Tyson Foods 10-Q 2023-04-01

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended April 1, 2023

or

For the transition period from to

001-14704

(Commission File Number)

______________________________________________

TYSON FOODS, INC.

(Exact name of registrant as specified in its charter)

______________________________________________

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 1, 2023.

Class B stock is not listed for trading on any exchange or market system. However, Class B stock is convertible into Class A stock on a share-for-share basis.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

PART II. OTHER INFORMATION

PART I. FINANCIAL INFORMATION

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

See accompanying Notes to Consolidated Condensed Financial Statements.

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

See accompanying Notes to Consolidated Condensed Financial Statements.

TYSON FOODS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions, except share and per share data)

(Unaudited)

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OBJECTIVE

The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management’s perspective and should be read in conjunction with the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended October 1, 2022. Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.

RESULTS OF OPERATIONS

Description of the Company

We are one of the world’s largest food companies and a recognized leader in protein. Founded in 1935 by John W. Tyson and grown under four generations of family leadership, the Company has a broad portfolio of products and brands like Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost and availability of live cattle and hogs, raw materials and feed ingredients; availability of team members to operate our production facilities; and operating efficiencies of our facilities.

We operate in four reportable segments: Beef, Pork, Chicken, and Prepared Foods. We measure segment profit as operating income (loss). International/Other primarily includes our foreign operations in Australia, China, Malaysia, Mexico, the Netherlands, South Korea and Thailand, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC.

Overview

General

Sales were relatively flat in the second quarter and grew 1% in the first six months of fiscal 2023 largely due to improved sales volume in our Chicken and Prepared Foods segments. We incurred an operating loss of $49 million for the second quarter of fiscal 2023 as compared to operating income of $1,156 million in the second quarter of fiscal 2022 as we experienced lower operating income across all segments. Operating income of $418 million for the first six months of fiscal 2023 was down 84% compared to the first six months of fiscal 2022 as we experienced lower operating income in our Beef, Pork and Chicken segments, partially offset by improved operating income in our Prepared Foods segment. In the second quarter of fiscal 2023, our operating income was impacted by $22 million of restructuring and related charges and $92 million of charges related to plant closures. Additionally, in the six months ended April 1, 2023, our operating income was impacted by $43 million of restructuring and related charges and benefited from $35 million of insurance proceeds net of costs, related to facility fires. Operating income in the second quarter of fiscal 2022 was impacted by $5 million of production facility fire costs, net of insurance proceeds. In the six months ended April 2, 2022, our operating income was impacted by $18 million of insurance proceeds, net of costs.

Market Environment

According to the United States Department of Agriculture, domestic protein production (beef, pork, chicken and turkey) increased approximately 1% in the second quarter of fiscal 2023 compared to the same period in fiscal 2022. All segments experienced inflation in operating costs, especially in labor and certain materials, however, the rate of inflation is starting to decrease and protein prices are beginning to level off. We continue to pursue recovery of increased input costs through pricing. Additionally, the conflict between Ukraine and Russia has led to economic sanctions against Russia and certain regions of Ukraine and Belarus. As of April 1, 2023, the impact of this conflict has not had a material direct impact on our financial performance. However, the conflict is still ongoing and there are many risks and uncertainties in relation to the conflict that are outside of our control. If the conflict escalates further or if additional countries join the conflict and additional economic sanctions are imposed, it could have a material impact on our business operations and financial performance. The Beef segment experienced reduced supply of market-ready cattle and increased live cattle costs. The Pork segment experienced sufficient supply, despite herd health challenges in the industry, and reduced live hog costs. The Chicken segment experienced increased feed ingredient and other input costs, challenging market conditions impacting sales pricing, and challenging export markets associated with Avian Influenza. The Prepared Foods segment experienced increased costs largely due to the impacts of an inflationary environment.

The Federal Reserve has increased interest rates, and it is anticipated that interest rates will continue to rise in the near term. Our direct exposure to rising interest rates is somewhat tempered given our strong liquidity position in addition to our current debt structure in which most of our borrowings have fixed interest rates. At April 1, 2023, we had $2.2 billion of liquidity and our current debt was $1.1 billion. Should we need to issue additional debt or borrow under our existing revolving credit facility, we may be exposed to higher interest rates than our current outstanding borrowings. On May 3, 2023, we entered into two new term loan facilities totaling $1.75 billion to refinance our commercial paper program and for general liquidity purposes. A more detailed description of our new term loan facilities is set forth in Part II, Item 5 of this Quarterly Report on Form 10-Q.

COVID-19

We continue to proactively monitor and respond to the evolving nature of the COVID-19 pandemic and its impact to our global business. Our ongoing COVID-19 task force was formed for the primary purposes of maintaining the health and safety of our team members, ensuring our ability to operate our processing facilities and maintaining the liquidity of our business. We have experienced and continue to experience multiple challenges related to the pandemic. The most significant challenge we face is the availability of team members to operate our production facilities as our production facilities continue to experience varying levels of absenteeism. The health and safety of our team members remains our top priority, and we continue to provide a variety of health and safety resources and services to team members and their family members. Additionally, we have experienced some challenges in our supply chain such as volatility of inputs, availability of shipping containers and port congestion. These challenges impacted our operating costs, but generally, we experienced lower direct incremental costs associated with COVID-19 in the second quarter and first six months of fiscal 2023 as compared to previous fiscal years. The long-term impacts of COVID-19 remain uncertain and will depend on future developments, including the duration and spread of potential future COVID-19 variants and the resurgence of existing COVID-19 variants, and related actions taken by federal, state and local government officials to prevent and manage disease spread, and effectively distribute and administer vaccinations, all of which contain some level of uncertainty and cannot be easily predicted.

Margins

Our total operating margin was (0.4)% in the second quarter of fiscal 2023. Operating margins by segment were as follows:

• Beef – 0.0%

• Pork – (2.3)%

• Chicken – (5.8)%

• Prepared Foods – 10.0%

Strategy

Our strategy is to sustainably f

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Market risk relating to our operations results primarily from changes in commodity prices, interest rates and foreign exchange rates, as well as credit risk concentrations. To address certain of these risks, we enter into various derivative transactions as described below. If a derivative instrument is accounted for as a hedge, depending on the nature of the hedge, changes in the fair value of the instrument either will be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or be recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value is recognized immediately.

Further, we hold certain positions, primarily in grain and livestock futures that either do not meet the criteria for hedge accounting or are not designated as hedges. With the exception of normal purchases and normal sales that are expected to result in physical delivery, we record these positions at fair value, and the unrealized gains and losses are reported in earnings at each reporting date.

The sensitivity analyses presented below are the measures of potential changes in fair value resulting from hypothetical changes in market prices related to commodities. Sensitivity analyses do not consider the actions we may take to mitigate our exposure to changes, nor do they consider the effects such hypothetical adverse changes may have on overall economic activity. Actual changes in market prices may differ from hypothetical changes.

Commodities Risk

We purchase certain commodities, such as grains and livestock, during normal operations. As part of our commodity risk management activities, we use derivative financial instruments, primarily forwards and options, to reduce the effect of changing prices and as a mechanism to procure the underlying commodity. However, as the commodities underlying our derivative financial instruments can experience significant price fluctuations, any requirement to mark-to-market the positions that have not been designated or do not qualify as hedges could result in volatility in our results of operations. Contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts designated and highly effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting. We generally do not hedge anticipated transactions beyond 18 months. The following table presents a sensitivity analysis resulting from a hypothetical change of 10% in market prices as of April 1, 2023, and October 1, 2022, on the fair value of open positions. The fair value of such positions is a summation of the fair values calculated for each commodity by valuing each net position at quoted forward and option prices. The market risk exposure analysis included both derivatives designated as hedge instruments and derivatives not designated as hedge instruments.

Interest Rate Risk

At April 1, 2023, we had variable rate debt of $624 million with a weighted average interest rate of 5.5%. A hypothetical 10% increase in interest rates effective at April 1, 2023, and October 1, 2022, would not have a significant effect on variable interest expense.

Additionally, changes in interest rates impact the fair value of our fixed-rate debt. At April 1, 2023, we had fixed-rate debt of $8,306 million with a weighted average interest rate of 4.5%. Market risk for fixed-rate debt is estimated as the potential increase in fair value, resulting from a hypothetical 10% decrease in interest rates. A hypothetical 10% change in interest rates would have changed the fair value of our fixed-rate debt by approximately $198 million at April 1, 2023 and $215 million at October 1, 2022. The fair values of our debt were estimated based on quoted market prices and/or published interest rates.

We are subject to interest rate risk associated with our pension and post-retirement benefit obligations. Changes in interest rates impact the liabilities associated with these benefit plans as well as the amount of income or expense recognized for these plans. Declines in the value of the plan assets could diminish the funded status of the pension plans and potentially increase the requirements to make cash contributions to these plans. See Part II, Item 8, Notes to Consolidated Financial Statements, Note 15: Pensions and Other Postretirement Benefits in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022, for additional information.

Foreign Currency Risk

We have foreign exchange exposure from fluctuations in foreign currency exchange rates primarily as a result of certain receivable and payable balances. The primary currencies we have exposure to are the Australian dollar, the Brazilian real, the British pound sterling, the Canadian dollar, the Chinese renminbi, the European euro, the Malaysian ringgit, the Mexican peso, and the Thai baht. We periodically enter into foreign exchange forward and option contracts to hedge some portion of our foreign currency exposure. A hypothetical 10% change in foreign exchange rates related to the foreign exchange forward and option contracts would have had a $14 million and $25 million impact on pretax income at April 1, 2023, and October 1, 2022 respectively.

Concentration of Credit Risk

Refer to our market risk disclosures set forth in our Annual Report filed on Form 10-K for the fiscal year ended October 1, 2022, for a detailed discussion of quantitative and qualitative disclosures about concentration of credit risks.

EBITDA Non-GAAP Reconciliations

A reconciliation of net income to EBITDA is as follows (in millions, except ratio data):

(a) Excludes the amortization of debt issuance and debt discount expense of $5 million for the six months ended April 1, 2023 and April 2, 2022 and $11 million for the fiscal year ended October 1, 2022 and the twelve months ended April 1, 2023 as it is included in interest expense.

EBITDA represents net income, net of interest, income tax expense, depreciation and amortization. Net debt to EBITDA represents the ratio of our debt, net of cash and short-term investments, to EBITDA. EBITDA and net debt to EBITDA are presented as supplemental financial measurements in the evaluation of our business. We believe the presentation of these financial measures helps management and investors to assess our operating performance from period to period, including our ability to generate earnings sufficient to service our debt, and enhances understanding of our financial performance and highlights operational trends. These measures are widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies; however, the measurements of EBITDA and net debt to EBITDA may not be comparable to those of other companies, which limits their usefulness as comparative measures. EBITDA and net debt to EBITDA are not measures required by or calculated in accordance with GAAP and should not be considered as substitutes for net income or any other measure of financial performance reported in accordance with GAAP or as a measure of operating cash flow or liquidity. EBITDA is a useful tool for assessing, but is not a reliable indicator of, our ability to generate cash to service our debt obligations because certain of the items added to net income to determine EBITDA involve outlays of cash. As a result, actual cash available to service our debt obligations will be different from EBITDA. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally, in making investment decisions.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed, under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”)). Based on that evaluation, the CEO and CFO have concluded that, as of April 1, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the quarter ended April 1, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

**Item 1.**Legal Proceedings

Refer to the description of the Broiler Antitrust Civil Litigation, the Broiler Chicken Grower Litigation, the Pork Antitrust Litigation, the Beef Antitrust Litigation and the Wage Rate Litigation under the heading “Commitments and Contingencies” in Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 15: Commitments and Contingencies, which discussion is incorporated herein by reference. Other than as set forth below and in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022, there are no additional updates to the legal proceedings involving the Company and/or its subsidiaries.

On July 8, 2022, Barber Foods, LLC (“Barber Foods”), an indirect wholly owned subsidiary of the Company, received correspondence from the Environmental Protection Agency (“EPA”) extending an opportunity to confer and negotiate a Consent Agreement and Final Order (“CAFO”) for each of two Barber Foods frozen poultry storage facilities located in Portland, Maine (the “Maine Facilities”). Included in the correspondence was a proposed CAFO for each facility. Each proposed CAFO alleges violations of the Clean Air Act resulting from EPA compliance inspections conducted in June 2019 at the Maine Facilities. The alleged violations include the failure to comply with process safety information requirements, failure to comply with mechanical integrity requirements and failure to adequately identify, evaluate, and control hazards. The proposed CAFOs set forth a proposed aggregate civil penalty of $541,243 for the alleged violations at the Maine Facilities. On September 28, 2022, the Maine Facilities entered into CAFOs with the EPA in an aggregate amount of $300,000 which fully resolved this matter. While Barber Foods neither admits nor denies the specific factual allegations contained in the CAFOs, we believe that the settlement was in the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation.

On June 19, 2005, the Attorney General and the Secretary of the Environment of the State of Oklahoma filed a complaint in the United States District Court for the Northern District of Oklahoma against Tyson Foods, Inc., three subsidiaries and six other poultry integrators. The complaint, which was subsequently amended, asserts a number of state and federal causes of action including, but not limited to, counts under the Comprehensive Environmental Response, Compensation, and Liability Act, Resource Conservation and Recovery Act, and state-law public nuisance theories. Oklahoma alleges that the defendants and certain contract growers who were not joined in the lawsuit polluted the surface waters, groundwater and associated drinking water supplies of the Illinois River Watershed through the land application of poultry litter. Oklahoma’s claims were narrowed through various rulings issued before and during trial and its claims for natural resource damages were dismissed by the district court in a ruling issued on July 22, 2009, which was subsequently affirmed on appeal by the Tenth Circuit Court of Appeals. A non-jury trial of the remaining claims including Oklahoma’s request for injunctive relief began on September 24, 2009. Closing arguments were held on February 11, 2010. On January 18, 2023, the district court entered Findings of Fact and Conclusions of Law in favor of the State of Oklahoma and directed the parties to confer in an attempt to reach an agreement on appropriate remedies by March 17, 2023. On March 17, 2023, the parties received a 90-day extension from the district court and continue to confer on appropriate remedies.

Other Matters

As of October 1, 2022, we had approximately 142,000 team members and, at any time, have various employment practices matters outstanding. In the aggregate, these matters are important to the Company, and we devote considerable resources to managing employment issues. Additionally, we are subject to other lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. While the ultimate results of these matters cannot be determined, they are not expected to have a material adverse effect on our consolidated results of operations or financial position.

Our business is subject to a variety of risks and uncertainties. These risks are described in this Quarterly Report on Form 10-Q and elsewhere in our other filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 1, 2022. The risks identified in such reports have not changed in any material respect.

**Item 2.**Unregistered Sales of Equity Securities and Use of Proceeds

The table below provides information regarding our purchases of Class A stock during the three months ended April 1, 2023.

(1)On February 7, 2003, we announced that our Board of Directors had approved a program to repurchase up to 25 million shares of outstanding Class A common stock from time to time in open market or privately negotiated transactions. On May 3, 2012, our Board of Directors approved an additional 35 million shares, on January 30, 2014, our Board of Directors approved an additional 25 million shares and on February 4, 2016, our Board of Directors approved an additional 50 million shares, in each case, authorized for repurchase under our share repurchase program. The program has no fixed or scheduled termination date.

(2)We purchased 186,585 shares during the three months ended April 1, 2023 that were not made pursuant to our previously announced stock repurchase program but were purchased to fund certain Company obligations under our equity compensation plans. These transactions included 164,457 shares purchased in open market transactions and 22,128 shares withheld to cover required tax withholdings related to the vesting of restricted stock. Shares withheld to cover required tax withholdings related to the vesting of restricted stock do not reduce our total share repurchase authority.

(3)Shares purchased during the three months ended April 1, 2023 pursuant to our previously announced stock repurchase program.

**Item 3.**Defaults Upon Senior Securities

None.

**Item 4.**Mine Safety Disclosures

Not Applicable.

Because this Quarterly Report on Form 10-Q is being filed within four business days from the date of a reportable event, we have elected to make the following disclosure in this Quarterly Report on Form 10-Q instead of in a Current Report on Form 8-K under Items 1.01 and 2.03.

Entry into a Material Definitive Agreement.

BofA Term Loan Agreement

On May 3, 2023, Tyson Foods, Inc. (the “Company”) entered into a Term Loan Agreement with the lenders from time to time party thereto, Bank of America, N.A., as the administrative agent, and BofA Securities, Inc., as lead arranger (the “BofA Term Loan Agreement”).

In connection with the BofA Term Loan Agreement, the Company obtained a $1 billion term loan facility which the Company may draw at any time during the ten business days following the effective date of the BofA Term Loan Agreement (the “BofA Term Loan Facility'). Interest on borrowings under the BofA Term Loan Agreement will accrue and be payable, at the Company’s option, at an annual rate equal to (a) Term SOFR (as defined in the BofA Term Loan Agreement) plus the applicable margin, as described below, or (b) the Alternate Base Rate (as defined in the BofA Term Loan Agreement) plus the applicable margin, as described below. The BofA Term Loan Agreement contains customary provisions specifying alternative interest rate calculations to be employed at such time as Term SOFR (as defined in the BofA Term Loan Agreement) ceases to be available as a benchmark for establishing the interest rate on borrowings. The BofA Term Loan Facility matures three years following the date of the initial borrowing under the BofA Term Loan Facility. The applicable margin will correspond to the Company’s corporate credit rating from S&P or Moody’s, as applicable, as calculated in accordance with the terms of the BofA Term Loan Agreement.

The covenants under the BofA Term Loan Agreement include negative covenants limiting or restricting our ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business; engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, the BofA Term Loan Agreement requires the Company to maintain a minimum interest expense coverage ratio (Consolidated EBITDA to Consolidated Cash Interest Expense, each as defined in the BofA Term Loan Agreement) of at least 3.50 to 1.0 as of the end of each fiscal quarter (in each case, calculated on a trailing four fiscal quarter basis).

The BofA Term Loan Agreement contains customary events of default, including non-payment of obligations under other debt facilities, violation of affirmative or negative covenants, material inaccuracy of representations, non-payment of other material debt, bankruptcy or insolvency, ERISA and certain judgment defaults, change of control and failure of any guarantee to remain in full force and effect.

The Company may use the proceeds of borrowings under the BofA Term Loan Agreement to finance general working capital needs and for other general corporate purposes, including in connection with any acquisition. The Company entered into the BofA Term Loan Agreement, in part, to finance the repayment of near-term commercial paper and senior note indebtedness.

Certain of the lenders party to the BofA Term Loan Agreement, the administrative agent and each of their affiliates engage in transactions with, and perform services for, the Company and its affiliates in the ordinary course of business and have engaged, and may in the future engage, in other commercial banking transactions and underwriting, investment banking, financial advisory and other financial services transactions with the Company and its affiliates.

The foregoing description of the BofA Term Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the BofA Term Loan Agreement, a copy of which is filed herewith as Exhibit 10.3 and incorporated by reference herein.

CoBank Term Loan Agreement

On May 3, 2023, the Company also entered into a Term Loan Agreement with the lenders from time to time party thereto, CoBank, ACB, as the administrative agent, and CoBank, ACB, as the sole lead arranger (the “CoBank Term Loan Agreement”).

The CoBank Term Loan Agreement provides for a $750 million delayed-draw term loan facility which the Company may draw in one or more borrowings at any time during the six months following the effective date of the CoBank Term Loan Agreement (the “CoBank Term Loan Facility”). Interest on borrowings under the CoBank Term Loan Facility will accrue and be payable, at the Company’s option, at an annual rate equal to (a) the Adjusted Term SOFR Rate (as defined in the CoBank Term Loan Agreement) plus the applicable margin, (b) the Alternate Base Rate (as defined in the CoBank Term Loan Agreement) plus the applicable margin, as described below, (c) the Adjusted Daily Simple SOFR Rate (as defined in the CoBank Term Loan Agreement) plus the applicable margin, as described below, or (d) the Quoted Rate (as defined in the CoBank Term Loan Agreement). The CoBank Term Loan Agreement contains customary provisions specifying alternative interest rate calculations to be employed at such time as Term SOFR (as defined in the CoBank Term Loan Agreement) ceases to be available as a benchmark for establishing the interest rate on borrowings. The CoBank Term Loan Facility matures five years from May 3, 2023, the date of closing. The applicable margin will correspond to the Company’s corporate credit rating from S&P or Moody’s, as applicable, as calculated in accordance with the terms of the CoBank Term Loan Agreement.

The covenants under the CoBank Term Loan Agreement include negative covenants limiting or restricting our ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business; engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, the CoBank Term Loan Agreement requires the Company to maintain a minimum interest expense coverage ratio (Consolidated EBITDA to Consolidated Cash Interest Expense, each as defined in the CoBank Term Loan Agreement) of at least 3.50 to 1.0 as of the end of each fiscal quarter (in each case, calculated on a trailing four fiscal quarter basis).

The CoBank Term Loan Agreement contains customary events of default, including non-payment of obligations under other debt facilities, violation of affirmative or negative covenants, material inaccuracy of representations, non-payment of other material debt, bankruptcy or insolvency, ERISA and certain judgment defaults, change of control and failure of any guarantee to remain in full force and effect.

The Company may use the proceeds of borrowings under the CoBank Term Loan Agreement to refinance existing indebtedness of the Company and its subsidiaries, including indebtedness outstanding under the Company’s commercial paper program, and for other general corporate purposes, including in connection with any acquisition. The Company entered into the CoBank Term Loan Agreement, in part, to finance the repayment of near-term commercial paper and senior note indebtedness.

The foregoing description of the CoBank Term Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the CoBank Term Loan Agreement, a copy of which is filed herewith as Exhibit 10.4 and incorporate by reference herein.

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information described above under “Entry into a Material Definitive Agreement” is incorporated herein by reference.

The Exhibit Index below contains a list of exhibits filed or furnished with this Form 10-Q.

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.