeks ended September 30, 2023 compared to approximately $2.0 million for the thirteen-weeks ended September 24, 2022, primarily due to reduced SG&A expenses in the 2023 period.

Equity in Net Income of National Beef Packing Company, LLC. Equity in NBP net income was $14.8 million for the fourteen-weeks ended September 30, 2023 compared to $44.5 million for the thirteen-weeks ended September 24, 2022. The decrease was primarily due to lower per unit beef processing margins along with a decrease in volume, as compared to the 2022 period. 

Interest Income. Interest income was $0.8 million for the fourteen-weeks ended September 30, 2023 compared to approximately $0.3 million for the thirteen-weeks ended September 24, 2022. The increase in fiscal year 2023 was due to higher interest rates on USPB’s overnight investment account and an investment in a certificate of deposit at CoBank.

Other, net. Other income was $0.2 million for the fourteen-week period ended September 30, 2023 compared to other income of $0.3 million for the thirteen-week period ended September 24, 2022. The change was the result of higher state and local taxes in the 2023 period. 

Net income. Net income was $15.0 million and $43.1 million for the fourteen-week period ended September 30, 2023 and thirteen-week period ended September 24, 2022, respectively. The decrease was primarily due to lower per unit beef processing margins along with a decrease in volume, as compared to the 2022 period.

Thirty-nine weeks ended September 30, 2023 compared to thirty-nine weeks ended September 24, 2022

Net Sales. There were no Net Sales in the thirty-nine weeks periods ended September 30, 2023 and September 24, 2022, respectively.

Cost of Sales. There were no Cost of Sales in the thirty-nine weeks periods ended September 30, 2023 and September 24, 2022, respectively.

Selling, General and Administrative Expenses. SG&A expenses were approximately $3.1 million for the thirty-nine weeks ended September 30, 2023 compared to approximately $5.6 million for the thirty-nine weeks ended September 24, 2022, a decrease of approximately $2.5 million. The decrease was primarily the result of lower phantom plan expenses.

Operating Loss. Operating loss was approximately $3.2 million for the thirty-nine weeks ended September 30, 2023 compared to approximately $5.7 million for the thirty-nine weeks ended September 24, 2022.

Equity in Net Income of National Beef Packing Company, LLC. Equity in NBP net income was $37.1 million for the thirty-nine weeks ended September 30, 2023 compared to $159.9 million for the thirty-nine weeks ended September 24, 2022. The decrease was primarily due to lower per unit beef processing margins along with a decrease in volume, as compared to the 2022 period.

Interest Income. Interest income was $2.5 million for the thirty-nine weeks ended September 30, 2023 compared to $0.3 million for the thirty-nine weeks ended September 24, 2022. The increase in fiscal year 2023 was due to higher interest rates on USPB’s overnight investment account and an investment in a certificate of deposit at CoBank.

Other, net. Other income was $0.5 million compared to $0.3 million for the thirty-nine weeks periods ended September 30, 2023 and September 24, 2022, respectively. The change from the prior period was primarily due to higher delivery right lease income.

Net income. Net income was $36.9 million and $154.9 million for the thirty-nine week periods ended September 30, 2023 and September 24, 2022, respectively. The decrease was primarily for the same reasons that caused the decrease in net income of NBP.

Liquidity and Capital Resources

As of September 30, 2023, we had net working capital (the excess of current assets over current liabilities) of approximately $76.8 million, which included cash and cash equivalents of $75.8 million. As of December 31, 2022, we had net working capital of approximately $93.8 million, which included cash and cash equivalents of $97.7 million. Our primary sources of liquidity for the first three quarters of fiscal years 2023 and 2022 were cash and available borrowings under our Credit Agreement with CoBank.

As of September 30, 2023, we had no long-term debt outstanding. We had a $1.0 million revolving term credit commitment with CoBank, all of which was available. USPB was in compliance with the financial covenant under Credit Agreement as of September 30, 2023.

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 2022.

Operating Activities

Net cash provided by operating activities in the thirty-nine weeks ended September 30, 2023 was approximately $30.5 million compared to net cash provided by operating activities of approximately $160.0 million in the thirty-nine weeks ended September 24, 2022. The $129.5 million change was primarily due to a decrease in distributions received from NBP.

Investing Activities

Net cash from investing activities was $0.0 million in the thirty-nine weeks ended September 30, 2023 compared to $0.1 in the thirty-nine weeks ended September 24, 2022.

Financing Activities

Net cash from financing activities was approximately $52.4 million in the thirty-nine weeks ended September 30, 2023 compared to net cash used of approximately $195.2 million in the thirty-nine weeks ended September 24, 2022. The change was due to a lower level of member distributions made in the thirty-nine weeks of 2023.

Credit Agreement

On July 13, 2020, USPB, and CoBank, entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (“Promissory Note”), and an Affirmation of Pledge Agreement.

The Credit Agreement and Promissory Note provides for a $1.0 million revolving term commitment. The commitment carries a term of five years, maturing on June 30, 2025. All of the $1.0 million revolving credit commitment was available as of September 30, 2023. On July 6, 2023, USPB and CoBank amended the Promissory Note to provide for an interest rate equal to the Daily Simple SOFR Margin (as defined in the amendment) plus the higher of 0.00% and Daily Simply SOFR (as defined in the agreement). The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, NBP.

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 September 30, 2023, 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. Each quarter, we evaluate 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 the 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 last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. 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 is a defendant in (i) five putative 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 and (ii) putative class action lawsuits in the Supreme Court of British Columbia and the Superior Court of Quebec, Montreal District, alleging that it violated the Canadian Competition Act and various provincial laws (the “Beef Class Actions”). The Beef Class Actions 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; In re DPP Beef Litigation, which was filed originally on April 26, 2019; Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020; Specht v. Tyson Foods, Inc., et al., which was filed originally on October 31, 2022; Giang Bui v. Cargill, Incorporated, et al. which was filed originally on February 18, 2022; and Sylvie De Bellefeuille v. Cargill, Inc. et al., which was filed originally on March 24, 2022. Since the original filings, certain putative class members of the Peterson case have opted out of the matter and are proceeding with 23 individual direct actions making similar claims (the “Opt-Out Cases”), and others may do so in the future. The Opt-Out Cases are entitled Winn-Dixie Stores, Inc. and Bi-Lo Holding, LLC v. Cargill, Inc., et al., which was filed on August 2, 2021 in the United States District Court, Minnesota; Cheney Brothers, Inc. v. Cargill, Inc., et al., which was filed on January 31, 2022 in the United States District Court, Southern District of Florida; Subway v. Cargill, Inc. et al., which was filed on February 22, 2022 in the United States District Court, Connecticut; Amory Investments LLC v. Cargill, Inc. et al., which was filed originally on March 8, 2022 in the United States District Court, Northern District of New York; Associated Grocers, Inc., et al. v. Cargill, Inc., et al., which was filed originally on May 12, 2022 in the United States District Court, Northern District of Illinois; Giant Eagle, Inc. v. Cargill, Inc., et al., which was filed originally on June 8, 2022 in the United States District Court, Northern District of Illinois; Sysco Corporation v. Cargill, Inc., et al., which was filed originally on June 24, 2022 in the United States District Court, Southern District of Texas; John Soules Foods, Inc. v. Cargill, Inc., et al., which was filed originally on August 5, 2022 in the United States District Court, Eastern District of Texas; Associated Grocers of the South et al. v. Cargill, Inc., et al., which was filed originally on September 15, 2022 in the United States District Court, District of Montana; The Kroger Co. et al. v. Cargill, Inc., et al., which was filed originally on September 15, 2022 in the United States District Court, District of Montana; Kraft Heinz Food Company v. Cargill Inc., et al., which was filed originally on September 30, 2022 in the United States District Court, Eastern District of New York; Aramark Food and Support Services Group., Inc. v. Cargill Inc., et al., which was filed originally on September 30, 2022 in the United States District Court, Eastern District of New York; ARCOP, Inc. v. Cargill, Inc., et al., which was filed originally on December 19, 2022 in the United States District Court, Southern District of Florida; CKE Restaurant Holdings, Inc. v. Cargill, Inc., et al., which was filed originally on December 19, 2022 in the United States District Court, Southern District of Florida; Sonic Industries Services Inc. v. Cargill, Inc. et al., which was filed originally on December 19, 2022 in the United States District Court, Southern District of Florida; Restaurant Services, Inc. v. Cargill, Inc., et al., which was filed originally on December 19, 2022 in the United States District Court, Southern District of Florida; Whatabrands LLC et al. vs. Cargill, Inc., et al., which was filed originally on December 19, 2022 in the United States District Court, Southern District of Florida; Sherwood Food Distributors, L.L.C. et al. vs. Cargill, Inc., et al., which was filed originally on March 7, 2023 in the United States District Court, Eastern District of New York; ALDI Inc vs Cargill, Inc,. et al, which as filed originally on August 22, 2023 in the United States District Court, Northern District of Illinois; Quirch Foods, LLC v. Cargill, Inc., et al, which was filed originally on October 9, 2023 in the United States District Court, Northern District of Illinois; Compass Group USA, Inc. v. Cargill, Inc., et al., which was filed originally on October 31, 2023 in the Western District of North Carolina; and Conagra Brands, Inc. v. Cargill, Inc., et al., which was filed originally on October 31, 2023 in the United States District Court, Northern District of Illinois. On October 4, 2022, the United States Beef Class Actions and Opt-Out Cases were consolidated for pretrial proceedings in the United States District Court, Minnesota District under the style In re: Cattle and Beef Antitrust Litigation. The plaintiffs in these cases seek treble damages and other relief under various laws including the Sherman Antitrust Act, the Canadian Competition Act, the Packers & Stockyards Act, and/or the Commodities Exchange Act and various state and provincial laws and attorneys’ fees. NBP believes it has meritorious defenses to the claims in these cases and intends to defend them 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.

In addition to the above antitrust litigation, NBP is subject to an investigation by the United States Department of Justice (“DOJ”) and approximately 30 state attorneys general regarding fed cattle and beef packing markets. NBP is cooperating with these investigations and is working with the DOJ and the relevant states to provide information requested in connection with the investigations. NBP believes it has meritorious defenses to any potential claims that might arise out of these government investigations, although there can be no assurance as to the outcome of these investigations or the impact on NBP’s consolidated financial position, results of operations and cash flows.

NBP is a defendant in a putative class action lawsuit entitled Brown, et al. v. JBS USA Food Company et al. and filed in the United States District Court, Colorado District on November 16, 2022, alleging that the defendants directly and through a wage survey and benchmarking service exchanged information regarding labor rates in an effort to depress and fix the rates of wages in violation of federal antitrust laws. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest, as well as declaratory and injunctive relief. NBP believes it has meritorious defenses to the claims in this case and intends to defend the case vigorously. There can be no assurances, however, as to the outcome of this case or the impact on the 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 of NBP believes the ultimate resolution of such matters should not have a material adverse effect on NBP’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.

Item 1A. Risk Factors.

The risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 have not materially changed. Please refer to the Company’s report on Form 10-K for the fiscal year ended December 31, 2022 to consider those risk factors.

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.

Item 5. Other Information.

None.

Item 6. Exhibits.

** 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.

SIGNATURES

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.

Date: November 13, 2023