UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark one)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 26, 201531, 2016

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from___to___.

Commission file number333-115164

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)

20-1576986
(I.R.S. employer identification number)

12200 North Ambassador Drive, Kansas City, MO 64163
(Address of principal executive offices)

Registrant’s telephone number, including area code: (866) 877-2525

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No☑

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 ☑Yes☑ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer Accelerated Filer Non-Accelerated Filer ☑ Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑ No☑

The registrant’s equity is not traded on any exchange or other public market; however, there have been private transactions. As of February 27, 2016,25, 2017, there were 735,385 Class A units and 755,385 Class B units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

LOCATION OF EXHIBIT INDEX

The index of exhibits is contained in Part IV on page 42.

 


 

 TABLE OF CONTENTS  
 PART I.  
  Page 
  No. 
Item 1. Business.4 
Item 1A. Risk Factors 9 
Item 1B. Unresolved Staff Comments 13 
Item 2. Properties. 13 
Item 3. Legal Proceedings. 13 
Item 4. Not Used. 13 
   
 PART II.  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters And IssuerPurchases of Equity Securities. 

1413 

Item 6. Selected Financial Data. 14 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations. 

1615 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 2221 
Item 8. Financial Statements and Supplementary Data. 2221 
Item 9. Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure. 

2321 

Item 9A. Controls and Procedures. 2322 
Item 9B. Other Information.2423 
   
 PART III.  
Item 10. Directors, Executive Officers and Corporate Governance.2423 
Item 11. Executive Compensation.2726 
Item 12. Security Ownership of Certain Beneficial Owners and Management and RelatedUnitholder Matters. 

3734 

Item 13. Certain Relationships and Related Transactions, and Director Independence. 3936 
Item 14. Principal Accountant Fees and Services. 4037 
   
 PART IV.  
Item 15. Exhibits, Financial Statement Schedules. 4238 
 Signatures 4541 

 

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MARKET AND INDUSTRY DATA AND FORECASTS

Market data and certain industry forecasts used throughout this report were obtained from internal surveys, market research, consultant surveys, publicly available information and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable, based upon our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not know what assumptions regarding general economic growth were used in preparing the forecasts we cite.

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,”“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 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 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.

Unless the context indicates or otherwise requires, the terms “the Company”, “we”, “USPB”, “our” and “us” refer to U.S. Premium Beef, LLC (formerly known as U.S. Premium Beef, Ltd.) and its consolidated subsidiaries. As used in this report, the term “NBP” refers to National Beef Packing Company, LLC (formerly known as Farmland National Beef Packing Company, LP (FNB)), a Delaware limited liability company. As used in this report, the terms “fiscal year” or “fiscal year ended” for the period ending December 31, 2011 and thereafter refers to our fiscal year which ends on the last Saturday in December.

 

 

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PART I

ITEM 1.          BUSINESS

BUSINESS OF U.S. PREMIUM BEEF, LLC

Overview

U.S. Premium Beef LLC (USPB)(USPB or the Company) was organized in July 1996formed as a Kansasclosed marketing cooperative by a steering committeeon July 1, 1996. Its mission is to increase the quality of beef and long-term profitability of cattle producers. USPB’s goalproducers by creating a fully integrated producer-owned beef processing system that is to provide market access and improve the marketing and processinga global supplier of high quality, value-added beef products requiring higher quality cattle for wholesale and retail customers and consumers while providing higher returnsresponsive to cattle producers.consumer desires. USPB operates an integrated cattle processing and beef marketing enterprise where consumer and processor demands and requirements are implemented through changes in genetics, feeding, and management. USPB’s unitholders benefit from its supplier alliance with National Beef Packing Company, LLC (NBP) through (i) premiums received in excess of cash market prices for higher quality cattle, (ii) allocations of profits and losses and potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions.

Effective August 29, 2004, the cooperative restructured into a limited liability company (LLC) under Delaware law (Conversion). The business of USPB, the cooperative, is being continued in the LLC form of business organization.

As USPB filed a registration statement with the Securities and Exchange Commission in connection with its 2004 Conversion from the cooperative form of business organization to an LLC structure, USPB is subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act), although USPB is not required to be registered under the Exchange Act. Accordingly, USPB files periodic reports and other information with the Securities and Exchange Commission (SEC). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports and information statements and other information regarding USPB and other issuers that file electronically.

On December 5, 2011, USPB entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Leucadia), NBP, NBPCo Holdings, TKK Investments, LLC (TKK), TMKCo, LLC (TMKCo), and TMK Holdings, LLC (TMK Holdings) (Purchase Agreement). The Purchase Agreement provided for (i) Leucadia to purchase 56.2415% of the membership interests in NBP (National Interests) from the Company for approximately $646.8 million and 19.8775% of the National Interests from NBPCo for approximately $228.6 million; (ii) pursuant to pre-existing put rights, NBP to purchase from TKK and TMKCo all the National Interests owned by TKK and TMKCo for approximately $75.9 million; and (iii) Leucadia to sell to TMK Holdings 0.6522% of the National Interests for approximately $7.5 million (Leucadia Transaction). The Leucadia Transaction, which closed on December 30, 2011. Following the close, the partiesUSPB owned the following percentage15.0729% of NBP’s membership interests in NBP: Leucadia 78.9477%; USPB 15.0729%; NBPCo 5.3272%; and TMK Holdings 0.6522%.interests.

Due to the sale to Leucadia, beginning on December 31, 2011, USPB’s investment in NBP will be 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. Since USPB no longer has financial or operational control, NBP’s financial information will no longer be consolidated with USPB’s. NBP’s financial statements and footnotes will instead be attached as an exhibit to USPB’s 10-K.

Products and Production

USPB provides an integrated cattle production, processing and marketing system for the benefit of its unitholders and associates. As the basis of that system, USPB’s 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 the Uniform Cattle Delivery and Marketing Agreement (seeCattle Delivery Arrangements). 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, thereby improving the product quality and subsequently enhancing the return to the producer.

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We believe the primary advantage of USPB’s ownership in NBP centers around USPB’s ability to provide NBP with a consistent supply of quality beef from a verified source, allowing NBP to target higher margin value-added markets. Consumers have historically demonstrated their willingness and desire to buy branded products that offer better value in other consumer product markets, with the Certified Angus Beef®product line being an example in the beef industry.

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Cattle Producers’ Uniform Cattle Delivery and Marketing Agreements

USPB facilitates the delivery of cattle from its Class A unitholders and associates to NBP. Each Class A unitholder is required to enter into a Uniform Cattle Delivery and Marketing Agreement (Delivery Agreement) with the Company whereby the unitholder is committed to deliver a designated number of cattle on an annual basis. Each Class A unit held by a unitholder entitles and obligates that unitholder to deliver one head of cattle per delivery year to USPB. The Delivery Agreements are for a term of 5 years with an “evergreen” renewal provision that automatically renews annually in the beginning of USPB’s delivery year for a subsequent five year period. These arrangements are described in greater detail inCattle Delivery Arrangements.

Company Background

USPB was originally organized as a tax exempt cooperative within the meaning of Section 521(b)(l) of the Internal Revenue Code. The cooperative began operations on December 1, 1997, when the cooperative acquired its initial interest in Farmland National Beef, now known as National Beef Packing Company, LLC. In connection with the cooperative’s purchase of its interest in Farmland National Beef, the cooperative owned the right and was subject to the obligation to deliver cattle annually to NBP. That arrangement continues following the Conversion. Under that arrangement, USPB has delivered more than 12.413.3 million head of cattle to NBP for processing since it commenced deliveries.

On August 6, 2003, USPB became the majority owner in NBP.

On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the conversion of the cooperative into a Delaware LLC. Under the new ownership structure, each share of common stock of the cooperative was converted to one unit of Class A interest and one unit of Class B interest. Immediately following the Conversion, there were 691,845 units of Class A interests and 691,845 units of Class B interests. Initially, each Class A unit was linked to its corresponding Class B unit and each pair of linked units were required to be transferred together. On March 27, 2010, the board of directors amended the USPB’s LLC Agreement to permit theThe Class A and Class B units tocan be transferred separately.

          On November 9, 2009, USPB members approved an amendment to USPB’s limited liability company agreement that changed the allocation of profits and losses to Class A unitholders from 33% to 10%, and to Class B unitholders from 67% to 90%. Holders of USPB Class B units have no cattle delivery commitment.

On December 5, 2011, USPB entered into thea Membership Interest Purchase Agreement.Agreement with Leucadia National Corporation (Leucadia). The Purchase Agreement provided for (i) Leucadia to purchase 56.2415% of the National Interestsmembership interests in NBP (National Interests) from the Company for approximately $646.8 million and 19.8775% of the National Interests from NBPCo for $228.6 million; (ii) pursuant to pre-existing put rights, NBP to purchase from TKK and TMKCo all the National Interests owned by TKK and TMKCo for $75.9 million; and (iii) Leucadia to sell to TMK Holdings 0.6522% of the National Interests for $7.5 million. The Leucadia Transaction closed on December 30, 2011. Following the close, the parties own the following percentageUSPB owned 15.0729% of NBP’s membership interests in NBP: Leucadia 78.9477%; USPB 15.0729%; NBPCo 5.3272%; and TMK Holdings 0.6522%.interests.

In connection with its approval of the Purchase Agreement, the Company’s Board of Directors adopted a change to the Company’s fiscal year, which became effective upon closing. The Leucadia Transaction closed on December 30, 2011 and the Company’s fiscal year-end changed from the last Saturday in August to the last Saturday in December.

Employees

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USPB has seven employees as of December 26, 2015.31, 2016. The complexity of USPB’s obligations under its various contracts with NBP require USPB to retain the services of key senior management personnel with the experience, skill and expertise necessary to manage an enterprise competitive with other sophisticated participants in the beef and meat industries. Each employee is compensated through the payment of a base salary with management being eligible for incentive and discretionary bonuses. In addition, each employee is eligible to participate in benefits programs maintained by USPB. These programs include group medical insurance, accidental death and dismemberment insurance and similar programs.

USPB’s employees are not unionized and USPB believes that its relationship with its employees is good.

Governmental Regulation and Environmental Matters

The Company does not operate any processing facilities itself and is therefore not subject to federal and state regulations relating to grading of animals, quality control, labeling, sanitary control and waste disposal.

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Operational activities are conducted through NBP and significant efforts with respect to governmental and environmental regulation are conducted by NBP. SeeBusiness of National Beef Packing Company, LLC -Regulation and Environmental.

Sales, Marketing, and Customers

NBP is the only beef processor that USPB has a cattle delivery agreement with. The ultimate customers of and the market for the products resulting from the processing of cattle supplied by USPB’s unitholders and associates are described inBusiness of National Beef Packing Company, LLC.

Beef Industry, Markets, and Competition

As indicated above, USPB’s business activities are focused on facilitating the delivery of cattle produced by its Class A unitholders and associates to NBP. Information regarding the beef industry, the market for beef and beef products and competition within the beef industry are described inBusiness of National Beef Packing Company, LLC.

Intellectual Property

USPB maintains a federally registered trademark on a U.S. Premium Beef logo that it uses periodically.

Research and Development

USPB does not conduct any research and development activities.

CATTLE DELIVERY ARRANGEMENTS

Cattle Producers’ Uniform Cattle Delivery and Marketing Agreements and Payments to Unitholders and Associates for Cattle

USPB facilitates the delivery of cattle from its Class A unitholders and associates to NBP. Each Class A unitholder is required to enter into a Uniform Cattle Delivery and Marketing Agreement (Delivery Agreement) with the Company whereby the unitholder is committed to deliver a designated number of cattle on an annual basis. Each Class A unit held by a unitholder entitles and obligates that unitholder to deliver one head of cattle per delivery year to USPB. The Delivery Agreements are for a term of 5 years with an “evergreen” renewal provision that automatically renews annually in the beginning of USPB’s delivery year for a subsequent five year period.

Cattle delivered by USPB’s unitholders and associates are delivered to NBP for processing (NBP is the only beef processor that USPB has a cattle delivery agreement with). The resulting beef and beef products are marketed by NBP. Each unitholder or associate is paid for the cattle delivered to USPB based on a market-based purchase price that is subject to the agreements between USPB and NBP.

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Pursuant to the Uniform Cattle Delivery and Marketing Agreement, payment for cattle is based on the individual carcass quality of cattle delivered. As a limited liability company, allocations of profits and losses and potential distributions are not tied to cattle delivery, but rather to the number of Class A and Class B units held and the respective rights of those units.

BUSINESS OF NATIONAL BEEF PACKING COMPANY, LLC

General

NBP is one of the largest beef processing companies in the U.S., accounting for approximately 12.5% of the fed cattle slaughter market. NBP processes and markets fresh and chilled boxed beef, consumer-readyground beef, beef by-productsbyproducts, consumer ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had about 8,400approximately 8,140 employees at December 26, 201531, 2016 and generated total revenues of $7.4$7.0 billion in 2015.2016.

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The largest share of NBP’s revenue, about 91%, is generated from the sale of fresh and chilled boxed beef products. NBP also generates revenues through value-added production with its consumer-ready products. In addition, NBP operates one of the largest wet blue tanning facilities in the world (wet blue tanning refers to the first step in processing raw and brine-cured hides into tanned leather), selling processed hides to tanners that produce finished leather for the automotive, 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 to customers in the food service and retail channels, as well as direct to consumers through internet, direct mail and direct response television, and service revenues generated by National Carriers, Inc., a wholly owned transportation and logistics company that is one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for NBP and a variety of other customers. NBP’s profitability typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability.

Beef Processing Services

NBP’s 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 and capacity utilization.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 as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability.

          The USDA reports market valuesRevenues in 2016 decreased about 5% in comparison to 2015, due to lower average selling prices for cattle, beef offal and other products produced by ranchers, farmers and beef processors. Generally, NBP expects its profitability to improve asby-products, partially offset by an increase in the ratio of the USDA comprehensive boxed beef cutout (a weekly reported measure of the total value of all USDA inspected primal cuts, grind and trim produced from fed cattle) to the USDA 5-area weekly average slaughter cattle price increases and for profitability to decline as the ratio decreases. While the ratio during 2015 was the highest since 2010, the drop credit value (amount received for all products other than beef that are produced when cattle are processed) as a percentagenumber of cattle price were at an historically low level and had a negative impact on profitability.

processed. Revenues in 2015 decreased about 5% in comparison to 2014, due to lower sales volume, as fewer cattle were processed, and lower average selling prices for beef and beef by-products. Additionally, during 2015, decreases to revenues of $52.9 million were recorded as a result of NBP's use of derivatives in its hedging activity associated with its forwardactivity. For 2016, cost of sales of boxed beef and driven bydeclined 11% as compared to 2015, due to a significant drop in live cattle futures prices amidst unusually high price volatilitydecrease in the second halfprice of the year. Revenuesfed cattle, partially offset by an increase in 2014 increased about 5% in comparison to 2013, due primarily to higher selling prices despite lower sales volume, as fewer cattle were processed.volume. For 2015, cost of sales declined 5% as compared to 2014, due to fewer cattle processed, and a small decrease in the price of cattle. Cost

For 2016, the combined effects of sales increased markedly during 2014 as comparedmargin per head and an increase in volume led to 2013 as industry slaughter declined approximately 5% from 2013 and cattle prices increased approximately 22% on average.

          Therecord high profitability. For 2015, the combined effects of both lower volumes and tighter margins due to the relative price of cattle compared to the selling price of beef and beef by-products impacted margins leading to reduced profitability in 2015 compared to 2014. Selling, generalDuring 2015, NBP recorded an impairment loss on property, plant and other expenses in 2013 included a $63.3 million impairment charge in connection with NBP’s decision to closeequipment located at its Brawley, California beef processing plant. An additional impairment charge related to the Brawley plantfacility of approximately $4.7 million was included in Selling, general and other expenses in 2015.to adjust the carrying value of the long-lived assets to its fair value. Also in connection with closing the Brawley facility, NBP recognized $6.9 million of costs including employee separation and retention, systems decommissioning and various other expenses in 2014. Of these amounts, $4.6 million related to employee separation, which is included in compensationCompensation and benefits, and the various other costs are included in selling,Selling, general and other expenses.

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Sales and Marketing

NBP markets its products to national and regional retailers, including supermarket chains, independent grocers, club stores, wholesalers and distributors, food service providers, further processors and the U.S. military. In addition, NBP sells beef by-products to the variety meat,medical, feed processing, fertilizer and pet food industries. NBP exports products to more than 20 countries; in 20152016 export sales represented approximately 10.5%10.8% of revenues. The demand for beef is generally strongest in the spring and summer months and generally decreases during the winter months.

NBP emphasizes the sale of higher-margin, value-added products, which include branded boxed beef, consumer-ready beef and pork, portion control beef and wet blue hides. NBP believes its value-added products can command higher prices than commodity products because of NBP’s ability to consistently meet product specifications, based on quality, trim, weight, size, breed or other factors, tailored to the needs of its customers. In addition to the value-added brands that NBP owns, NBP licenses the use of Certified Angus Beef®, a registered trademark of Certified Angus Beef LLC, and Certified Hereford Beef®, a registered trademark of Certified Hereford Beef LLC.

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Raw Materials and Procurement

The primary raw material for the beef processing plants is live cattle. The domestic beef industry is characterized byLive cattle prices that change daily based on seasonal consumption patterns, supply and demand for beef and other proteins, cattle inventory levels, weather and other factors. NBP’s two largest beef processing facilities are located in southwest Kansas. The primary market area for the purchase of cattle for those facilities includes Kansas, Texas and Oklahoma. A significant portion of USPB’s unitholders and associates are located in this area. The close proximity of NBP’s facilities to large supplies of cattle gives its buyers the ability to visit feedlots on a regular basis, which enables NBP to develop strong working relationships with its suppliers, reduces its reliance on any one cattle supplier and lowers in-bound transportation costs.

On December 30, 2011, NBP entered into a new Cattle Purchase and Sale Agreement with USPB. Per the terms and conditions of the 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. In fiscal years 2013 and 2012, USPB and NBP agreed to increase the number of cattle that USPB’s owners and associates could deliver during USPB’s delivery year by up to 10%. During fiscal years 2015, 2014 and 2013, USPB’s owners and associates provided approximately 28%, 23% and 21%, respectively, of NBP’s total cattle requirements. The purchase price for the cattle is determined by pricing grids, which, at all times, are required to be no less favorable than any other pricing grid being utilized by NBP and the pricing grid shall be competitive with NBP’s major competitors for the purchase of cattle. NBP believes the pricing grids are based on terms that could be obtained from an unaffiliated party. The cattle supply agreement extends through December 31, 2017, with automatic, but optional one year extensions on each December 30, unless either party provides a notice not to extend sixty days prior to the annual anniversary date. NBP also purchased additional cattle from certain USPB unitholders and associates outside of the cattle supply agreement.

During fiscal years 2016, 2015 and 2014, USPB’s owners and associates provided approximately 27%, 28% and 23%, respectively, of NBP’s total cattle requirements.

Processing Facilities

NBP owns two beef processing facilities located in Liberal and Dodge City, Kansas, which can each process approximately 6,000 cattle per day. NBP’s three consumer-ready facilities are in Hummels Wharf, Pennsylvania, Moultrie, Georgia and Kansas City, Kansas. NBP’s wet blue tanning facility is in St. Joseph, Missouri.

Competition

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Competitive conditions exist both in the purchase of live cattle, as well as in the sale of beef products. Beef products compete with other protein sources, including pork and poultry, but NBP’s principal competition comes from other beef processors. NBP believes the principal competitive factors in the beef processing industry are price, quality, food safety, customer service, product distribution, technological innovations (such as food safety interventions and packaging technologies) and brand loyalty. Some of NBP’s competitors have substantially larger beef operations, greater financial and other resources and wider brand recognition for their products.

Regulation and Environmental

NBP’s operations are subject to extensive regulation by the USDAU.S. Department of Agriculture (USDA) including its Food Safety and Inspection Service (FSIS) and its Grain Inspection, Packers and Stockyards Administration (GIPSA), the Food and Drug Administration (FDA), the U.S. Environmental Protection Agency (EPA) and other federal, state, local and foreign authorities regarding the processing, packaging, storage, safety, distribution, advertising and labeling of its products.

NBP is subject to the Packers and Stockyards Act of 1921 (PSA). Among other things, this statute generally requires NBP to make full payment for livestock purchases not later than the close of business the day after the purchase and transfer of possession or determination of the purchase price. Under the PSA, NBP must hold in trust for the benefit of unpaid livestock suppliers all livestock purchasedreceivables, inventory and proceeds derived from NBP’s sale of such cattle until the sellers have received full payment. AtIn addition, pursuant to PSA rules, at December 31, 2015,2016, NBP has obtained from an insurance company a surety bond in the amount of $50.4 million to satisfy these requirements.as a measure of protection for livestock sellers.

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The Dodge City and Liberal facilities are subject to Title V permitting pursuant to the Federal Clean Air Act and the Kansas Air Quality Act. The St. Joseph facility is subject to a secondary air permit which is in place. The Dodge City, Liberal, Hummels Wharf and Moultrie facilities are subject to Clean Air Act Risk Management Plan requirements relating to the use of ammonia as a refrigerant.

All of NBP’s plants are indirect dischargers of wastewater to publicly owned treatment works and are subject to requirements under the federal Clean Water Act, state and municipal laws, as well as agreements or permits with municipal or county authorities. Upon renewal of these agreements and permits, NBP is from time to time required to make capital expenditures to upgrade or expand wastewater treatment facilities to address new and more stringent discharge requirements imposed at the time of renewal. Storm water discharges from NBP’s plants are also regulated by state and local authorities.

All of NBP’s facilities generate solid waste streams including small quantities of hazardous wastes. NBP is subject to laws that provide for strict, and in certain circumstances, joint and several liability for remediation of hazardous substances at contaminated sites; however, NBP has not received any demands that it has any liability at sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund) or state counterparts. All plants are subject to community right to know reporting requirements under the Superfund Amendments and Reauthorization Act of 1986, which requires yearly filings as to the substances used on facility premises.

Employees

Of NBP’s 8,4008,140 employees, about 5,5005,325 are represented by collective bargaining agreements. About 2,7002,265 employees at the Liberal plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2017, 2,5002,475 employees at the Dodge City plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2016,2021, and another 220225 employees at the St. Joseph plant are represented by the United Cereal Workers (R.W.D.S.U./U.F.C.W) under a collective bargaining agreement scheduled to expire in June 2019.

ITEM 1A.RISK FACTORS

As described throughout this document, USPB’s business involves the operation of an integrated cattle processing and beef marketing enterprise in which USPB’s unitholders and associates supply cattle that are processed at the facilities owned and operated by NBP. NBP markets and distributes the beef and beef products produced from both cattle supplied by USPB’s unitholders and associates and other cattle purchased by NBP from other sources. The financial results of NBP’s operations therefore are the single largest influence on USPB’s financial performance. Consequently, those factors and risks that impact the performance of NBP’s business have a direct and immediate influence on USPB’s performance. However, there are also some risks that are unique to USPB. ThisRisk Factorssection is divided into two parts, with one subsection focusing on the risk factors that influence the performance of NBP and another subsection discussing certain risk factors that are directly applicable to USPB.

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USPB’s business operations and the implementation of our business strategy are subject to significant risks inherent in our business, including, without limitation, the risks and uncertainties described below. The occurrence of any one or more of the risks or uncertainties described below could have a material adverse effect on our financial condition, results of operations, and cash flows. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operations, industry, financial position, and financial performance in the future.

Risk Factors Associated With Operations of NBP

The prices and availability of key raw materials affects the profitability of NBP’sits beef processing and manufacturing operations.

9



The supply and market price of cattle purchased by NBP are dependent upon a variety of factors over which NBP has no control, including fluctuations in the size of herds maintained by producers, the relative cost of feed and energy, weather and livestock diseases. A decline in the supply of fed cattle available for NBP’s Brawley facility was a key factor in the 2013 decision to close the Brawley plant. The cost of raw materials used by NBP’sits manufacturing businesses has increasedhave fluctuated over time as a result of a variety of factors. Although NBP’sits manufacturing subsidiariesbusinesses are not currently experiencing any shortage of raw materials, if the subsidiaries experiencesuch shortages occur, revenues and profitability could decline.

Outbreaks of disease affecting livestock can adversely affect the supply of cattle and the demand for NBP’s products.

NBP is subject to risks relating to animal health and disease control. An outbreak of disease affecting livestock (such as foot-and-mouth disease or bovine spongiform encephalopathy (BSE), commonly referred to as mad cow disease) could result in restrictions on sales of products, restrictions on purchases of livestock from suppliers or widespread destruction of cattle. The discovery of BSE in the past caused certain countries to restrict or prohibit the importation of beef products. Outbreaks of diseases, or the perception by the public that an outbreak has occurred, or other concerns regarding diseases, can lead to inadequate supply, cancellation of orders by customers and create adverse publicity, any of which can have a significant negative impact on consumer demand and, as a result, on NBP’sits consolidated financial position, cash flows and results of operations.

If NBP’s products or products made by others using its products become contaminated or are alleged to be contaminated, NBP may be subject to product liability claims that could adversely affect its business.

NBP may be subject to significant liability in excess of insurance policy limits if its products or products made by others using its products cause injury, illness or death. In addition, NBP could recall or be required to recall products that are, or are alleged to be, contaminated, spoiled or inappropriately labeled. Organisms producing food borne illnesses (such asE. coli)coli) could be present in NBP’s products and result in illness or death if they are not eliminated through further processing or cooking. Contamination of NBP’s or its competitors’ products may create adverse publicity or cause consumers to lose confidence in the safety and quality of beef products. Allegations of product contamination may also be harmful even if they are untrue or result from third-party tampering. Any of these events may increase costs or decrease demand for beef products, any of which could have a significant adverse effect on NBP’sits consolidated financial condition, cash flows and results of operations.

10



NBP generally does not enter into long-term contracts with customers; as a result the volumes and prices at which beef products are sold are subject to market forces.

NBP’s customers generally place orders for products on an as-needed basis and, as a result, their order levels have varied from period to period in the past and may vary significantly in the future. The loss of one or more significant customers, a significant decline in the volume of orders from customers or a significant decrease in beef product prices for a sustained period of time could negatively impact cash flows and results of operations.

NBP’s international operationsexports expose it to political and economic risks in the U.S. and foreign countries, as well as to risks related to currency fluctuations.

Approximately 10.5%10.8% of NBP’s annual sales are export sales, primarily to Japan, Mexico, South Korea, Hong Kong, China (for hides), Taiwan, Italy and Egypt, and on average these sales have a higher margin than domestic sales of similar products. A reduction in international sales could adversely affect revenues and margins. Risks associated with international activities include inflation or deflation and changes in foreign currency exchange rates, including changes in currency exchange rates of other countries that may export beef products in competition with NBP; the closing of borders by foreign countries to product imports due to disease or other perceived health or food safety issues; exchange controls; changes in tariffs; changes in political or economic conditions; trade restrictions and changes in regulatory requirements. The occurrence of any of these events could increase costs, lower demand for products or limit operations, which could have a significant adverse effect on cash flows, results of operations and future prospects.

10



NBP incurs substantial costs to comply with environmental regulations and could incur additional costs as a result of new regulations or compliance failures that result in civil or criminal penalties, liability for damages and negative publicity.

NBP’s operations are subject to extensive and increasingly stringent environmental regulations administered by the EPA and state, local and other authorities with regards to water usage, wastewater and storm water discharge, air emissions and odor, and waste management and disposal. Failure to comply with these laws and regulations could have serious consequences, including criminal, civil and administrative penalties and negative publicity. In addition, NBP incurs and will continue to incur significant capital and operating expenditures to comply with existing and new or more stringent regulations and requirements. All of NBP’s processing facilities procure wastewater treatment services from municipal or other regional governmental agencies that are in turn subject to environmental laws and permit limits regarding their water discharges. As permit limits are becoming more stringent, upgrades and capital improvements to these municipal treatment facilities are likely. In locations where NBP is a significant volume discharger, it could be asked to contribute toward the costs of such upgrades or to pay significantly increased water or sewer charges to recoup such upgrade costs. NBP may also be required to undertake upgrades and make capital improvements to its own wastewater pretreatment facilities, the cost of which could be significant. Compliance with environmental regulations has had and will continue to have a significant impact on NBP’s cash flows and profitability. In addition, under most environmental laws, most notably the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and analogous state laws, NBP could be held liable for the cost to investigate or remediate any contamination at properties it owns or operates, or as to which it arranges for the disposal or treatment of hazardous substances, as such liability is imposed without regard to fault.

NBP is subject to extensive governmental regulation and noncompliance with or changes in applicable requirements could adversely affect its business, financial condition, cash flows and results of operations.

NBP’s operations are subject to extensive regulation and oversight by the USDA, including its FSIS and GIPSA agencies, the FDA, and other federal, state, local and foreign authorities regarding the procurement of cattle and the processing, packaging, storage, safety, distribution, advertising and labeling of its products. Recently, food safety practices and procedures in the meat processing industry have been subject to more intense scrutiny and oversight by the USDA. NBP is also subject to a variety of immigration, labor and worker safety laws and regulations, including those relating to the hiring and retention of employees. Failure to comply with existing or new laws and regulations could result in administrative penalties and injunctive relief, civil remedies, fines, interruption of operations, recalls of products or seizures of properties, potential criminal sanctions and personal injury or other damage claims. These remedies, changes in the applicable laws and regulations or discovery of currently unknown conditions could increase costs, limit business operations and reduce profitability.

11



NBP’s performance depends on favorable labor relations with its employees, in particular employees represented by collective bargaining agreements.

A substantial number of NBP’s employees are covered by collective bargaining agreements. A labor-related work stoppage by unionized employees, or employees who become unionized in the future, could limit NBP’s ability to process and ship products or could increase costs. Any significant increase in labor costs, deterioration of employee relations, slowdowns or work stoppages at any of NBP’s locations, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on NBP’sits financial condition, cash flows and results of operations.

Risk Factors Associated with USPB

USPB facilitates the delivery of the cattle provided by its unitholders and associates to NBP and does not have arrangements for alternative markets for its unitholders and associates cattle.

USPB’s sole customer for the cattle provided by its unitholders and associates is NBP. USPB has not developed alternative customers for the cattle provided by USPB’s unitholders and associates. If events were to occur which would prevent NBP from purchasing and processing the cattle supplied by USPB’s unitholders and associates, USPB would need to exercise provisions in its agreements with both NBP and USPB’s unitholders that would permit USPB to reduce the number of cattle acquired from unitholders and sold to NBP. While such provisions would mitigate harm to USPB, it is likely that the value of the Class A and Class B units and the associated delivery rights held by USPB’s unitholders would be impaired.

11



USPB’s investment in NBP could become impaired.

USPB’s investment in NBP is carried under the equity method of accounting. Operating losses, economic and industry events, 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 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.

The other members of NBP do not deliver cattle to NBP for processing, creating the possibility that the interests of those other members of NBP could conflict with the interests of USPB and its unitholders.

The other members of NBP do not deliver cattle to NBP for processing and marketing. As a result, conflicts of interest may arise between USPB and NBP relating to cattle purchases. If a dispute were to arise, the settlement of any such dispute may not be on terms as favorable to USPB as would be expected if all of the members of NBP were involved in the delivery of cattle to NBP for processing.

The Internal Revenue Service could assert that USPB should be treated as a corporation for federal income tax purposes.

Under applicable regulations, an unincorporated entity such as a limited liability company is treated as a partnership for federal income tax purposes unless the entity is considered a “publicly traded partnership” or the entity affirmatively elects to be taxed as a corporation. USPB has not elected to be taxed as a corporation, and USPB believes that it should be treated as a partnership not taxable as a corporation for federal income tax purposes. USPB has not requested and will not request any ruling from the IRS, however, with respect to its classification as a partnership for federal income tax purposes. If the IRS were to assert successfully that USPB were taxable as a corporation for federal income tax purposes in any taxable year, holders of Class A units and Class B units would not be required to report on their federal income tax returns their allocable share of USPB’s items of income, gain, deduction, and loss for that year and USPB would be subject to tax on its net income for that year at corporate tax rates. In addition, any distributions would be taxable to holders of Class A units and Class B units as dividend income. Taxation of USPB as a corporation could materially reduce the after-tax return on an investment in units and could substantially reduce the value of the units.

12



Failure to achieve and maintain effective internal controls could have a material adverse effect on USPB’s business, operating results and financial condition.

USPB documents and tests its internal control procedures in order to satisfy the requirements of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of its internal controls over financial reporting. This process is both costly and challenging. If USPB fails to achieve and maintain the adequacy of its internal controls, as such standards are modified, supplemented or amended from time to time, it may not be able to ensure that it can conclude on an ongoing basis that it has effective internal controls over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for USPB to produce reliable financial reports and are important to helping prevent financial fraud. If USPB cannot provide reliable financial reports or prevent fraud, its business and operating results could be harmed, investors could lose confidence in its reported financial information, and its business, results of operation and financial condition could be adversely affected.

USPB depends on the service of key senior management personnel, the loss of which could materially harm its business.

USPB’s success will depend, in part, on the efforts of its key senior management personnel. The market for qualified personnel is competitive and USPB’s future success will depend on its ability to attract and retain these personnel. USPB does not have long-term employment agreements with most of its senior management. USPB may not be able to negotiate either new contracts or renewals of any existing long-term employment agreements on terms favorable to USPB or at all. The loss of the services of any of USPB’s key senior management personnel or the failure to attract and retain highly skilled personnel in the future could have a material adverse effect on USPB’s business, results of operations and financial condition.

12



Rules proposed by the U.S. Department of Agriculture’s (USDA) Grain Inspection, Packers and Stockyards Administration (GIPSA) could adversely impact USPB’s business operations.

The “Farmer Fair Practices Rules” proposed by GIPSA could have an impact on how USPB’s members market the cattle they produce and on USPB’s ability to offer its members value based grids for their cattle. If enacted, the proposed rules may have a negative impact the value of the Class A unit and the associated delivery rights held by USPB’s unitholders.

ITEM 1B.       UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.          PROPERTIES

USPB’s corporate office is located at 12200 Ambassador Drive, Suite 501, Kansas City, Missouri 64163, in proximity to the corporate offices of NBP. The Company leases its office space from the Kansas City Aviation Department, with offices at 601 Brasilia Avenue, Kansas City, Missouri 64153.

ITEM 3.          LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 10.Legal Proceedings.

ITEM 4.          NOT USED.

PART II

13



PART II

ITEM 5.       MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     There is no established public trading market for any class of common equity of U.S. Premium Beef, LLC. As of February 27, 2016,25, 2017, there were 485477 record holders of Class A units and 484476 record holders of Class B units. The per unit sales prices for the fiscal years 20152016 and 20142015 by quarter were as follows:

Affiliated Sales 

 

Third Party Sales 

Affiliated Sales 

 

Third Party Sales 

Class A 

Class B 

  

Class A 

Class B 

Class A 

Class B  

Class A 

Class B 

Low  

High 

Low  High  Low  High  Low  High Low 

High 

Low High  Low 

High 

Low High 
Fiscal Year 2016         
Quarter ending:         

March 26, 2016

$

100.00 

$ 100.00 $75.00 $ 87.50  $

110.00 

$ 110.00 $

- 

$ - 

June 25, 2016

$

125.00 

$ 125.00 $125.00 $ 125.00  $

121.00 

$ 128.00 $

95.00 

$ 95.00 

September 24, 2016

$

142.50 

$ 142.50 $ 7.50 $ 7.50  $

- 

$ - $

- 

$ - 

December 31, 2016

$

- 

$ - $ - $ -  $

115.00 

$ 128.00 $

150.00 

$ 150.00 

Subsequent to December 31, 2016

$

75.48 

$ 

100.00 

$75.48 $ 110.00  $

112.00 

$ 120.00 $

105.00 

$ 125.00 
Fiscal Year 2015                
Quarter ending:                

March 28, 2015

$

120.00 

 128.00  $

120.00 

 120.00  $

110.00 

 110.00  $

 $

120.00 

$ 

128.00 

$120.00 

$ 

120.00  $

110.00 

$ 

110.00 $

- 

$ 

- 

June 27, 2015

$

 

 $

  $

100.00 

 100.00  $

75.00 

 81.00 $

- 

$ 

- $ - 

$ 

-  $

100.00 

$ 

100.00 $

75.00 

$ 

81.00 

September 26, 2015

$

100.00 

 

125.00  $

75.00 

 75.00  $

100.00 

 100.00  $

 $

100.00 

$ 

125.00 

$75.00 

$ 

75.00  $

100.00 

$ 

100.00 $

- 

$ 

- 

December 26, 2015

$

16.00 

 

16.00  $

141.00 

 141.00  $

  $

 $

16.00 

$ 

16.00 $141.00 

$ 

141.00  $

- 

$ 

- $

- 

$ 

- 
Subsequent to December 26, 2015 $

100.00 

 

100.00  $

87.50 

 75.00  $

  $

 $

100.00 

$ 

100.00 

$75.00 

$ 

87.50  $

- 

$ 

- $

- 

$ 

- 
Fiscal Year 2014  
Quarter ending:  

March 29, 2014

$

1.00 

 

165.00  $

1.00 

 170.00  $

150.00 

 165.00  $

129.00 

 129.00 

June 28, 2014

$

62.40 

 

162.73  $

67.60 

 173.34  $

140.00 

 145.00  $

120.00 

 145.00 

September 27, 2014

$

 

 $

135.00 

 135.00  $

128.00 

 140.00  $

 

December 27, 2014

$

128.00 

 

170.00  $

135.00 

 135.00  $

120.00 

 120.00  $

85.00 

 86.00 
Subsequent to December 27, 2014 $

128.00 

 

163.50  $

120.00 

 120.00  $

  $

 

 

13



The affiliated sales represent sales for each of the periods shown above were not at arms-length and, therefore, the sales prices disclosed above are not necessarily indicative of the market value of the Class A and Class B units during the periods in question.

During fiscal years 20152016 and 2014,2015, USPB’s Board of Directors approved the following per unit cash distributions to be made to its Class A and Class B unitholders:

Class A  Class B 
Fiscal Year 2016     

December 7, 2016

$5.02  $44.02 

Class A 

 

Class B 

Fiscal Year 2015       

None

 $0.00  $0.00 $0.00  $0.00 
Fiscal Year 2014     

February 24, 2014

 $0.28  $2.48 

 

The payment of cash distributions are made only from assets legally available for that purpose and depend on the Company’s financial condition, results of operations, and other factors then deemed relevant by USPB’s board of directors. Cash distributions are paid to the holders of Class A and Class B units at the discretion of the board of directors and to the extent permitted by USPB’s senior lenders.

For a discussion of equity compensation plans, see Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters.

ITEM 6.      SELECTED FINANCIAL DATA

          In connection with the closing of the Leucadia Transaction on December 30, 2011, the Company’s fiscal year changed from the last Saturday in August to the last Saturday in December. Our financial results for the 18 week period ended December 31, 2011, are referred to as the “18 week period” or “transition period” throughout this report. Also, asAs a result of the Leucadia Transaction, the USPB investment in NBP is accounted for using the equity method of accounting as USPB has the ability to exercise significant influence but does not have financial or operational control. Consequently, the Company’s balance sheet for periods subsequent to the Leucadia Transaction were not consolidated with NBP. In all periods prior to the Leucadia Transaction, NBP’s financial results were consolidated with the results of USPB.

14



The following table sets forth selected unconsolidated statement of operations and balance sheet data for fiscal years ended December 31, 2016, December 26, 2015, December 27, 2014, December 28, 2013, and December 29, 2012; selected consolidated statement of operations data for the 18 week period ended December 31, 2011 and selected unconsolidated balance sheet data as of December 31, 2011. The table also set forth selected consolidated statement of operations and balance sheet data for fiscal year ended August 27, 2011.2012. The selected financial data has been derived from our audited financial statements included elsewhere in this filing or from audited financial statements from prior years’ filings, as adjusted for the presentation requirements of Accounting Standards Codification (ASC) 810 – Consolidation, which was adopted by the Company as of August 30, 2009.filings.

The following table should be read in conjunction with Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operationsand Item 8.Financial Statements and Supplementary Data (including the accompanying notes) contained elsewhere in this report.

14


                  18 Weeks   Fiscal Year 
       Fiscal Year Ended (1)       Ended   Ended(1)  
   December 26,   December 27,   December 28,   December 29,   December 31,   August 27, 
   2015   2014    2013   2012   2011   2011 
       (millions of dollars, except unit and per unit data)     

Statement of Operations Data: 

                        

Net sales 

 - 

 - 

 - 

 -  

2,466.3 

 6,849.5 

Costs and expenses: 

                        

Cost of sales 

  -   -   -   -   2,412.1   6,473.3 

Selling, general, and administrative 

  2.4   3.1   5.4   5.7   31.9   60.7 

Depreciation and amortization 

  -   -   -   -   15.4   54.6 

Operating (loss) income 

  (2.4  (3.1  (5.4  (5.7  6.8   260.9 

Other income (expense): 

                        

Interest income 

  -   -   0.0   0.1   -   - 

Interest expense 

  -   -   (0.0  (0.3  (3.3  (11.7

Equity in (loss) income of National Beef Packing Company, LLC 

  (18.9  (6.1  (6.5  8.6         

Gain on deconsolidation and sale of majority of ownership 

                        

interest in National Beef Packing Company, LLC 

  -   -   -   -   777.7   - 

Other, net 

  -   0.2   0.7   0.1   1.5   0.3 

Total other (expense) income 

  (18.9  (5.9  (5.8  8.5   775.9   (11.4

Income tax expense 

  -   -   -   (0.1  (0.7  (2.6

Net (loss) income 

  (21.3  (9.0  (11.2  2.7   782.0   246.9 

Less: Net income attributable to non-controlling interest in: 

                        

Kansas City Steak Company, LLC 

  -   -   -   -   (0.5  (0.6

National Beef Packing Company, LLC 

  -   -   -   -   (5.4  (78.7

Net (loss) income attributable to U.S. Premium Beef, LLC 

 (21.3

 (9.0

 (11.2

 2.7  

776.1 

 167.6 
 

Selected Balance Sheet Data: 

                        

Cash and cash equivalents 

 85.2 

 92.3 

 59.8 

 62.7  

642.7 

 78.6 

Total assets 

 218.2 

 240.5 

 254.9 

 267.4  

848.1 

 1,082.2 

Long-term debt, less current maturities 

 - 

 - 

 - 

 -  

- 

 321.9 

Non-controlling interest in National Beef Packing 

                        

Company, LLC and Kansas City Steak Company, LLC 

 - 

 - 

 - 

 -  

- 

 354.2 

Capital shares and equities 

 211.8  233.1  244.2  254.5  275.3  85.1 
 

Units outstanding 

                        

Class A units 

  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 
 

Per Unit Data: 

                        

(Loss) Earnings Per Unit 

                        

Basic 

                        

Class A Units 

  ($2.90  ($1.23  ($1.52  $0.37   $105.46   $21.80 

Class B Units 

  ($25.40  ($10.77  ($13.34  $3.25   $924.04 

 

 $190.98 

Diluted 

                        

Class A Units 

  ($2.90  ($1.23  ($1.52  $0.36   $103.68   $21.44 

Class B Units 

  ($25.40  ($10.77  ($13.34  $3.25   $924.04 

 

 $190.98 
 
Outstanding weighted-average units                         

Basic 

                        

Class A Units 

  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 

Diluted 

                        

Class A Units 

  735,385   735,385   735,385   747,836   748,055   747,600 

Class B Units 

  755,385   755,385   755,385   755,385   755,385   755,385 

  Fiscal Year Ended (1) 
  

December 31,

December 26, 

December 27,

December 28,

December 29,

  20162015

2014

2013

2012
  (millions of dollars, except unit and per unit data) 

Statement of Operations Data: 

                    

Net sales 

 

$

- $  - $  - 

$ 

 - 

$ 

 

-

 

Costs and expenses: 

                    

Cost of sales 

  -   -   -   -   - 

Selling, general, and administrative 

  3.6   2.4   3.1   5.4   5.7 

Depreciation and amortization 

  -   -   -   -   - 

Operating loss 

  (3.6)   (2.4)   (3.1)   (5.4)   (5.7) 

Other income (expense): 

                    

Interest income 

  -   -   -   -   0.1 

Interest expense 

  -   -   -   -   (0.3) 

Equity in income (loss) of National Beef Packing Company, LLC 

  49.3   (18.9)   (6.1)   (6.5)   8.6 

Other, net 

  0.7   -   0.2   0.7   0.1 
Total other income (expense)   50.0   (18.9)   (5.9)   (5.8)   8.5 

Income tax expense 

  -   -   -   -   (0.1) 
Net income (loss)  

$ 

46.4 $  (21.3) $  (9.0) $  (11.2) $  2.7 
 
Selected Balance Sheet Data:                     

Cash and cash equivalents 

 $ 85.2 $  85.2 $  92.3 $  59.8 $  62.7 

Total assets 

 $ 228.9 $  218.2 $  240.5 $  254.9 $  267.4 

Capital shares and equities 

 $ 221.2 $  211.8 $  233.1 $  244.2 $  254.5 
 

Units outstanding 

                    

Class A units 

  735,385   735,385   735,385   735,385   735,385 

Class B units 

  755,385   755,385   755,385   755,385   755,385 
 

Per Unit Data: 

                    

Income (loss) per unit 

                    

Basic 

                    

Class A Units 

 $6.31  ($2.90)  ($1.23)  ($1.52)  $0.37 

Class B Units 

 $55.24  ($25.40)  ($10.77)  ($13.34)  $3.25 

Diluted 

                    

Class A Units 

 $6.31  ($2.90)  ($1.23)  ($1.52)  $0.36 

Class B Units 

 $55.24  ($25.40)  ($10.77)  ($13.34)  $3.25 
 

Outstanding weighted-average units 

                    

Basic 

                    

Class A Units 

  735,385   735,385   735,385   735,385   735,385 

Class B Units 

  755,385   755,385   755,385   755,385   755,385 

Diluted 

                    

Class A Units 

  735,385   735,385   735,385   735,385   747,836 

Class B Units 

  755,385   755,385   755,385   755,385   755,385 

 

·(1)Effective December 30, 2011, USPB's fiscal year changed fromthe last Saturday in August to the last Saturday in December.Fiscal years 2016 consisted of a 53 week year. Fiscal years 2015, 2014, 2013, 2012, and 20112012 consisted of a 52 week year.

15



ITEM 7.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this report. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Item 1A,Risk Factors,Disclosure Regarding Forward-Looking Statementsand elsewhere in this report.

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Overview

          USPBU.S. Premium Beef (USPB or the Company) was formed as a closed marketing cooperative on July 1, 1996. Its mission is to increase the quality of beef and long-term profitability of cattle producers by creating a fully integrated producer-owned beef processing system that is a global supplier of high quality, value-added beef products responsive to consumer desires.

          On December 1, 1997, the cooperative became operational by acquiring 25.4966% of FNB, a partnership owned by the cooperative USPB operates an integrated cattle processing and Farmland Industries, Inc. (Farmland). The cooperative acquired an additional 3.29% partnership interestbeef marketing enterprise where consumer and processor demands and requirements are implemented through changes in February 1998, bringinggenetics, feeding, and management. USPB’s unitholders benefit from its ownership to 28.7866% of FNB. Farmland then owned the remaining 71.2134%.

          On May 31, 2002, Farmland and four of its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the United States Bankruptcy Code. FNB was not a party of these filings. In the fourth quarter of fiscal year 2003, the cooperative acquired a controlling interest in the former FNB, now NBP, and the assets, liabilities and operating results of NBP were consolidatedsupplier alliance with those of USPB effective August 7, 2003.

          In connection with the cooperative’s purchase of its interest in FNB, the cooperative owned the right and was subject to the obligation to deliver cattle annually to NBP. The price received for cattle is based upon a price grid determined by USPB and NBP, which reflects current market conditions. The cattle purchase agreement is effective as long as USPB is an owner in NBP. Cattle delivered by USPB unitholders and associates are processed in NBP’s processing plants.

          USPB fulfills its annual obligation to deliver cattle to NBP through its unitholders and associates. Under Uniform Cattle Delivery and Marketing Agreements, unitholders are obligated to deliver a designated number of cattle to USPB. The agreements carry a term of five years and have an evergreen renewal provision. The agreement provides for minimum quality standards, delivery variances, and termination provisions, as defined. Cattle acquired pursuant to the agreements are delivered to NBP pursuant to the cattle purchase agreement. Sales transactions are based upon prevailing cash market prices, and purchases are on terms no less favorable to NBP than would be obtained from an unaffiliated party.

          On June 12, 2003, the cooperative entered into an agreement with Farmland to acquire all of the partnership interests in FNB held by Farmland, which approximated 71.2%. As a result of this acquisition, the cooperative gained voting control of FNB and converted it to a limited liability company, National Beef Packing Company, LLC under Delaware law. These transactions closed on(NBP) through (i) premiums received in excess of cash market prices for higher quality cattle, (ii) allocations of profits and potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions.

Effective August 6, 2003. NBP assumed both the Uniform Delivery and Marketing Agreements and the cattle purchase agreement.

          On August 18,29, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the merger of the cooperative restructured into a wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation. The merger was effective on August 29, 2004. The Delaware corporation then, in a statutory conversion authorizedlimited liability company (LLC) under Delaware law converted into a Delaware limited liability company. Following the effective date of the merger and the statutory conversion, the(Conversion). The business of USPB, the cooperative, wasis being continued in the limited liability companyLLC form of business organization. The Company was subsequently renamed U.S. Premium Beef, LLC.

As USPB filed a registration statement with the Securities and Exchange Commission in connection with its 2004 Conversion from the cooperative form of business organization to an LLC structure, USPB is subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act), although USPB is not required to be registered under the Exchange Act. Accordingly, USPB files periodic reports and other information with the Securities and Exchange Commission (SEC). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports and information statements and other information regarding USPB and other issuers that file electronically.

On December 5, 2011, USPB entered into thea Membership Interest Purchase Agreement.Agreement with Leucadia National Corporation (Leucadia). The Purchase Agreement provided for (i) Leucadia to purchase 56.2415% of the National Interestsmembership interests in NBP (National Interests) from the Company for approximately $646.8 million and 19.8775% of the National Interests from NBPCo for $228.6 million; (ii) pursuant to pre-existing put rights, NBP to purchase from TKK and TMKCo all the National Interests owned by TKK and TMKCo for $75.9 million; and (iii) Leucadia to sell to TMK Holdings 0.6522% of the National Interests for $7.5 million. Upon consummation of the Leucadia Transaction, the parties own the following percentage membership interests in NBP: Leucadia 78.9477%; USPB 15.0729%; NBPCo 5.3272%; and TMK Holdings 0.6522%.

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          In connection with its approval of the Purchase Agreement, the Company’s Board of Directors adopted a change to the Company’s fiscal year, which became effective upon closing. The Leucadia Transaction closed on December 30, 2011 and2011. Following the Company’s fiscal year-end changed from the last Saturday in August to the last Saturday in December.close, USPB owned 15.0729% of NBP’s membership interests.

Due to the sale to Leucadia, beginning on December 31, 2011, USPB’s investment in NBP will be 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. Since USPB no longer has financial or operational control, NBP’s financial information will no longer be consolidated with USPB’s. NBP’s financial statements and footnotes will instead be attached as an exhibit to USPB’s 10-K.

Products and Production

USPB provides an integrated cattle production, processing and marketing system for the benefit of its unitholders and associates. As the basis of that system, USPB’s 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 the Uniform Cattle Delivery and Marketing Agreement (seeCattle Delivery Arrangements). 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, thereby improving the product quality and subsequently enhancing the return to the producer.

We believe the primary advantage of USPB’s ownership in NBP centers around USPB’s ability to provide NBP with a consistent supply of quality beef from a verified source, allowing NBP to target higher margin value-added markets. Consumers have historically demonstrated their willingness and desire to buy branded products that offer better value in other consumer product markets, with the Certified Angus Beef®product line being an example in the beef industry.

NBP is one of the largest beef processing companies in the U.S., accounting for approximately 12.5% of the market.fed cattle slaughter market at December 31, 2016. NBP processes and markets fresh and chilled boxed beef, case-readyground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had about 8,400approximately 8,140 employees at December 26, 201531, 2016 and generated total revenues of $7.4$7.0 billion in 2015.2016.

The largest share of NBP’s revenue, about 91%, is generated from the sale of fresh and chilled boxed beef products. NBP also generates revenues through value-added production with its case-readyconsumer-ready products. In addition, NBP operates one of the largest wet blue tanning facilities in the world (wet blue tanning refers to the first step in processing raw and brine-cured hides into tanned leather), selling processed hides to tanners that produce finished leather for the automotive, 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 to customers in the food service and retail channels, as well as directdirectly to consumers through internet, direct mail and direct mail,response television, and service revenues generated by National Carriers, Inc., a wholly owned truck fleettransportation and logistics company that is one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for NBP and a variety of other customers. USPB believes that its relationship with NBP is a competitive advantage withinNBP’s profitability typically fluctuates seasonally as well as cyclically, based on the industry and provides NBP with a consistent and dependable supplyavailability of high-quality cattle, including for processing in value-added and other programs.fed cattle.

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Financial Statement Accounts

Selling, General and Administrative Expenses.Selling expenses consist primarily of salaries, trade promotions, advertising, commissions and other marketing costs. General and administrative costs consist primarily of general management, insurance and professional expenses.

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates and revises its estimates based on historical experience and other assumptions we believe are reasonable under the circumstances. Actual results may differ from those estimates. Changes in our estimates could materially affect our results of operations and financial condition for any particular period. With the closing of the Leucadia Transaction, our fiscal year ends on the last Saturday in December. We believe USPB’s most critical accounting policy is as follows:

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. Operating losses, economic and industry events, 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 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.

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          As NBP incurred an operating loss in fiscal year 2015, USPB conducted an evaluation to determine if its investment in NBPNational Beef was impaired as of the end of the fiscal year 2016 in accordance with ASC 323 Investments Equity Method and Joint Ventures. The evaluation included both quantitative and qualitative factors. The quantitative approach computed the fair value of the investment using market based anda discounted cash flow valuation approaches, and resulted in a fair value that exceeded the carrying value. Qualitative factors considered by the Company included the following:

The cyclical nature of the beef and beef processing industry and the resulting impact onimpacted NBP’s financial results. NBP operating income typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability. The wide spread droughtIncreased precipitation in cattle producing areas during the last couple of yearsin 2015 and 2016 caused farmers and ranchers to liquidatehold back heifers to rebuild their herds, which had been partially liquidated as a large numberresult of production age cows from their herds.the drought. As a result, the supply of fed cattle available for slaughter decreased significantly, which caused the purchase price paid by NBP for fed cattle to increase substantially. NBP was not able to increase the sales price of boxed beef by a like amount, which caused margins to be tighter than they have been historically.

Increased precipitation in cattle producing areas has caused farmers and ranchers to hold back heifers to rebuild their herds. USPB, as well as others that follow the beef industry, believes the increase in the supply of fed cattle available for slaughter will begin sometime in 2016.increased significantly. As NBP’s margins are higher during times of ample cattle availability, an increase in the supply of fed cattle available for slaughter will enableenabled NBP to start returningrealize operating income, as opposed to realizing normalthe operating income.losses that were realized in prior years.

  

The intent and ability of USPB to retain its investment. USPB made the original investment in NBP to provide USPB’s members with a guaranteed market for their fed cattle and to enable them to be paid for the market value of their cattle, instead of accepting the going cash price. Without the investment in NBP, USPB’s members will not be able to receive those benefits.

NBP is required to make distributions to its members, to the extent it has taxable income. However, USPB is not dependent upon NBP’s distributions to meet its cash flow requirements. USPB has a strong balance sheet, which is evidenced by the cash that was available on December 26, 2015. USPB also has a credit facility to utilize, if necessary

As a result of the forgoing analysis, USPB concluded that the carrying value of its investment in NBP was not impaired as of December 26, 2015.

          As previously discussed, the combined effects of both lower volumes and tighter margins due to the relative higher price of cattle compared to the selling price of beef impacted margins and led to reduced profitability year-over-year for NBP. NBP engaged an independent valuation specialist to assist with the valuation process relating to NBP for its goodwill impairment test as of December 26, 2015. The results of this test did not indicate any impairment.31, 2016.

Results of Operations

The following table presents the historical consolidated statements of operations data for USPB for the periods indicated:

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 53 weeks 52 weeks 52 weeks
 ended ended ended
 December December December
 31, 2016 26, 2015 27, 2014
 (millions of dollars)
Net sales $ -  $ -  $ - 
 
Costs and expenses:            

     Cost of sales 

 -   -   - 

     Selling, general, and administrative 

 3.6   2.4   3.1 

        Operating loss 

 (3.6)   (2.4)   (3.1) 
 

Other income (expense): 

           

     Interest income 

 -   -   - 

     Interest expense 

 -   -   - 

     Equity in income (loss) of National Beef Packing Company, LLC 

 49.3   (18.9)   (6.1) 

     Other, net 

 0.7   -   0.2 
Total other income (expense), net  50.0   (18.9)   (5.9) 

     Income tax expense 

 -   -   - 
Net income (loss) $ 46.4  $ (21.3)  $ (9.0) 

Fiscal Year Ended December 31, 2016 compared to December 26, 2015

Net Sales.There were no sales during the fifty-three weeks ended December 31, 2016 and the fifty-two weeks ended December 26, 2015.

Cost of Sales. There were no cost of sales during the fifty-three weeks ended December 31, 2016 and the fifty-two weeks ended December 26, 2015.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $3.6 million for the fifty-three weeks ended December 31, 2016, compared to approximately $2.4 million for the fifty-two weeks ended December 26, 2015, an increase of approximately $1.2 million. The increase is primarily due to higher expenses associated with the bonus plans, non-compete agreements and phantom plans.

Depreciation and Amortization Expense. There were immaterial depreciation and amortization expenses during the fifty-three weeks ended December 31, 2016 compared to the fifty-two weeks ended December 26, 2015.

Operating Loss.Operating loss was approximately $3.6 million for the fifty-three weeks ended December 31, 2016 compared to an operating loss of approximately $2.4 million for the fifty-two weeks ended December 26, 2015, an increase of approximately $1.2 million.

Interest Expense and Interest Income. Interest expense and interest income were immaterial during the fifty-three weeks ended December 31, 2016 and fifty-two weeks ended December 26, 2015.

Equity in Income (Loss) of National Beef Packing Company, LLC. Equity in NBP income was $49.3 million for the fifty-three weeks ended December 31, 2016 compared to a loss of $18.9 million for the fifty-two weeks ended December 26, 2015. As of December 31, 2011, USPB started carrying its 15.0729% investment in NBP under the equity method of accounting.

Other, net. Other income was $0.7 million for the fifty-three weeks ended December 31, 2016 compared to $0.0 million for the fifty-two weeks ended December 26, 2015, an increase of approximately $0.7 million. The increase was primarily due to higher lease income on the Company owned delivery rights.

Income Tax Expense. There was no income tax expense during the fifty-three weeks ended December 31, 2016 and fifty-two weeks ended December 26, 2015.

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  52 weeks  52 weeks   52 weeks 
  ended  ended   ended 
  December  December   December 
  26, 2015  27, 2014   28, 2013 
 

(millions of dollars)

Net sales -  -  - 
 
Costs and expenses:            
Cost of sales  -   -   - 
Selling, general, and administrative  2.4   3.1   5.4 
Operating loss  (2.4  (3.1  (5.4
 
Other income (expense):            
Interest income  -   -   0.1 
Interest expense  -   -   (0.1
Equity in loss of National Beef Packing Company, LLC  (18.9  (6.1  (6.5
Other, net  -   0.2   0.7 
Total other income (expense), net  (18.9  (5.9  (5.8
Income tax expense  -   -   - 
Net loss (21.3 (9.0 (11.2

Net Income (Loss).Net income for the fifty-three weeks ended December 31, 2016 was approximately $46.4 million compared to a net loss of approximately $21.3 million for the fifty-two weeks ended December 26, 2015, an improvement of approximately $67.7 million. The improvement was due to net income at NBP.

Fiscal Year Ended December 26, 2015 compared to December 27, 2014

Net Sales.There were no sales during the fifty-two weeks ended December 26, 2015 and December 27, 2014.

Cost of Sales. There was no cost of sales during the fifty-two weeks ended December 26, 2015 and December 27, 2014.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $2.4 million for the fifty-two weeks ended December 26, 2015, compared to approximately $3.1 million for the fifty-two weeks ended December 27, 2014, a decrease of approximately $0.7 million. The decrease is primarily due to lower expenses associated with the non-compete agreements and bonus plans. Those decreases were partially offset by higher legal and accounting expenses.

Depreciation and Amortization Expense. There were immaterial depreciation and amortization expenses during the fifty-two weeks end December 26, 2015 and December 27, 2014.

Operating Loss.Operating loss was approximately $2.4 million for the fifty-two weeks ended December 26, 2015 compared to approximately $3.1 million for the fifty-two weeks ended December 27, 2014, an improvement of approximately $0.7 million.

Interest Expense. Interest expense was immaterial during the fifty-two weeks ended December 26, 2015 and December 27, 2014.

Equity in Loss of National Beef Packing Company, LLC. Equity in NBP loss was $18.9 million for the fifty-two weeks ended December 26, 2015 compared to $6.1 million for the fifty-two weeks ended December 27, 2014. As of December 31, 2011, USPB started carrying its 15.0729% investment in NBP under the equity method of accounting.

Other, net. Other income was $0.0 million and $0.2 million for the fifty-two weeks ended December 26, 2015 and December 27, 2014, respectively, a decrease of approximately $0.2 million. The decrease was primarily due to lower lease income on the Company owned delivery rights.

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Income Tax Expense. There were immaterial income tax expenses during the fifty-two weeks ended December 26, 2015 and December 27, 2014.

Net Loss.Net loss for the fifty-two weeks ended December 26, 2015 was approximately $21.3 million compared to approximately $9.0 million for the fifty-two weeks ended December 27, 2014, an increased loss of approximately $12.3 million. The increase in net loss is primarily due to a higher net loss at NBP, which was partially offset by lower expenses at USPB.

Fiscal Year Ended December 27, 2014 compared to December 28, 2013

Net Sales.There were no sales during the fifty-two weeks ended December 27, 2014 and December 28, 2013.

Cost of Sales. There was no cost of sales during the fifty-two weeks ended December 27, 2014 and December 28, 2013.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $3.1 million for the fifty-two weeks ended December 27, 2014, compared to approximately $5.4 million for the fifty-two weeks ended December 28, 2013, a decrease of approximately $2.3 million. The decrease is primarily due to decreases in compensation expense on the phantom unit plans and lower bonus expenses. Those decreases were partially offset by higher expenses on the non-compete agreements.

Depreciation and Amortization Expense. There were immaterial depreciation and amortization expenses during the fifty-two weeks ended December 27, 2014 and December 28, 2013.

Operating Loss.Operating loss was approximately $3.1 million for the fifty-two weeks ended December 27, 2014 compared to approximately $5.4 million for the fifty-two weeks ended December 28, 2013, an improvement of approximately $2.3 million.

Interest Expense. Interest expense was $0.0 million for the fifty-two weeks ended December 27, 2014 compared to $0.1 million for the fifty-two weeks ended December 28, 2013.

Equity in Loss of National Beef Packing Company, LLC. Equity in NBP was a loss of $6.1 million for the fifty-two weeks ended December 27, 2014 compared to $6.5 million for the fifty-two weeks ended December 28, 2013. As of December 31, 2011, USPB started carrying its 15.0729% investment in NBP under the equity method of accounting.

Other, net. Other income was $0.2 million and $0.7 million for the fifty-two weeks ended December 27, 2014 and December 28, 2013, respectively, a decrease of approximately $0.5 million. The decrease was primarily due to lower lease income on the Company owned delivery rights.

Income Tax Expense. There were immaterial income tax expenses during the fifty-two weeks ended December 27, 2014 and December 28, 2013.

Net Loss.Net loss for the fifty-two weeks ended December 27, 2014 was approximately $9.0 million compared to approximately $11.2 million for the fifty-two weeks ended December 28, 2013, an improvement of approximately $2.2 million. The decrease in net loss is primarily due to lower net loss at NBP, which was partially offset by lower expense at USPB.

Liquidity and Capital Resources

As of December 26, 2015,31, 2016, we had net working capital (the excess of current assets over current liabilities) of approximately $82.0 million, which included cash and cash equivalents of $85.2 million. As of December 26, 2015, we had net working capital of approximately $84.0 million, which included cash and cash equivalents of $85.2 million, with $0.1 million in patronage notices payable. As of December 27, 2014, we had net working capital of approximately $91.0 million, which included cash and cash equivalents of $92.3 million, with $0.1 million in patronage notices payable. Our primary sources of liquidity for fiscal year 20152016 was cash, and cash, and cash flows from investing activities in fiscal year, and available borrowings under the Master Loan Agreement with CoBank.

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As of December 26, 2015,31, 2016, USPB had no long-term debt outstanding. We had a $5.0 million revolving term loan with CoBank all of which was available. USPB was in compliance with all of the financial covenants under its Master Loan Agreement as of December 26, 2015.31, 2016.

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USPB believes available borrowings under the Master Loan Agreement and cash will be sufficient to support its working capital and cash flow requirements. For a review of the obligations that affect USPB’s liquidity, please see the ‘‘Cash Payment Obligations’’ table below.

Operating Activities

Net cash provided by operating activities was $8.3 million in fiscal year 2016 as compared to net cash used by operating activities of $3.3 million in fiscal year 2015. The $11.6 million increase was primarily due to the distributions received from NBP, which was partially offset by increases in compensation related expenses in the current fiscal year.

Net cash used in operating activities was $3.3 million in fiscal year 2015 as compared to $4.9 million in fiscal year 2014. The $1.6 million decrease was primarily due to the appreciation right payment on the former CEO’s Class A phantom units in April 2014 ($2.2 million), which was partially offset by lower compensation related expenses in the current fiscal year.

Investing Activities

Net cash used in operatingprovided by investing activities was $4.9$27.5 million in fiscal year 20142016 as compared to $6.0net cash used in investing activities of $3.8 million in fiscal year 2013.2015. The $1.1$31.3 million decreasechange was primarily due to lower expenses, which was partially offset by higher compensation related payments, which were up primarily duedistributions received from NBP in fiscal year 2016 as compared to the appreciation right payment on the former CEO’s Class A phantom units.USPB’s $3.8 million contribution of additional capital to NBP in fiscal year 2015 to purchase 33.97 NBP units and maintain its 15.0729% ownership percentage.

Investing Activities

Net cash used by investing activities was $3.8 million in fiscal year 2015 as compared to net cash provided by investing activities of $38.9 million in fiscal year 2014. The $42.7 million change was due to the receipt of escrow monies in fiscal year 2014 related to the 2011 transaction with Leucadia in fiscal year 2014Transaction and USPB’s $3.8 million contribution of additional capital to NBP in fiscal year 2015 to purchase 33.97 NBP units and maintain its 15.0729% ownership percentage.

Financing Activities

Net cash provided by investingused in financing activities was $38.9$35.8 million in fiscal year 20142016 as compared to $3.0$0.0 million in fiscal year 2013.2015. The $35.9$35.8 million change was due to the receipt of escrow moniesprimarily related to the 2011 transaction with Leucadia.a distribution to USPB’s unitholders in fiscal year 2016.

Financing Activities

Net cash used in financing activities was $0.0 million in fiscal year 2015 as compared to $1.5 million in fiscal year 2014. The $1.5 million change was primarily related to a distribution to USPB’s unitholders in fiscal year 2014.

          Net cash used in financing activities was $1.5 million in fiscal year 2014 as compared to net cash provided by financing activities in fiscal year 2013 of $0.1 million. The $1.6 million change was primarily related to a distribution to USPB’s unitholders, which was partially offset by the collection of an over-distribution in a prior fiscal year.

CoBank Debt

On May 29, 2014, USPB and CoBank entered into a Revolving Term Loan Supplement to the Master Loan Agreement dated July 26, 2011. The new Revolving Term Loan Supplement provides for a $5 million revolving credit commitment, a reduction of $10 million from the prior commitment. The new commitment carries a term of three years, maturing on June 30, 2017. The Pledge Agreement provides CoBank with a first-priority security interest in USPB’s membership interests in, and distributions from, NBP.

All of the $5 million revolving credit commitment was available as of December 26, 2015.31, 2016. Borrowings under the revolving credit commitment bear interest at the base rate or LIBOR rate plus applicable margin.

On December 30, 2011, in connection with the closing of the transaction with 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.

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Cash Payment Obligations

The following table describes the cash payment obligations as of December 26, 201531, 2016 (thousands of dollars):

  Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year  Fiscal Year

Fiscal Year

 Fiscal Year 

Fiscal Year

 Fiscal Year 
Total 2016 (Year 1)  2017 (Year 2)  2018 (Year 3)  2019 (Year 4)  2020 (Year 5)  After Year 5 Total 

2017 (Year 1) 

2018 (Year 2) 

 

2019 (Year 3) 

 

2020 (Year 4) 

 2021 (Year 5) 

After Year 5 

Term loan facility - - - - - 
Revolving credit facility - - - - - $ - $ - $ - $ - $ - $ - $ - 
Interest on long-term debt - - - - - $ - $ - $ - $ - $ - $ - $ - 
Non-competition payments(1) 5,475 853 854 856 857 859 1,197 $ 4,617 $ 853 $ 855 $ 856 $ 858 $ 859 $ 336 
Operating leases 324 54 54 54 54 54 54 $ 328 $ 55 $ 55 $ 55 $ 55 $ 55 $ 55 

Total

5,799 907 908 910 911 913 1,251 $ 4,945 $ 908 $ 910 $ 911 $ 913 $ 914 $ 391 
(1)Reflects payments to be made to CEO's pursuant to employment agreements.(1)Reflects payments to be made to CEO's pursuant to employment agreements.(1)Reflects payments to be made to CEO's pursuant to employment agreements.
Off-Balance Sheet Arrangements

 

Off-Balance Sheet Arrangements

As of December 26, 2015,31, 2016, we did not have any significantmaterial off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Inflation

We believe our results of operations are not materially affected by moderate changes in the inflation rate. Inflation and changing prices did not have a material effect on our operations in fiscal years 20152016 and 2014.2015. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse effect on our business, financial condition and results of operations.

Seasonality and Fluctuations in Operating Results

The Company’s operating results are influenced by seasonal factors in the beef industry. These factors affect the price NBP pays for livestock as well as the ultimate price at which NBP sells its products. The seasonal demand for beef products is highest in the summer and spring months as weather patterns permit more outdoor activities and there is an increased demand for higher value items that are grilled, such as steaks. Both live cattle prices and boxed beef prices tend to be at seasonal highs during the summer and fall. Because of higher consumption, more favorable growing conditions and the housing of animals in feedlots for the winter months, there are generally more cattle available in the summer and fall.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risk affecting USPB’s business is exposure to interest rate risk, to the extent the Company has debt outstanding. As of December 26, 2015,31, 2016, the Company did not have any outstanding debt.

ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and notes thereto, and other information required by this Item 8 are included in this report beginning on page F-1.

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ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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     None

ITEM 9A.     CONTROLS AND PROCEDURES

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the consolidated 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 Annual Report on Form 10-K, 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 control over financial reporting during the thirteenfourteen weeks ended December 26, 201531, 2016 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.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

Internal control over financial reporting, no matter how well designed, has inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 26, 2015.31, 2016. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control – Integrated Framework(2013 Framework).

Based on the Company’s processes and assessment, as described above, management has concluded that, as of December 26, 2015,31, 2016, the Company’s internal control over financial reporting was operating effectively.

23



This annual report does not include a report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

22



ITEM 9B.        OTHER INFORMATION

The Company may purchase a portion of its outstanding Class A and Class B units from time to time in accordance with the limits imposed under the CoBank Master Loan Agreement.

PART III

ITEM 10.         DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors

USPB’s business and affairs are governed by its board of directors. The board of directors is to consist of seven directors. The board of directors has full authority to act on behalf of USPB. The board of directors act collectively through meetings, committees and executive officers it appoints. In addition, USPB employs a staff of professionals to manage the day-to-day business of USPB. The members of the board of directors, nominees to the board of directors and the executive officers are identified below. There are no arrangements or understandings pursuant to which any director, nominee to become a director or executive officer was elected or appointed.

Directors, Director Nominee and Executive Officers Directors, Director Nominee and Executive Officers  Directors, Director Nominee and Executive Officers  
     Term Expires   Term Expires 
Name

 

Age  Positions and Offices with Registrant  After FY 

 

Age  

Positions and Offices with Registrant 

 After FY 
Mark R. Gardiner

 

55  Chairman of the Board  2016 

 

56  

Chairman of the Board 

 2016 
Duane K. Ramsey

 

79  Vice Chairman of the Board  2015 
Joe M. Morgan

 

64  Secretary  2016 

 

65  

Vice Chairman of the Board 

 2016 
Jerry L. Bohn

 

66  Director  2015 

 

67  

Secretary 

 2018 

Wayne L. Carpenter

 

55  

Director 

 2018 
John M. Freund

 

48  Director  2016 

 

49  

Director 

 2016 
RexW. McCloy

 

61  Director  2017 

Rex W. McCloy

 

62  

Director 

 2017 
Jeff H. Sternberger

 

55  Director  2017 

 

56  

Director 

 2017 
Stanley D. Linville

 

57  Chief Executive Officer  — 

 

58  

Chief Executive Officer 

  
Scott J. Miller

 

51  Chief Financial Officer  — 

 

52  Chief Financial Officer   
Danielle D. Imel

 

40  Treasurer  — 

 

41  

Treasurer 

  

 

Mark R. Gardiner.Mr. Gardiner is President of Gardiner Angus Ranch, Inc. (GAR), a family owned purebred and commercial Angus operation headquartered at Ashland, Kansas, with 10 seedstock satellite cowherds across the United States and Australia. Mr. Gardiner has been involved with the management of GAR since 1983. GAR markets over 2,000 bulls and 700 females per year to both commercial and seedstock beef producers throughout the United States. GAR also runs an embryo transfer program that makes more than 3,500 transfers per year, including more than 60% of GAR’s 1,500-plus head of registered Angus calves born each year. A percentage of its calves are finished at commercial feedlots to provide carcass data on all Gardiner sires. In addition to a native range program, GAR operates a significant dryland farming enterprise. Mr. Gardiner is a member of the National Cattlemen’s Beef Association, Kansas Livestock Association, American Angus Association, Kansas Angus Association and the Beef Improvement Federation. He also serves on the Board of Irsik & Doll Company, a privately held company primarily involved in cattle feeding, grain and feed merchandising. Mr. Gardiner has served as a member of the Company’s Board of Directors since 1996. He was elected Secretary/Treasurer of the Company’s Board in 2003, Vice Chairman of the Board in 2004 and Chairman of the Board in 2006. Mr. Gardiner holds a Bachelor’s degree from Kansas State University in Animal Sciences and Industry. As a member of USPB’s board of directors, Mr. Gardiner and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

24



Duane K. Ramsey.Mr. Ramsey is Chairman of Security Bancshares Inc., a $450 million multi-bank holding company. In addition, he has held an ownership interest in a commercial feedlot in southwest Kansas and a cow calf operation. He has spent over 50 years in banking in Scott County, KS, and was involved in the organization and development of USPB as a founding stockholder through his feedlot and in financing numerous USPB stockholders. Mr. Ramsey is familiar with accounting, finance, audit, risk management and compensation matters. He holds a degree in Agricultural Economics from Kansas State University. He also graduated from the Graduate School of Banking, Boulder, CO. Mr. Ramsey has served as a member of the Company’s board since 2006. Mr. Ramsey also serves as a director of three banks, one of which he has been a director of for more than 40 years. As a member of USPB’s board of directors, Mr. Ramsey is considered an affiliate of USPB.

Joe M. Morgan.Mr. Morgan has been managing commercial feed yards since 1983. He has been Manager of Poky Feeders since 1985 and part owner since 1987. Mr. Morgan has been involved with employee issues and the growth of Poky Feeders (starting with a capacity of 17,000 head to today of over 80,000 head), plus ranches in seven states. Mr. Morgan has had responsibility for all banking of Poky Feeders for over 30 years and has responsibility for risk management of all feeding entities. He also has farming interests in Iowa and is a member of the National Cattlemen’s Beef Association and the Kansas Livestock Association. Mr. Morgan holds a Bachelor’s degree in Animal Science from Iowa State University. Mr. Morgan has served as a member of the Company’s board since 2007 and as a Nominating Committee member prior to 2007. As a member of USPB’s board of directors, Mr. Morgan and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

 

23



Jerry L. Bohn. Mr. Bohn has served as the General Manager of Pratt Feeders since 1982. Pratt Feeders has a one-time capacity of 85,000 head in three feedlots in Kansas and Oklahoma. In this capacity he oversees more than 85 employees. Mr. Bohn also owns and manages a 2,000 to 3,000 head cattle operation which includes grazing and finishing cattle. Throughout Mr. Bohn has over 40 years of agricultural business management experience, he has worked with complex banking and financial data and is required to make decisions involving several hundred thousand dollars, on a daily basis. Mr. Bohn previously was employed as Director of Market Analysis for Cattle-Fax, an industry market analysis firm. Mr. Bohn has served as president of the Kansas Livestock Association. He has been a Board member of the Kansas Beef Council, the National Cattlemen’s Beef Association (NCBA) and Feeders Advantage, a private animal health product distribution company. Mr. Bohn has also served on the NCBA’s Executive Committee and as chairman of NCBA’s Live Cattle Marketing. Mr. Bohn served on USPB’s Board from 2004 through 2007 and was reelected in 2009. He was elected Secretary of USPB’s Board in 2006. He holds a Bachelor’s degree in Animal Sciences and Industry from Kansas State University. As a member of USPB’s board of directors, Mr. Bohn and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

Wayne L. Carpenter.Mr. Carpenter is the President and owner of Carpenter Cattle Company Inc. which was established in 1980. His operation today consists of a 7,500 head feed yard which markets 10,000-11,000 head through USPB annually. Mr. Carpenter runs 1,100 mother cows and also yearlings on ranches in Kansas and Montana. His farming operation consists of dryland and irrigated acres, which markets most of its crop production through the feed yard. Mr. Carpenter is a member of Kansas Livestock Association and National Cattlemen’s Beef Association. Carpenter Cattle Company Inc. has been a member of USPB since the beginning. Mr. Carpenter has served as a member of the Company’s board since 2016. As a member of USPB’s board of directors, Mr. Carpenter and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

John M. Freund.Mr. Freund has been actively involved in his family’s cattle feeding operation in Southwest Iowa since 1985 and has been president since 2005. In addition to the feeding operation, the business also includes feed grain production and has ownership in stockers, feedlot production and a ranch in other Midwest states. He has been a member of USPB since its inception and was a member of the company’s Nominating Committee since from 2011 to 2015. As a member of USPB’s board of directors, Mr. Freund and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

Rex W. McCloy. Mr. McCloy has over 34 years of experience in the cattle business and is manager and part-owner of McLeod Farms Inc., a family-owned business involved in farming and ranching in the Texas Panhandle. Mr. McCloy is a member of the National Cattlemen’s Beef Association, the Texas Cattle Feeder's Association (TCFA) and the Texas Southwestern Cattle Raisers Association. He is a past Board member and marketing committee chairman of TCFA. In addition, he is a former member of U.S. Premium Beef’s Nominating Committee. Mr. McCloy holds a Bachelor’s degree in Agricultural Economics from Texas Tech University. Mr. McCloy has served as a member of the Company’s board since 2005. Mr. McCloy is a former board member of the Hutchinson County Hospital District and is presently on the Board of Managers at Adobe Walls Cotton Gin. As a member of USPB’s board of directors, Mr. McCloy and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

Jeff H. Sternberger. Mr. Sternberger is the manager and part owner of Midwest Feeders, Inc. Mr. Sternberger has been the manager of Midwest Feeders, Inc. since 1992 and has overseen large growth in his company and directed the acquisition of other business to add to their holdings. Mr. Sternberger has been the direct contact during that time frame for all banking and accounting relationships. He also owns and operates a farming and cattle operation in Oklahoma as well as a personal cattle feeding operation. He serves as a director of Midwest Feeders, Inc., CRI Feeders of Guymon LLC, and Brookover Cattle Co. of Scott City LLC. Mr. Sternberger holds a Bachelor of Science Degree in Agricultural Economics from Oklahoma State University. As a member of USPB’s board of directors, Mr. Sternberger and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

25



Stanley D. Linville.Mr. Linville has served as the Company’s Chief Executive Officer since January 28, 2013. Prior to this appointment, he served as the Company’s Chief Operating Officer, a position he held since joining the Company in 1997. As CEO, Mr. Linville continues to oversee cattle scheduling and technical operations. Before joining U.S. Premium Beef, he operated a family farming operation near Holcomb, Kansas. He also worked in the cattle division of Brookover Enterprises at Garden City, Kansas, and as a grain merchandiser for Bartlett Grain Co. in Kansas City. Mr. Linville holds a Bachelor’s degree in Agricultural Economics from Kansas State University.

24



Scott J. Miller. Mr. Miller has served as the Company’s Chief Financial Officer since January 2010. Prior to this appointment, he served as the Company’s Chief Reporting and Compliance Officer, a position he held since joining the Company in 2005. He oversees the finance and treasury functions and is directly responsible for financial reporting, tax reporting, and ensuring compliance with internal policies and regulatory requirements. Before joining U.S. Premium Beef, he worked as the Manager, Capital Markets for Sprint Corporation from 2001 to 2005 and, prior to that, in various finance and accounting positions with Farmland Industries, Inc. Mr. Miller earned a Bachelor’s degree in Accounting from Benedictine College and an MBA with an emphasis in Finance from the University of Missouri-Kansas City. He has passed the Certified Public Accounting exam and the Certified Cash Managers exam.

Danielle D. Imel.Ms. Imel is the Company’s Treasurer and joined the Company in 1998. She oversees the Company’s finance functions and is directly responsible for Company treasury activities. She was employed by the CPA firm of Kennedy, McKee and Co., LLC of Dodge City, Kansas, prior to joining USPB. Ms. Imel earned a Bachelor’s degree in Accounting and a second Bachelor’s degree in Agricultural Economics from Kansas State University.

Board of Directors

Under USPB’s limited liability company agreement, the number of directors is set by the board of directors but may not be less than seven directors. Directors must be unitholders of USPB. Seven directors will always be elected by unitholders holding Class A units.

The directors are elected at the annual meeting of the unitholders and hold office for a term of three years. The terms of the directors are staggered in such a manner that approximately one-third of the directors will be elected each year. All directors will hold office until their successors are elected and qualified. Any vacancy in the board, other than a vacancy resulting from expiration of a term of office, will be filled by a majority vote of the remaining directors. In case a vacancy in the board of directors extends beyond the next annual meeting, the vacancy will be filled by the remaining directors until such meeting, at which meeting a director will be chosen by the unitholders for the unexpired term of such vacancy.

In the discretion of the board of directors, the number of directors may be increased by up to an additional five directors. Those additional directors will represent the Class B unitholders and may be elected or appointed by either the board of directors or by the holders of Class B units.

Compensation of Directors

The board of directors meets from time to time at such time and place as may be fixed by resolution adopted by a majority of the whole board of directors. Members of the board of directors receive a per diem payment of $250 for each activity on behalf of USPB, as well as direct reimbursement of travel expenses related to service on the board of directors.

Audit Committee

The board of directors has an Audit Committee consisting of Messrs. Gardiner, Ramsey,Bohn, and McCloy. Subject to the qualifications in the section headed “Directors who are unitholders” in Item 13 below, all members of the Audit Committee are considered independent within the meaning of the listing standards of the NASDAQ. Mr. Gardiner is Chairman of the Audit Committee. The Board has identified Mr. RamseyBohn as an “audit committee financial expert”. The Audit Committee selects and retains independent auditors and assists the board of directors in its oversight of the integrity of U.S. Premium Beef’s financial statements, including the performance of our independent auditors in their audit of our annual financial statements. The Audit Committee meets with management and the independent auditors, as may be required. The independent auditors have full and free access to the Audit Committee without the presence of management. The Audit Committee has a charter.

2625


 

Code of Ethics

USPB has adopted a corporate Code of Conduct that is enforced throughout all levels of management and a Code of Ethics For Financial Officers for its chief executive officer, chief financial officer, and treasurer within the meaning of the rules and regulations of the Securities and Exchange Commission. The Code of Ethics are intended to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the Code of Conduct may be obtained, without charge, upon written request to Scott J. Miller, Chief Financial Officer, U.S. Premium Beef, LLC, P. O. Box 20103, Kansas City, Missouri 64195.

ITEM 11.      EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Overview of Compensation Program

This Compensation Discussion and Analysis describes the material elements of compensation paid to our named executive officers as well as the objectives and material factors underlying our compensation program. The compensation program places emphasis on USPB’s financial performance and the benefits received by USPB’s unitholders.

The Compensation Committee (Committee) is responsible for developing and administering the compensation program for USPB’s named executive officers and professional staff.

Compensation Philosophy and Objectives

     USPB’s compensation program is a key element in attracting, retaining, and motivating named executive officers with the skills necessary to create value for the unitholders. To achieve this goal, we have designed the compensation program with the following objectives:

Each element of our compensation program is designed to achieve one or more of these objectives. The structure of a particular executive’s compensation may vary depending on the scope and level of that executive’s responsibilities.

27



Determining Executive Compensation

The CEO makes recommendations to the Committee regarding the salaries and bonus programs for the executive officers. The Committee reviews the recommendations, taking into account each element of total compensation. Based on the foregoing, the Committee uses its judgment in making compensation decisions that will best carry out USPB’s philosophy and objectives for executive compensation.

26



Fiscal Year 20152016 Executive Compensation Elements

The elements of our named executive officers total compensation package are as follows:

Elements of Our Compensation Program

Base Salary

Base salaries are intended to provide a level of compensation sufficient to attract and retain an effective management team, when considered in combination with the other components of our executive compensation program. The relative levels of base salary for named executive officers are designed to reflect each executive officer’s scope of responsibility and accountability with USPB. Except for the CEO’s salary, base salaries are reviewed annually to determine if they are consistent with the performance of the individual executive and equitable relative to USPB’s other executive officers and professional staff. Salary surveys summarizing the compensation packages for positions of equivalent responsibility in related industries were used to establish the CEO’s base salary.

          On November 23, 2012, USPB entered into an employment agreement with Mr. Stanley Linville, which became effective on January 28, 2013 (First Employment Agreement). Pursuant to the First Employment Agreement, Mr. Linville served as USPB’s CEO for a term that started on January 28, 2013 and expired on December 31, 2015. The First Employment Agreement provided for Mr. Linville to receive an annual base salary of $300,000.

On December 21, 2015, USPB entered into a new employment agreement with Mr. Linville (Second(Linville Employment Agreement), which became effective on January 1, 2016. The SecondLinville Employment Agreement provides for Mr. Linville to serve as USPB’s CEO for a term that started on January 1, 2016 and expires on December 29, 2018. The SecondLinville Employment Agreement provides for Mr. Linville to receive an annual base salary of $300,000.

Annual Cash Incentive/Bonuses

Cash incentive and bonus plans were designed to provide the financial incentive to the CEO and other named executive officers to influence USPB unitholder benefits and are only paid after certain levels of benefits have been achieved.

Under the terms of the CEO’s FirstLinville Employment Agreement, if Mr. Linville is employed by USPB on the last day of any employmentfiscal year, (except as otherwise provided in the agreement) during the term of the Linville Employment Agreement, he shall be paid annual incentive compensation equal to seventy-five one-hundredths of a percent (0.75%) of the sum of the total financial benefits to USPB (USPB Total Benefits) that exceed $25,000,000 (Annual Incentive). The USPB Total Benefits are: (1) audited fiscal year-end USPB earnings before tax; and (2) the fiscal year USPB grid premiums, which is the net sum of all USPB unitholder and associate grid premiums and discounts calculated through all USPB grids at all plants as outlined in the FirstLinville Employment Agreement.

28



          Under the terms of the CEO’s Second Employment Agreement, if Mr. Linville is employed by USPB on the last day of any fiscal year, he shall be paid an Annual Incentive.

For fiscal year 2015,2016, named executive officers and certain professional staff who were employed on the last day of the fiscal year will be paid his or her proportionate share of the Management Bonus Pool. The Management Bonus Pool is: (1) the audited FY 2015fiscal year 2016 USPB earnings before tax plus USPB grid premiums during the fiscal year, less (2) $15,000,000, multiplied by (3) management bonus factor. The bonus plan payments are vested over a two-year period. The maximum Management Bonus Pool for a given bonus plan year is equal to 150% of the sum of the qualifying participants’ salaries in effect at the end of such year.

Long-term Incentive

Mr. Linville is eligible for a long-term incentive compensation under the FirstLinville Employment Agreement. If he is employed by USPB on December 31, 2015, he is to be paid long-term incentive compensation equal to fifty one-hundredths of a percent (0.50%) of the amount by which the USPB Total Benefits from January 1, 2013 to December 31, 2015 exceed $75,000,000 (Long-Term Incentive). If he is employed by USPB on December 29, 2018, he is to be paid long-term incentive compensation equal to fifty one-hundredths of a percent (0.50%) of the amount by which the USPB Total Benefits from January 1, 2016 to December 29, 2018 exceed $75,000,000.$75,000,000 (Long-Term Incentive).

27



The FirstLinville Employment Agreement and Second Employment Agreement provideprovides for a cumulative annual cap of $450,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive cash bonuses.

Discretionary Cash Bonuses

Discretionary bonuses are sometimes paid to named executive officers, other than the CEO, and professional staff to compensate for extraordinary cases of individual or Company performance.

Retirement Plans

Qualifying employees are encouraged to participate in the Company’s sponsored 401(k) savings plan. Under USPB’s plan, employees may contribute up to the maximum amount permissible by IRS limits. USPB matches 100% of each dollar contributed by a participant up to a maximum of 4% of his or her qualifying compensation.

Limited Personal Benefits

USPB also provides certain benefits to all salaried employees that are not included as perquisites in the Summary Compensation Table for the named executives because they are broadly available. These include health and welfare benefits, and disability and life insurance.

Equity Compensation

In September 2010, USPB’s Board of Directors approved a management phantom unit plan. The phantom unit plan provides for the award of unit appreciation rights to certain management employees of USPB. USPB’s CEO administers the phantom unit plan and awards “Phantom Units” (Class A and Class B Units) to employees in amounts determined by the CEO, subject to the total Phantom Unit amount approved by the Board of Directors of USPB. During fiscal year 2011, a total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to management employees. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,8834,817 Class A phantom units and 4,8834,817 Class B phantom units remained outstanding at December 26, 2015,31, 2016, all of which were fully vested.

In November 2012, USPB’s Board of Directors approved the issuance of an additional 1,500 Class A phantom units and 1,500 Class B phantom units to certain members of management, to be effective on January 28, 2013. These phantom units will vest over a five year period and were approximately 60%80% vested on January 28, 2016.2017.

Employment Agreements

29



With the exception of the CEO, all of our executive officers are employed at-will, without employment agreements, severance payment agreements or payment arrangements that would be triggered by a “change in control” of USPB.

CEO Employment Agreement

On November 23, 2012,December 21, 2015, USPB entered into the FirstLinville Employment Agreement with Mr. Linville, which became effective on January 28, 2013. Pursuant to the First Employment Agreement, Mr. Linville now serves as USPB’s Chief Executive Officer for a term that started on January 28, 20131, 2016 and expires on December 31, 2015,29, 2018, subject to earlier termination as provided in the First Employment Agreement.agreement.

Mr. Linville’s annual base salary is $300,000. Mr. Linville will be eligible for an annual incentive compensation payment based on the financial performance of USPB and the benefits received by USPB’s unitholders; that incentive compensation will only be paid to Mr. Linville after certain levels of benefits have been achieved. Under the terms of the FirstLinville Employment Agreement, if Mr. Linville is employed by USPB on the last day of any employment year (except as otherwise provided in the agreement) during the term of the FirstLinville Employment Agreement, he shall be paid an Annual Incentive. If he is employed by USPB on December 31, 2015,29, 2018, he is to be paid Long-Term Incentive compensation. The FirstLinville Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for annual and long-term incentive amounts. As of the effective date of the First Employment Agreement, Mr. Linville was granted an additional 1,000 Class A and 1,000 Class B phantom units under USPB’s existing management phantom units plan. Mr. Linville currently holds a total of 2,300 Class A and 2,300 Class B phantom units.

 

28



The FirstLinville Employment Agreement also provides for post termination compensation. In addition to the amounts described below that will be payable upon termination of the agreement, Mr. Linville has agreed to a noncompetition provision that, for twelve (12) months following the termination of Mr. Linville’s employment with USPB, prohibits him from participating in the management or control of any beef industry business or enterprise that competes with the business of USPB and its various affiliates. During such period, Mr. Linville will receive a monthly payment equal to one twelfth of Mr. Linville’s annual salary at the time of termination. If Mr. Linville terminates the agreement for any or no reason, USPB need only pay salary earned to the date of the termination, and the noncompetition compensation, unless termination is the result of death or permanent disability. If USPB terminates the agreement for any reason other than cause, death or disability, or if Mr. Linville terminates the FirstLinville Employment Agreement for good reason, Mr. Linville shall be entitled to salary and benefits through employment year 2015; payment of certain fringe benefits through employment year 2015; the annual incentive bonus for the year in which the termination occurs and each subsequent year through employment year 2015; the long-term incentive bonus that would have accrued had Mr. Linville been employed through employment year 2015; and the payment of the noncompetition compensation.

          On December 21, 2015, USPB entered into the Second Employment Agreement with Mr. Linville, which became effective on January 1, 2016 and expires on December 29, 2018, subject to earlier termination as provided in the agreement. The Second Employment Agreement provides for the same salary, annual cash bonus, and long-term cash bonus as in his First Employment Agreement, all of which are discussed above. The Second Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for annual and long-term incentive amounts.

          The Second Employment Agreement also provides for post termination compensation. In addition to the amounts described below that will be payable upon termination of the agreement, Mr. Linville has agreed to a noncompetition provision that, for twelve (12) months following the termination of Mr. Linville’s employment with USPB, prohibits him from participating in the management or control of any beef industry business or enterprise that competes with the business of USPB and its various affiliates. During such period, Mr. Linville will receive a monthly payment equal to one twelfth of Mr. Linville’s annual salary at the time of termination. If Mr. Linville terminates the agreement for any or no reason, USPB need only pay salary earned to the date of the termination, and the noncompetition compensation, unless termination is the result of death or permanent disability. If USPB terminates the agreement for any reason other than cause, death or disability, or if Mr. Linville terminates the Second Employment Agreement for good reason, Mr. Linville shall be entitled to salary and benefits through employmentfiscal year 2018; payment of certain fringe benefits through employmentfiscal year 2018; the annual incentive bonus for the year in which the termination occurs and each subsequent year through employmentfiscal year 2018; the long-term incentive bonus that would have accrued had Mr. Linville been employed through employmentfiscal year 2018; and the payment of the noncompetition compensation.

30



Impact of Tax and Accounting Treatments

We believe the compensation paid to our named executive officers is fully deductible under the Internal Revenue Code at the time it is paid. We further believe ASC 718Compensation – Stock Compensationdoes not have a material effect on our financial statements.

Unit Ownership Guidelines

USPB does not allow its named executive officers to own USPB’s Class A units. As of December 26, 2015,31, 2016, certain members of management own a total of 6,250 Class A and 6,250 Class B phantom unit rights awarded under the management phantom unit plans also discussed above.

Compensation Committee Report

The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with USPB’s management. Based on the Committee’s review and discussions with management, the Committee has recommended to the Board that this Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

Compensation Committee

Mark Gardiner – Chairman
Duane Ramsey

Joe Morgan
Jerry Bohn

 

 

 

3129


 

Summary Compensation Table

     The table below sets forth information regarding compensation for our named executive officers for fiscal year 2016, 2015, 2014, and 2013.2014. Non-Equity Incentive Plan Compensation amounts reflected in this table are performance based awards and include amounts earned under our annual and long term cash bonus plans.

         Non-Equity       Non-Equity    
         Incentive Plan       Incentive Plan   All Other 
Name and Principal        Option  Compensation  All Other      Option Awards  Compensation   Compensation 
Position  Period  Salary ($)  Bonus ($)  Awards ($)  ($)  Compensation ($)   Total ($)  Period  

Salary ($) 

 

Bonus ($) 

 ($)  ($)   ($)  

Total ($) 

Stanley D. Linville  FY 2015  308,154    32,810 (3)13,410(1)  354,374  FY2016  308,190  -  -  447,628(3)  77,387(1) 

 

833,205 

Chief Executive Officer  FY 2014  305,855    17,802 (3)12,927(1)  336,584  FY2015  308,154  -  -  32,810(3)  13,410(1) 

 

354,374 

 FY 2013  299,331    77,305 (3)12,808 (1) 389,445  FY2014  305,855  -  -  17,802(3)  12,927(1) 

 

336,584 

Scott J. Miller  FY 2015  183,891    11,741 (2)11,386(1) 207,018  FY2016  190,714  -  -  210,842 (2)  71,978(1) 

 

473,534 

Chief Financial Officer  FY 2014  183,873    32,440 (2)14,703 (1) 231,016  FY2015  183,891  -  -  11,741 (2)  11,386(1) 

 

207,018 

 FY 2013  181,016    53,240 (2)(1) 234,256  FY2014  183,873  -  -  32,440 (2)  14,703(1) 

 

231,016 

Danielle D. Imel  FY 2015  128,681    8,451 (2)(1) 137,132  FY2016  132,964  -  -  151,764 (2)  58,727(1) 

 

343,455 

Treasurer  FY 2014  128,668    23,349 (2)12,336 (1) 164,353  FY2015  128,681  -  -  8,451 (2) - (1) 

 

137,132 

 FY 2013  126,317    38,333 (2)(1) 164,650  FY2014  128,668  -  -  23,349 (2)  12,336(1) 

 

164,353 

 

(1)Mr. Linville- Amounts for Mr. Linville include Company match under our 401(k) plan, and non dilutionnon-dilution payments resulting from excess tax distributions and a phantom unit plan payment resulting from the payment of funds escrowed in the Leucadia Transaction, $10,747, $2,888 and $63,752, respectively in fiscal year 2016; $10,523, $2,887 and $2,887,$0, respectively in fiscal year 2015; and $10,398, $2,529 and $2,529,$0, respectively in fiscal year 2014; and $10,153 and $2,655, respectively in fiscal year 2013.2014. 

Mr. Miller- Amounts for Mr. Miller include Company match under our 401(k) plan, and non dilutionnon-dilution payments resulting from excess tax distributions $8,758 and a phantom unit plan payment resulting from the payment of funds escrowed in the Leucadia Transaction, $10,322, $2,628 and $58,848, respectively in fiscal year 20152016; $8,758, $2,628 and $12,407 and $2,296,$0, respectively in fiscal year 2014. None of the benefits paid to Mr. Miller2015; and $12,407, $2,296 and $0, respectively in fiscal year 2013 exceeded $10,000.2014.

Ms. Imel- Amounts for Ms. Imel include Company match under our 401(k) plan, and non dilutionnon-dilution payments resulting from excess tax distributions and a phantom unit plan payment resulting from the payment of funds escrowed in the Leucadia Transaction, $7,535, $2,152 and $49,040, respectively in fiscal year 2016; $10,460, $1,876 and $1,876,$0, respectively in fiscal year 2014. None of the benefits paid to Ms. Imel in fiscal yearsyear 2015 and 2013 exceeded $10,000.

(2) This amount represents the executive's proportionate share of the Management Bonus Pool. One half of this amount will not be paid unless the executive is employed at the end of following fiscal year.

(3) The amount of non equitynon-equity incentive plan compensation, which is to include the annual cash bonus and amounts earned pursuant to the long termlong-term cash bonus plan pursuant to Mr. Linville's employment agreement. The amounts representsrepresent annual cash bonus of $447,628, $0, $17,802  and $77,305$17,802 for fiscal years 2016, 2015, 2014 and 2013,2014, respectively, and $0, $32,810, $0 and $0 of long termlong-term cash bonus for fiscal years 2016, 2015, 2014 and 2013,2014, respectively. The Linville Employment Agreement providedprovides for a cumulative annual cap of $450,000 for payments to Mr. Linville for annual and long termlong-term incentive amounts.

32

30


 

Grants of Plan-Based Awards in the Fiscal Year 20152016

     The table below sets forth information regarding grants of a non-equity incentive plan-based award made to our named executive officers during fiscal year 2015.2016.

 Estimated Future Payouts under Non-Equity Incentive  Estimated Future Payouts under Non-Equity Incentive 
 

Plan Awards 

 Plan Awards 

Name and Principal Position

 

Grant Date Threshold($)

Target ($) 

 

Maximum ($) 

 Grant Date  

Threshold ($) 

Target ($)  

Maximum ($) 

Stanley D. Linville (2)

 

12/21/2015 

-(3 (3

1,350,000  n/a   

Chief Executive Officer

 

      

Scott J. Miller

 

10/22/2015 

 - 

11,741 (1

271,950  10/26/2016  $ - $ 163,034 (1) $ 271,950 

Chief Financial Officer

 

        

Danielle D. Imel

 

10/22/2015  - 8,451 (1195,750  10/26/2016  $ - $ 117,352 (1) $ 195,750 
Treasurer           

 

(1) The target amount is based on fiscal year 2015 inputs and reflects the actual management annual cash bonus plan awardestimated benefits for fiscal year 2015. The amount is reflected in the "Non-Equity Incentive Plan Compensation" column in the Summary Compensation Table. 2017.Amounts, which could be more or less, will bebased on actual input amounts for fiscal year 2016.

2017.
(2) On December 21, 2015, USPB entered into an employnment agreement, effective January 1,There were no grants of plan-based awards in fiscal year 2016 through December 29, 2018, withfor Mr. Linville that provides for non-equity incentive plan awards of annual cash bonuses and long-term cash bonuses. The compensation provided to Mr. Linville in the form of annual cash and long-term cash bonuses shall be subject to a cumulative annual cap pro-rated over the term of his contract not to exceed $450,000 per year averaged over the term.

(3) Threshold and target compensation under these incentive plan awards are not determinable and actual compensation will be based on company earnings, cattle deliveries and grid premiums over the term of the contract.

Linville.

Discussion of Summary Compensation Table and Grants of Plan-Based Awards

Performance Based Annual Cash Bonuses

Our executive officers earn bonus awards made pursuant to various annual cash bonus plans. The awards utilize formulas set by the Compensation Committee. The bonuses earned pursuant to the plans appear in the Non-Equity Incentive Plan Compensation in the Summary Compensation Table. Annual incentive bonuses awarded to executives, excluding Mr. Linville, also appear in the Grants of Plan Based Awards table.The formulas used to calculate the annual performance-based bonus awards to the Named Executive Officers were as follows:

NameBonus Formula

Stanley D. Linville

For fiscal year 2015 and 2016: 0.75% of the sum of the total financial benefits to USPB (“USPB Total Benefits”) that exceed $25,000,000. USPB Total Benefits are: (1) audited fiscal year-end USPB earnings before tax; and (2) the fiscal year USPB grid premiums, which is the net sum of all USPB unitholder and associate grid premiums and discounts calculated through all USPB grids at all plants as outlined in the Linville Employment Agreement.

 

Scott J. Miller and
Danielle D. Imel

For fiscal year 2015:2016: The executive’s proportionate share of the Management Bonus Pool, which is (1) the audited fiscal year 20152016 USPB earnings before tax plus USPB grid premiums during fiscal year 2015,2016, less (2) $15,000,000, multiplied by (3) management bonus factor. The bonus plan payments are vested over a two-year period. The maximum Management Bonus Pool for a given bonus plan year is equal to 150% of the sum of the qualifying participants’ salaries in effect at the end of such year.

 

Other Bonuses

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We also pay discretionary cash bonuses to executive officers from time to time to reward elements of performance that are not reflected in the criteria for performance based cash bonuses. No such bonuses were paid to executive officers in fiscal year 2016, 2015, 2014, or 2013.and 2014. The discretionary bonuses, if paid, are disclosed in the Bonus column in the Summary Compensation Table.

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Outstanding Equity Awards at Fiscal Year End 2015 
 
      Option Awards    
  Number of Securities        
  Underlying    

Option Exercise Price 

   
Name and Principal Position  Unexercised Options    ($)   Option Expiration Date 
Stanley D. Linville  1,300 Class A Units (1$0.00 (3None 
Chief Executive Officer  1,300 Class B Units (1$0.00 (3None 
  1,000 Class A Units (2$66.01   None 
  1,000 Class B Units (2$73.72   None 
 
Scott J. Miller  1,200 Class A Units (1$0.00 (3None 
Chief Financial Officer  1,200 Class B Units (1$0.00 (3None 
  500 Class A Units (2$66.01   None 
  500 Class B Units (2$73.72   None 
 
Danielle D. Imel  1,000 Class A Units (1$0.00 (3None 
Treasurer  1,000 Class B Units (1$0.00 (3None 

Outstanding Equity Awards at Fiscal Year End 2016

 

Option Awards 

       
 Number of Securities        
 Underlying    

Option Exercise Price 

   
Name and Principal Position Unexercised Options    ($)   Option Expiration Date 
Stanley D. Linville 1,300 Class A Units (1) $0.00 (3) None 
Chief Executive Officer 1,300 Class B Units (1) $0.00 (3) None 
 1,000 Class A Units (2) $66.01   None 
 1,000 Class B Units (2) $73.72   None 
 
Scott J. Miller 1,200 Class A Units (1) $0.00 (3) None 
Chief Financial Officer 1,200 Class B Units (1) $0.00 (3) None 
 500 Class A Units (2) $66.01   None 
 500 Class B Units (2) $73.72   None 
 
Danielle D. Imel 1,000 Class A Units (1) $0.00 (3) None 
Treasurer 1,000 Class B Units (1) $0.00 (3) None 

 

(1) The phantom plan awards, which provide for the award of appreciation rights only, for Mr. Miller, Mr. Linville and Ms. Imel vested over a 5 year period. At the end of fiscal year 2015,2016, the unexercised phantom units were fully vested, and therefore exercisable.


(2) The phantom plan awards, which provide for the award of appreciation rights only, for Mr. Miller and Mr. Linville vest over a 5 year period. On January 29, 2016,28, 2017, the unexercised phantom units were approximately 60%80% vested.


(3) During fiscal year 2011, a total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to certain management employees, with a strike price of $118 and $157, respectively. However, as a result of the Leucadia transaction,Transaction, which occurred in December 2011, employees with phantom plan awards were paid $687 per combined Class A and Class B phantom units less the combined strike price of $275 ($118 + $157). Subsequent to this payment, the new strike prices for Class A phantom units and Class B phantom units are now $0.00 and $0.00, respectively. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,8834,817 Class A phantom units and 4,8834,817 Class BA phantom units remained outstanding at December 26, 2015,31, 2016, all of which were fully vested.

Options Exercised 
 
 

Option Awards 

 Number of options  Value realized on 

Name and Principal Position 

acquired on exercise

  exercise ($) 

Stanley D. Linville

-  

$

- 

Chief Executive Officer

    
 

Scott J. Miller

-  

$

- 

Chief Financial Officer

    
 

Danielle D. Imel

-  

$

- 

Treasurer

    

 

Retirement Plans

We do not maintain a qualified or non-qualified defined benefit pension plan covering any of our employees. Our named executive officers are eligible to participate in our tax-qualified Profit Sharing and Savings Plan on the same basis as other employees under the plan. The Company makes a matching contribution to this plan equal to 100% of each participant’s own elective contributions up to 4% of his or her qualifying compensation. The Company also has the discretion to make annual profit sharing contributions that are allocated among all eligible participants in proportion to their respective compensation. The Company did not make a profit sharing contribution to the plan in fiscal year 2015.2016. The Summary Compensation Table above reflects the contributions to our Profit Sharing and Savings Plan for those employees whose All Other Compensation exceeds $10,000.

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Potential Payments Upon Termination

Mr. Stanley D. Linville

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First Employment Agreement

If the FirstLinville Employment Agreement is terminated upon death or permanent disability, Mr. Linville is entitled to:

If FirstLinville Employment Agreement is terminated by USPB for cause or by Mr. Linville for other than good reason, he is entitled to:

     If the FirstLinville Employment Agreement is terminated by USPB other than for cause, death or disability, or by Mr. Linville for good reason, he shall be entitled to:

Where the FirstLinville Employment Agreement provides for post-termination noncompetition compensation, Mr.LinvilleMr. Linville will receive a monthly payment equal to the annual salary that would be paid to Mr. Linville under the FirstLinville Employment Agreement or his annual salary at the time of termination, whichever is greater, divided by twelve (12), which will be paid at normal salary payment intervals in effect for management personnel on the date of termination. USPB will also pay Mr. Linville certain fringe benefits provided to other employees of USPB, but excluding paid vacations, personal and sick days, allowances, telecommunications equipment or services, expense reimbursement (except on prior written approval), or 401(k) contributions (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination will be paid to CEO in equal monthly payments during the noncompetition period). In return for such payment, Mr. Linville has agreed to a noncompetition provision that, for twelve (12) months following the termination of Mr. Linville’s employment with USPB, prohibits him, within the United States of America, from participating through management or control or consult or employment of any beef packing or processing industry business or enterprise that competes with the business of USPB and its various affiliates. USPB may terminate the USPB noncompetition payments prior to the end of the twelve (12) month period if the Board of Directors determines the CEO violated the noncompetition restriction as outlined in the FirstLinville Employment Agreement.

3533


 

 

Second Employment Agreement

          If the Second Employment Agreement is terminated upon death or permanent disability, Mr. Linville is entitled to:

          If Second Employment Agreement is terminated by USPB for cause or by Mr. Linville for other than good reason, he is entitled to:

          If the Second Employment Agreement is terminated by USPB other than for cause, death or disability, or by Mr. Linville for good reason, he shall be entitled to:

36



          Where the Second Employment Agreement provides for post-termination noncompetition compensation, Mr. Linville will receive a monthly payment equal to the annual salary that would be paid to Mr. Linville under the Second Employment Agreement or his annual salary at the time of termination, whichever is greater, divided by twelve (12), which will be paid at normal salary payment intervals in effect for management personnel on the date of termination. USPB will also pay Mr. Linville certain fringe benefits provided to other employees of USPB, but excluding paid vacations, personal and sick days, allowances, telecommunications equipment or services, expense reimbursement (except on prior written approval), or 401(k) contributions (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination will be paid to CEO in equal monthly payments during the noncompetition period). In return for such payment, Mr. Linville has agreed to a noncompetition provision that, for twelve (12) months following the termination of Mr. Linville’s employment with USPB, prohibits him, within the United States of America, from participating through management or control or consult or employment of any beef packing or processing industry business or enterprise that competes with the business of USPB and its various affiliates. USPB may terminate the USPB noncompetition payments prior to the end of the twelve (12) month period if the Board of Directors determines the CEO violated the noncompetition restriction as outlined in the Second Employment Agreement.

Director Compensation Table

Each director receives cash compensation for meetings attended. Directors are compensated $250 per diem for regular meetings, special meetings, compensation committee meetings and audit committee meetings. We do not award any other type of compensation to our directors.

The table below reflects compensation paid to each director during the fiscal year 2015.2016.

 Fees Earned or 

Name 

Paid in Cash ($) 
Mark R. Gardiner 2,5003,000 
Duane K. RamseyJoe M. Morgan 2,5002,750 
Joe M. MorganJerry L. Bohn 2,500 
JerryWayne L. BohnCarpenter 2,0002,500 
John M. Freund 1,2502,500 
RexW.Rex W. McCloy 1,7502,500 
Jeff H. Sternberger 2,0002,500 

 

Compensation Committee Interlocks and Insider Participation

None of the members of our Compensation Committee is, or was, an officer or employee of U.S. Premium Beef, LLC or its subsidiaries. None of our executive officers served as a director or was a member of the compensation committee of any entity where a member of our Board or Compensation Committee was an executive officer.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS

Equity Compensation Plan Information

The table below sets forth information with respect to securities available for issuance under our equity compensation plan.

37



  

Equity Compensation Plan Information 

        Number of 
        securities 
        remaining available 
    Number of    for future issuance 
    securities to be    under equity 
    issued upon  Weighted-average  compensation plans 
    exercise of  exercise price of  (excluding 
  Type of  outstanding options,  outstanding options,  securities reflected 

Plan Category 

 

Equity  warrants and rights  warrants and rights  in column (2)) 
Equity compensation plans approved         
by security holders    -  N/A  - 
Equity compensation plans not         
approved by security holders    -  N/A  - 

 

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information as of February 27, 201625, 2017 regarding the only persons known by the Company to own directly or indirectly, more than 5% of its Class A and Class B units.

34



    

Number of Units 

   
    Beneficially    

Name and Address of Beneficial Owner

 Title of Class  Owned  

Percent of Class

 
Black Diamond Cattle Co, Inc.(1) Class A  95,000  12.9% 
   509 Country Lane Class B  95,000  12.6% 
   Council Grove, Kansas 66846       
John Fairleigh(2) Class A  54,288  7.4% 
   Box 560 Class B  54,288  7.2% 

   Scott City, KS 67871

       
Stacy and Kelly Hoeme(3) Class A  41,125  5.6% 

   PO Box 186

 Class B  41,125  5.4% 

   Scott City, KS 67871

       
Jeff Sternberger(4) Class A  40,770  5.5% 
   05013 13 Rd  Class B  40,770  5.4% 
   Ingalls, KS 67853       

(1)

Includes 95,000 Class A and Class B units held by Black Diamond Cattle Co., Inc., which is managed by Karen Laue.

(2)

Includes i) 54,288 Class A and 30,000 Class B units held by JBT Land & Cattle, LLC., of which Mr. Fairleigh is part owner and ii) 24,288 Class B units held by Fairleigh Corporation bdadba Fairleigh Feed Yard, of which Mr. Fairleigh is part owner.

(3)

Includes i) 39,425 Class A and Class B units held by Crown H Cattle Co, Inc., of which Kelly and Stacy Hoeme are owners and ii) 1,500 Class A and Class B units owned by Stacy Hoeme and iii) 200 Class A and Class B units owned by Kelly Hoeme.

(4)

Includes i) 38,770 Class A and Class B units held by Midwest Feeders Inc. of which Mr. Sternberger is a manager, and ii) 2,000 Class A and Class B units owned CRI Feeders of Guymon, LLC of which Mr. Sternberger is a director.

Security Ownership of Management

The following table furnishes information, as of February 27, 2016,25, 2017, regarding ownership of USPB’s Class A and Class B units is furnished with respect to (i) each director and director nominee, (ii) each executive officer named in the Summary Compensation Table on page 32,30, and (iii) all current directors and executive officers as a group.

38



 Beneficial Ownership of  Beneficial Ownership of 
 

Class A Units

 

Class B Units

 

Class A Units

  

Class B Units

 
Name  Number(1)  Percentage(2) Number(1)  

Percentage(2)

 Number(1)  Percentage(1)  Number(1)  Percentage(1) 
Jeff H. Sternberger(2)  40,770  5.5 40,770  5.4 40,770  5.5%  40,770  5.4% 
Jerry L. Bohn(3)  35,867  4.9 31,617  4.2 35,867  4.9%  31,617  4.2% 
Joe M. Morgan(4)  33,128  4.5 17,865  2.4 33,128  4.5%  17,865  2.4% 
Rex W. McCloy(5)  16,085  2.2 13,085  1.7 16,085  2.2%  13,085  1.7% 
Duane K. Ramsey(6)  8,800  1.2 8,800  1.2
Wayne L. Carpenter(6)  6,000  0.8%  6,000  0.8% 
Mark R. Gardiner(7)  3,100  0.4 3,100  0.4 3,100  0.4%  3,100  0.4% 
John M. Freund(8)  2,225  0.3 2,225  0.3 2,225  0.3%  2,225  0.3% 
Scott J. Miller   0.0  0.0 -  0.0%  -  0.0% 
Stanley D. Linville   0.0  0.0 -  0.0%  -  0.0% 
Danielle D. Imel   0.0  0.0 -  0.0%  -  0.0% 
Directors, Nominees, and Executive Officers as a group (10 persons)(10)  139,975  18.9 117,462  15.5
Directors, Nominees, and Executive Officers as a group (10 persons)(9)  137,175  18.5%  114,662  15.2% 

 

(1)

(1) 

Represents the percentage of Class A units and the percentage of Class B units beneficially held by the named party.

(2)

Includes i) 38,770 Class A and Class B units held by Midwest Feeders Inc., of which Mr. Sternberger is an owner and the General Manager, and ii) 2,000 Class A and Class B units held by CRI Feeders of Guymon, LLC of which Mr. Sternberger is a director. 37,770 of the Class A and Class B units are pledged as security.

(3)

Includes i) 35,867 Class A and 31,617 Class B units held by Pratt Feeders, LLC, of which Mr. Bohn is the general manager. All of the units are pledged as security.

(4)

Includes 17,865 Class A and Class B units held by Mr. Morgan and 15,263 Class A units held by Poky Feeders, of which Mr. Morgan is the manager.

(5)

Includes 16,085 Class A units and 13,085 Class B units held by Rex McCloy Farms, Inc., of which Mr. McCloy is an owner.

(6)

Includes i) 8,8006,000 Class A and Class B units held by the Duane K. Ramsey Trust, overCarpenter Cattle Co. Inc., of which Mr. Ramsey has sole voting and investment power.Carpenter is the owner. 

(7)

Includes i) 3,000 Class A and Class B units held by the Mark Gardiner Revocable Trust and ii) 100 Class A and Class B units held by Gardiner Angus Ranch, Inc., over which Mr. Gardiner has sole voting and investment power.

(8)

Includes 2,225 Class A and Class B units held by the John Freund, over which Mr. Freund has sole voting and investment power.

(9)

Reflects unit ownership by all seven directors, the nominees to the board, and the named executive officers of USPB.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

35



Related Party Transactions

USPB’s board of directors has not adopted a formal policy or procedure that must be followed prior to any transaction, arrangement or relationship with a related person, as defined by SEC regulations (e.g., directors, executive officers, any 5 percent shareholder, or immediate family member of any of the foregoing).

USPB has adopted a corporate Code of Conduct that is enforced throughout all levels of management. It deals with conflicts of interest, among other things. The Code prohibits any conduct or activities that conflict with the interests of the Company, or that might influence or appear to influence our judgment or actions in performing our duties. The Code also requires directors and all levels of management to make full written disclosure of any activity that may present a conflict of interest and receive prior written approval from the Company. No waivers have been granted.

Our directors and all levels of management are required each year to respond to a questionnaire regarding their independence. The questionnaire also requires each director and all levels of management to identify if they or an immediate family member had been indebted to, or had been a participant in any material transactions with, the Company or any of its affiliates. The questionnaire requires disclosure of the name of related parties if such parties have an ownership or management control relationship with the Company sufficient to exert significant influence over the Company’s management or operating policies which could cause significantly different operating results or financial position of the Company.

The standards applied pursuant to the above-described procedures are to provide comfort that any conflict of interest or related party transitiontransaction is on an arms-length basis which is fair to the Company.

39



Directors who are Unitholders

USPB is not a listed company and as a result has chosen the NASDAQ independence listing standards to determine whether our directors are independent. The NASDAQ independence definitions provide that directors cannot be independent if they do not meet certain objective standards.

All of USPB’s directors hold units of the LLC and are also agricultural producers. By virtue of their unitholder status and ownership of Class A units, each of these individuals is obligated to deliver cattle to USPB. The amount and terms of the payments received by these individuals (or the entities they represent) for the delivery of cattle are made on exactly the same basis as those received by other unitholders and associates of USPB for the delivery of their cattle. Based on the NASDAQ’s standards and as a result of their equal treatment with respect to the delivery of cattle, the following current directors were determined to be independent: Messrs. Bohn, Carpenter, Freund, Gardiner, McCloy, Morgan, Ramsey, and Sternberger.

Certain Arrangements with Holders of NBP’s Membership Interests

Simultaneous with the closing the Leucadia Transaction, all of the holders of NBP’s membership interests entered into a limited liability company agreement that provides for, among other things, election of its board of managers, the powers of its board of managers and its officers, approval rights for certain of its equity holders, restrictions and rights related to the transfer, sale or purchase of its membership interests, and preemptive and repurchase rights.

Transactions with NBP

On December 30, 2011, NBP entered into a new Cattle Purchase and Sale Agreement with USPB. Per the terms and conditions of the Agreement, NBP shall purchase through USPB from its owners and associates, and USPB shall cause to be sold and delivered from its owners and associates to NBP, on an annual basis, a base amount of 735,385 (subject to adjustment) head of cattle per year. In fiscal years 2016, 2015, 2014 and 2013,2014, USPB and NBP agreed to increase the number of cattle that USPB’s owners and associates could deliver during USPB’s delivery year by up to 10%. During fiscal years 2016, 2015, 2014, and 2013,2014, USPB’s owners and associates provided approximately 28%27%, 23%28%, and 21%23%, respectively, of NBP’s total cattle requirements. The purchase price for the cattle is determined by pricing grids, which shall at all times be no less favorable than any other pricing grid being utilized by NBP and the pricing grid shall be competitive with NBP’s major competitors for the purchase of cattle. NBP believes the pricing grids are based on terms that could be obtained from an unaffiliated party. The cattle supply agreement extends through December 31, 2017, with automatic one year extensions on each December 30, unless either party provides a notice not to extend sixty days prior to the annual anniversary date. NBP also purchased additional cattle from certain USPB unitholders and associates outside of the cattle supply agreement.

36



ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

PricewaterhouseCoopers, LLP, an independent registered public accounting firm, served as our auditors for fiscal years 20152016 and 20142015 (thousands of dollars).

 Fiscal Year Ended   Fiscal Year Ended  Fiscal Year Ended  Fiscal Year Ended 
 December 26, 2015   December 27, 2014   December 31, 2016   December 26, 2015 
Audit Fees 113  111  $ 115  $ 113 
Audit Related Fees     2   4 
Tax Fees  231   219  240   231 
All Other Fees      -   - 

Total

348  330  $ 357  $ 348 

 

40



Audit Fees

Audit fees relate to the audits of our consolidated financial statements on Form 10-K and the reviews of quarterly reports on Form 10-Q.

Audit-Related Fees

Audit-related fees relate to consultations on accounting related matters. We did not pay any other type of fee and did not receive any other services.

Tax Fees

Tax fees relate to tax compliance, tax advice and tax planning services.

All Other Fees

We did not pay any other type of fee and did not receive any other services.

Our Audit Committee appoints our independent auditors. The Audit Committee is solely and directly responsible for the approval of the appointment, re-appointment, compensation and oversight of our independent auditors. The Audit Committee approves in advance all work to be performed by the independent auditors.

41

37


 

PART IV

ITEM 15.      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements and Financial Statement Schedules
 

(1)

The consolidated financial statements filed as part of this report at Item 8 are listed in the Index to the Consolidated Financial Statements on page F-1 contained herein.
 
(b) The following documents are filed or incorporated by reference as exhibits to this report:
 
2.1Agreement and Plan of Merger between U. S.U.S. Premium Beef, Ltd. and U. S.U.S. Premium Beef, Inc.(incorporated (incorporated herein by reference to Appendix A to voting materials-prospectus contained in U. S.Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).
2.2Plan of Conversion adopted by U. S. Premium Beef, Inc. (incorporated herein by reference to Appendix B to the voting materials prospectus contained in U. S.U.S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).
2.2Plan of Conversion adopted by U.S. Premium Beef, Inc. (incorporated herein by reference to Appendix B to the voting materials – prospectus contained in U.S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004). 
 
3.1Certificate of Formation of U.S. Premium Beef, LLC (incorporated herein by reference to Appendix C to the voting materials prospectus contained in U. S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5,2004).
3.2(a)Limited Liability Agreement of U. S. Premium Beef, LLC (incorporated herein by reference to Appendix D to the voting materials prospectus contained in U. S.U.S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).
3.2(a)Limited Liability Agreement of U.S. Premium Beef, LLC (incorporated herein by reference to Appendix D to the voting materials – prospectus contained in U.S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004). 
 
3.2(b)Amended and Restated Limited Liability Company Agreement of U. S.U.S. Premium Beef, LLC, dated as of March 2, 2011 (incorporated herein by reference to Exhibit 3.1 to Form 8-K (File No. 333-115164) filed with the SEC on March 7, 2011).
 
3.2(c)Amended and Restated Limited Liability Company Agreement of U. S.U.S. Premium Beef, LLC, dated as of January 17, 2012 (incorporated herein by reference to Exhibit 3 to Form 8-K (File No. 333- 115164)333-115164) filed with the SEC on January 18, 2012).
 
10.2Cattle Purchase and Sale Agreement dated December 30, 2011 between the Company and National Beef Packing Company, LLC (incorporated herein by reference to Exhibit 10.2 to Company'sCompany’s Current Report on Form 8-K (File No. 333-115164) filed with the SEC on December 30, 2011).
 
10.3(b)Form of Uniform Cattle Delivery and Marketing Agreement Odd Slots (incorporated by reference to Exhibit 10.3(b) to Form 10-K (File No. 333-115164) filed with the Commission on November 14, 2007).
 
10.4(b)*U. S.U.S. Premium Beef, LLC Phantom Unit Bonus Compensation Policy adopted September 28, 2010 (incorporated herein by reference to Exhibit 10.02 to Form 8-K (File No. 333-115164) filed with the SEC on October 4, 2010).

42



10.5(a)

Master Loan Agreement between U. S.U.S. Premium Beef, LLC and CoBank, ACB, executed July 28, 2011 (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on August 1, 2011).

38



10.5(b)Revolving Term Loan Supplement between U. S.U.S. Premium Beef, LLC and CoBank, ACB, executed July 28, 2011 (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on August 1, 2011).
 
10.5(c)Pledge Agreement between U. S.U.S. Premium Beef, LLC and CoBank, ACB, executed July 28, 2011 (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on August 1, 2011).
 
10.5(d)Security Agreement between U. S.U.S. Premium Beef, LLC and CoBank, ACB, executed July 28, 2011 (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on August 1, 2011).
 
10.5(e)Pledge Agreement dated December 30, 2011 between the Company and National Beef Packing Company, LLC, with attached Consent and First Amendment to Pledge Agreement and Security Agreement dated December 30, 2011 between the Company and CoBank, ACB (incorporated herein by reference to Exhibit 10.3 to Company'sCompany’s Current Report on Form 8-K (File No. 333-115164)333- 115164) filed with the SEC on December 30, 2011).
 
10.5(f)Revolving Term Loan Supplement between U. S.U.S. Premium Beef, LLC and CoBank, ACB, executed May 29, 2014 (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on May 29, 2014).
 
10.6(a)*CEO Employment Agreement by and between Steven D. Hunt and U. S.U.S. Premium Beef, LLC dated July 10, 2009 (incorporated by reference to Exhibit 10.4 to Form 10-Q (File No. 333-115164)333- 115164) filed with the SEC on July 10, 2009).
 
10.6(b)*First Amendment to CEO Employment Agreement by and between Steven D. Hunt and U.S. Premium Beef, LLC adopted September 28, 2010 (incorporated herein by reference to Exhibit 10.02 to Form 8-K (File No. 333-115164) filed with the SEC on October 4, 2010).
 
10.6(c)*Second Amendment to CEO Employment Agreement between U. S.U.S. Premium Beef, LLC and Steven D. Hunt (incorporated herein by reference to Exhibit 10.1 to Company sCompany’s Current Report on Form 8-K (File No. 333-115164) filed with the SEC on December 6, 2011).
 
10.6(d)*Third Amendment to CEO Employment Agreement between U. S.U.S. Premium Beef, LLC and Steven D. Hunt (incorporated by reference to Exhibit 10.6(d) to Form 10-KT (File No. 333-115164)333- 115164) filed with the SEC on May 24, 2012).
 
10.6(e)*CEO Employment Agreement between U. S.U.S. Premium Beef, LLC and Stanley D. Linville, executed on November 23, 2012 and effective as of January 28, 2013 (incorporated herein by reference to Exhibit 10.1 to Company'sCompany’s Current Report on Form 8-K (File No. 333-115164) filed with the SEC on December 3, 2012).
 
10.7(f)10.6(f)*CEO Employment Agreement between U. S.U.S. Premium Beef, LLC and Stanley D. Linville, executed on December 21, 2015 and effective as of January 1, 2016 (incorporated herein by reference to Exhibit 10.1 to Company'sCompany’s Current Report on Form 8-K (File No. 333-115164) filed with the SEC on December 23, 2015).
 
10.7Escrow Agreement dated December 30, 2011 between and among the Company, Leucadia National Corporation, NBPCo Holdings, LLC, and Marshall & Ilsley Trust Company, N.A. (incorporated herein by reference to Exhibit 10.1 to Company'sCompany’s Current Report on Form 8-K (File No. 333-115164) filed with the SEC on December 30, 2011).
 
10.8Proxy Statement regarding proposed transaction sent by U.S. Premium Beef, LLC to it members on or about December 5, 2011(incorporated herein by reference to Exhibit 20.1 to Company'sCompany’s Current Report on Form 8-K (File No. 333-111407) filed with the SEC on December 6, 2011)
. 

39

43


 

31.1Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
  
31.2Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
  
32.1Certification of the Chief Executive Officer pursuant to 18 U. S. C.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
32.2Certification of the Chief Financial Officer pursuant to 18 U. S. C.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
101.INS101 INS XBRL Instance Document **
  
101.SCH101 SCH XBRL Taxonomy Extension Schema Document **
101 CAL XBRL Taxonomy Extension Calculation Linkbase ** 
  
101. CALXBRL Taxonomy Extension Calculation Linkbase **
101.DEFDEF XBRL Taxonomy Extension Definition Linkbase Document **
  
101.LAB101 LABXBRL Taxonomy Extension Label Linkbase Document **
  
101.PRE101 PRE XBRL Taxonomy Extension Presentation Linkbase Document **

 

_____________

* Management contract or compensatory plan or arrangement.

** 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.

44

40


 

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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



___________________________
Name: Stanley D. Linville
Chief Executive Officer
(Principal Executive Officer)

Date: March 10, 20169, 2017

* * * *

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacity and on the dates indicated.

Signature 

Title 

Date 
/s/ Stanley D. Linville 
Stanley D. Linville 

Chief Executive Officer


(Principal Executive Officer)

March 10, 2016 9, 2017

Stanley D. Linville 
/s/ Scott J. Miller 
Scott J. Miller 

Chief Financial Officer


(Principal Financial and Accounting Officer)

March 10, 2016 9, 2017
Scott J. Miller 
/s/ Mark R. GardinerJoe M. Morgan 
Mark R. Gardiner Chairman of the Board 
March 10, 2016 
/s/ Duane K. Ramsey 
Duane K. Ramsey 

Vice Chairman of the Board

March 9, 2017
March 10, 2016Joe M. Morgan 
/s/ Jerry L. Bohn 

Director

March 9, 2017
Jerry L. BohnDirector  
/s/ Wayne L. Carpenter 

Director

March 10, 2016 9, 2017
Wayne L. Carpenter 
/s/ John M. Freund 

Director

March 9, 2017
John M. FreundDirector  
March 10, 2016 
/s/ Rex W. McCloy 

Director

March 9, 2017
Rex W. McCloyDirector  
March 10, 2016 
/s/ Jeff HH. Sternberger 

Director

March 9, 2017
Jeff H. SternbergerDirector 
March 10, 2016 

 

4541


 

U.S. PREMIUM BEEF, LLC

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Owners
U.S. Premium Beef, LLC:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss)/income,, capital shares and equities and cash flows present fairly, in all material respects, the financial position of U.S. Premium Beef, LLC and itstheir subsidiaries at December 26, 201531, 2016 and December 27, 2014,26, 2015, and the results of their operations and their cash flows for each of the three years ended December 31, 2016, December 26, 2015, and December 27, 2014 and December 28, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Kansas City, MO
March 10, 20169, 2017

 

 

 

 

F-2


 

U. S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars, except unit information)
 
 
Assets 

December 26, 2015 

 

December 27, 2014 

Current assets:      

     Cash and cash equivalents 

85,220  92,344 

     Due from affiliates 

 137   82 

     Other current assets 

   

        Total current assets 

 85,365   92,431 
Property, plant, and equipment, at cost  223   219 

     Less accumulated depreciation 

 175   214 

        Net property, plant, and equipment 

 48   
Investment in National Beef Packing Company, LLC  132,628   147,808 
Other assets  196   257 

        Total assets 

218,237  240,501 
Liabilities and Capital Shares and Equities      
Current liabilities:      

     Accounts payable - trade 

14  34 

     Due to affiliates 

   17 

     Accrued compensation and benefits 

 1,066   1,169 

     Other accrued expenses and liabilities 

 179   120 

     Patronage notices payable 

 90   90 

     Distributions payable 

   

        Total current liabilities 

 1,349   1,432 
Long-term liabilities:      

     Other liabilities 

 5,118   5,983 

        Total long-term liabilities 

 5,118   5,983 

        Total liabilities 

 6,467   7,415 
 
Commitments and contingencies    
 
Capital shares and equities:      

     Members' capital, 735,385 Class A units and 755,385 Class B units authorized, 

     

        issued and outstanding 

 211,770   233,086 

        Total capital shares and equities 

 211,770   233,086 

        Total liabilities and capital shares and equities 

218,237  240,501 
 
See accompanying notes to consolidated financial statements.      

F-3



U. S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except unit and per unit data)
 
 
 52 weeks ended
 December 26, 2015  December 27, 2014  December 28, 2013
Net sales -  -  - 
Costs and expenses:            

   Cost of sales 

 -   -   - 

   Selling, general, and administrative expenses 

 2,397   3,116   5,364 

   Depreciation and amortization 

 7   2   6 

     Total costs and expenses 

 2,404   3,118   5,370 

        Operating loss 

 (2,404  (3,118  (5,370
Other income (expense):            

   Interest income 

 47   47   40 

   Interest expense 

 (13  (30  (70

   Equity in (loss) income of National Beef Packing Company, LLC 

 (18,949  (6,140  (6,464

   Other, net 

 4   204   671 

     Total other expense 

 (18,911  (5,919  (5,823

        Loss before taxes 

 (21,315  (9,037  (11,193
Income tax expense  (1  (2  (3

        Net loss 

(21,316 (9,039 (11,196
 
Loss per unit:            

   Basic 

           

     Class A units 

$(2.90 $(1.23 $(1.52

     Class B units 

$(25.40 $(10.77 $(13.34

   Diluted 

           

     Class A units 

$(2.90 $(1.23 $(1.52

     Class B units 

$(25.40 $(10.77 $(13.34
Outstanding weighted-average Class A and Class B units:            

   Basic 

           

     Class A units 

 735,385   735,385   735,385 

     Class B units 

 755,385   755,385   755,385 

   Diluted 

           

     Class A units 

 735,385   735,385   735,385 

     Class B units 

 755,385   755,385   755,385 
See accompanying notes to consolidated financial statements.            

F-4



U. S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(thousands of dollars)
 
 
 52 weeks ended
 

December 26, 2015

  

December 27, 2014

  December 28, 2013
Net loss 

(21,316 

(9,039 

(11,196
Other comprehensive income (expense):  -   -   - 

     Comprehensive loss 

(21,316 

(9,039 

(11,196
 
See accompanying notes to consolidated financial statements. 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Capital Shares and EquitiesBalance
Sheets
(thousands of dollars)

dollars, except unit information)
 
 
Assets 

December 31, 2016 

  

December 26, 2015 

Current assets:      

   Cash and cash equivalents 

85,230  85,220 

   Due from affiliates 

 48   137 

   Other current assets 

 27   

      Total current assets 

 85,305   85,365 
Property, plant, and equipment, at cost  223   223 

   Less accumulated depreciation 

 188   175 

      Net property, plant, and equipment 

 35   48 
Investment in National Beef Packing Company, LLC  143,446   132,628 
Other assets  146   196 

      Total assets 

228,932  218,237 
Liabilities and Capital Shares and Equities      
Current liabilities:      

   Accounts payable - trade 

66  14 

   Due to affiliates 

 37   

   Accrued compensation and benefits 

 1,690   1,066 

   Other accrued expenses and liabilities 

 253   179 

   Patronage notices payable 

 19   90 

   Distributions payable 

 1,199   

      Total current liabilities 

 3,264   1,349 
Long-term liabilities:      

   Other liabilities 

 4,473   5,118 

      Total long-term liabilities 

 4,473   5,118 

      Total liabilities 

 7,737   6,467 
 

Commitments and contingencies 

   
 

Capital shares and equities: 

     

Members' capital, 735,385 Class A units and 755,385 Class B units authorized, 

     

      issued and outstanding 

 221,195   211,770 

      Total capital shares and equities 

 221,195   211,770 

      Total liabilities and capital shares and equities 

228,932  218,237 
 
See accompanying notes to consolidated financial statements. 

F-3



U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except unit and per unit data)
 
 
 53 weeks ended  52 weeks ended 
 

December 31, 2016

  

December 26, 2015

  

December 27, 2014

Net sales $-  

$

-  $- 
Costs and expenses:            

   Cost of sales 

 -   -   - 

   Selling, general, and administrative expenses 

 3,621   2,397   3,116 

   Depreciation and amortization 

 13   7   2 

      Total costs and expenses 

 3,634   2,404   3,118 

         Operating loss 

 (3,634  (2,404  (3,118

Other income (expense): 

           

   Interest income 

 48   47   47 

   Interest expense 

 (13  (13  (30

   Equity in income (loss) of National Beef Packing Company, LLC 

 49,267   (18,949  (6,140

   Other, net 

 700   3   202 

      Total other expense 

 50,002   (18,912  (5,921

         Income (loss) before taxes 

 46,368   (21,316  (9,039

Income tax expense 

 -   -   - 

         Net income (loss) 

$46,368  $(21,316 $(9,039
 

Income (loss) per unit: 

           

   Basic 

           

      Class A units 

$6.31  $(2.90 $(1.23

      Class B units 

$55.24  $(25.40 $(10.77

   Diluted 

           

      Class A units 

$6.31  $(2.90 $(1.23

      Class B units 

$55.24  $(25.40 $(10.77

Outstanding weighted-average Class A and Class B units: 

           

   Basic 

           

      Class A units 

 735,385   735,385   735,385 

      Class B units 

 755,385   755,385   755,385 

Diluted 

           

      Class A units 

 735,385   735,385   735,385 

      Class B units 

 755,385   755,385   755,385 

See accompanying notes to consolidated financial statements. 

F-4



U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(thousands of dollars)
 
 

53 weeks ended 

 

52 weeks ended 

 

December 31, 2016 

 

December 26, 2015

 

December 27, 2014

Net income (loss) 

46,368  

(21,316 

(9,039
Other comprehensive income (expense):    -   - 

   Comprehensive income (loss) 

46,368  

(21,316 

(9,039
 
See accompanying notes to consolidated financial statements. 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Capital Shares and Equities
(thousands of dollars)

 Members'
 

capital

Balance at December 29, 2012 254,546
Allocation of net loss for the year ended December 28, 2013 (11,196
Tax year 2012 over distribution 862
Balance at December 28, 2013 244,212 

Allocation of net loss for the year ended December 27, 2014 

 (9,039

Tax year 2013 distribution 

 (2,087
Balance at December 27, 2014 233,086 

Allocation of net loss for the year ended December 26, 2015 

 (21,316
Balance at December 26, 2015 211,770 

     Allocation of net income for the year ended December 31, 2016 

46,368

     Member distribution 

(36,943
     Balance at December 31, 2016 221,195 
See accompanying notes to consolidated financial statements.    

 

F-5


 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)

52 weeks ended

53 weeks ended  

52 weeks ended 

December 26, 2015

  December 27, 2014  December 28, 2013

December 31, 2016

   

December 26, 2015

  

December 27, 2014

Cash flows from operating activities:             

Net loss

(21,316 (9,039 (11,196

Adjustments to reconcile net loss to net cash provided by operating

         

activities:

         

Net income (loss)

$

46,368 

$

(21,316 

$

(9,039

Adjustments to reconcile net income (loss) to net cash provided

   

by operating activities:

   

Depreciation and amortization

 7  2  6  13 7  2 

Equity in loss (income) of National Beef Packing Company, LLC

 18,949  6,140  6,464 

Equity in net (income) loss of National Beef Packing Company, LLC

 (49,267 18,949  6,140 

Distributions from National Beef Packing Company, LLC

 10,923   

Changes in assets and liabilities (net of acquisition):

            

Due from affiliates

 (55  588  (13 89 (55  588 

Other receivables

 -  3  75  - -  3 

Other assets

 57  447  955  32 57  447 

Accounts payable

 (20  9  (17 52 (20  9 

Due to affiliates

 (17  9  (438 37 (17  9 

Accrued compensation and benefits

 (968  (3,073  (1,695 (21 (968  (3,073

Other accrued expenses and liabilities

 60   14   (92 74   60   14 

Net cash used in operating activities

 (3,303  (4,900  (5,951

Net cash provided by (used in) operating activities

 8,300 (3,303  (4,900

Cash flows from investing activities:

            

Capital expenditures, including interest capitalized

 (51  -  -  - (51  - 

Proceeds from sale of majority interest in National Beef Packing Co., LLC, net

 -  36,943  -  - -  36,943 

Distributions from National Beef Packing Company, LLC

 -  1,979  4,517  27,525 -  1,979 

Additional minority interest acquired in National Beef Packing Company, LLC

 (3,768  -   (1,507 -   (3,768  - 

Net cash (used in) provided by investing activities

 (3,819  38,922  3,010 

Net cash provided by (used in) investing activities

 27,525 (3,819  38,922 

Cash flows from financing activities:

            

Change in overdraft balances

 (2  (221  26  1,128 (2  (221

Prior year excess distribution

 -  818  44  - -  818 

Partnership distributions and redemptions

 -   (2,087  -  (36,943  -   (2,087

Net cash (used in) provided by financing activities

 (2  (1,490  70 

Net (decrease) increase in cash

 (7,124  32,532  (2,871

Net cash used in financing activities

 (35,815  (2  (1,490

Net increase (decrease) in cash

 10 (7,124  32,532 

Cash and cash equivalents at beginning of period

 92,344   59,812   62,683  85,220   92,344   59,812 

Cash and cash equivalents at end of period

85,220  92,344  59,812 $85,230  

$

85,220  

$

92,344 

Supplemental cash disclosures:

            

Cash paid during the period for interest

40 40 69 $13 

$

13 

$

40 

Cash paid during the period for taxes, net

1 2 3 $- 

$

- 

$

- 
See accompanying notes to consolidated financial statements.

 

F-6


 

U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

NOTE 1.    Description of Business

U.S. Premium Beef (USPB or the Company) was formed as a closed marketing cooperative on July 1, 1996, and was then known as U.S. Premium Beef, Ltd.1996. Its mission is to increase the quality of beef and long-term profitability of cattle producers by creating a fully integrated producer-owned beef processing system that is a global supplier of high quality, value-added beef products responsive to consumer desires.

          On December 1, 1997, USPB became operational by acquiring 25.4966% of Farmland National Beef Packing Co., L.P. (FNB), a partnership owned by USPBoperates an integrated cattle processing and Farmland Industries, Inc. (Farmland). USPB acquired an additional 3.29% partnership interestbeef marketing enterprise where consumer and processor demands and requirements are implemented through changes in February 1998, bringinggenetics, feeding, and management. USPB’s unitholders benefit from its ownership to 28.7866% of FNB. Farmland owned the remaining 71.2134%.

          On May 31, 2002, Farmland and four of its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the United States Bankruptcy Code. In the fourth quarter of fiscal year 2003, USPB acquired a controlling interest in the former FNB, nowsupplier alliance with National Beef Packing Company, LLC (NBP). through (i) premiums received in excess of cash market prices for higher quality cattle, (ii) allocations of profits and potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions.

          OnEffective August 18,29, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the merger of the cooperative restructured into a wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation. The merger was effective on August 29, 2004. The Delaware corporation then, in a statutory conversion authorizedlimited liability company (LLC) under Delaware law converted into a Delaware limited liability company (see Note 9)(Conversion). Following the effective date of the merger and the statutory conversion, theThe business of USPB, the cooperative, continuesis being continued in the limited liability companyLLC form of business organization.

As USPB filed a registration statement with the Securities and Exchange Commission in connection with its 2004 Conversion from the cooperative form of business organization to an LLC structure, USPB is subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act), although USPB is not required to be registered under the Exchange Act. Accordingly, USPB files periodic reports and other information with the Securities and Exchange Commission (SEC). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports and information statements and other information regarding USPB and other issuers that file electronically.

On December 5, 2011, USPB entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Leucadia), NBP, NBPCo Holdings, LLC (NBPCo), TKK Investments, LLC (TKK), TMKCo, LLC (TMKCo), and TMK Holdings, LLC (TMK Holdings) (Purchase Agreement). The Purchase Agreement provided for (i) Leucadia to purchase 56.2415% of the membership interests in NBP (National Interests) from the Company for $646,777,342 and 19.8775% of the National Interests from NBPCo for $228,591,527; (ii) pursuant to pre-existing put rights, NBP to purchase from TKK and TMKCo all the National Interests owned by TKK and TMKCo for $75,946,955; and (iii) Leucadia to sell to TMK Holdings 0.6522% of the National Interests for $7,500,000approximately $646.8 million (Leucadia Transaction). Upon consummation of the Leucadia Transaction, the parties owned the following percentage membership interests in NBP: Leucadia 78.9477%; USPB 15.0729%; NBPCo 5.3272%; and TMK Holdings 0.6522%.

          In connection with its approval of the Purchase Agreement, the Company’s Board of Directors adopted a change to the Company’s fiscal year,, which became effective upon closing. The Leucadia Transaction closed on December 30, 2011 and2011. Following the Company’s fiscal year-end changed fromclose, USPB owned 15.0729% of NBP’s membership interests.

As a result of the last Saturdaysale to Leucadia, USPB’s investment in August toNBP will be accounted for using the last Saturday in December. Beginning with fiscal year 2012equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. Since USPB no longer has financial or operational control, NBP’s financial information will file annual reports for each 52 week or 53 week period ended on the last Saturday, in December.no longer be consolidated with USPB’s. NBP’s financial statements and footnotes will instead be attached as an exhibit to USPB’s 10-K.

NBP is one of the largest beef processing companies in the U.S., accounting for approximately 12.5% of the fed cattle slaughter market. NBP processes and markets fresh and chilled boxed beef, consumer-readyground beef, beef byproductsby-products, consumer ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had about 8,400approximately 8,140 employees at December 26, 201531, 2016 and generated total revenues of $7.4$7.0 billion in 2015.2016.

The largest share of NBP’s revenue, about 91%, is generated from the sale of fresh and chilled boxed beef products. NBP also generates revenues through value-added production with its consumer-ready products. In addition, NBP operates one of the largest wet blue tanning facilities in the world (wet blue tanning refers to the first step in processing raw and brine-cured hides into tanned leather), selling processed hides to tanners that produce finished leather for the automotive, 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 to customers in the food service and retail channels, as well as direct to consumers through internet, direct mail and direct response television, and service revenues generated by National Carriers, Inc., a wholly owned transportation and logistics company that is one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for NBP and a variety of other customers. NBP’s profitability typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability.

F-7


 

U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

 

On December 30, 2011, USPB entered into a new Cattle Purchase and Sale Agreement with NBP. Per the terms and conditions of the Agreement, NBP is required to purchase through USPB from its owners and associates, and USPB is required to sell and deliver from its unitholders and associates to NBP, a base amount of 735,385 (subject to adjustment) head of cattle per year. In fiscal years 2016, 2015 2014 and 2013,2014, USPB and NBP agreed to increase the number of cattle that USPB’s unitholders and associates could deliver during USPB’s delivery year by up to 10%. During fiscal years 2016, 2015, 2014, and 2013,2014, USPB’s owners and associates provided approximately 28%27%, 23%28%, and 21%23%, respectively, of NBP’s total cattle requirements. The purchase price for the cattle is determined by pricing grids, which, at all times, are required to be no less favorable than any other pricing grid being utilized by NBP and the pricing grid shall be competitive with NBP’s major competitors for the purchase of cattle. NBP believes the pricing grids are based on terms that could be obtained from an unaffiliated party. The cattle supply agreement extends through December 31, 2017, with automatic one year extensions on each December 30, unless either party provides a notice not to extend sixty days prior to the annual anniversary date. NBP also purchased additional cattle from certain USPB unitholders and associates outside of the cattle supply agreement.

USPB sources all of its cattle requirements from its unitholders and associates. Unitholders enter into Uniform Cattle Delivery and Marketing Agreements and are obligated to deliver a designated number of cattle to USPB during the delivery year. The agreements carry a term of five years and have an evergreen renewal provision. Both agreements provide for minimum quality standards, delivery variances, and termination provisions, as defined.

NOTE 2.    Basis of Presentation and Accounting Policies.

Basis of Presentation and Consolidation

          As a result of the Leucadia Transaction, which closed December 30, 2011, USPB’s 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.

Fiscal Year

          With the closing of the Leucadia Transaction on December 30, 2011, theThe Company’s fiscal year-end changed from the last Saturday in August toyear ends on the last Saturday in December. Beginning with fiscal year 2012, theThe Company will filefiles annual reports for each 52 week or 53 week period ended on the last Saturday in December.

Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, using management’s best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements.

F-8



U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated 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.

Cash and Cash Equivalents

F-8



U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of December 26, 201531, 2016 and December 27, 2014,26, 2015, the Company had cash and cash equivalents of $85.2 million and $92.3$85.2 million, respectively.

Investment in National Beef Packing Company, LLC

          As a result of the Leucadia Transaction, beginning on December 31, 2011, USPB’s 15.0729% investment in NBP 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. In December 2015, USPB contributed $3.8 million of additional capital to NBP to purchase 33.97 NBP units and maintain its 15.0729% ownership percentage.

For fiscal years 2016 and 2015, USPB conducted an evaluation to determine if its investment in NBP was impaired as of the end of the fiscal year in accordance with ASC 323 Investments Equity Method and Joint Ventures. The evaluation included both quantitative and qualitative factors. The quantitative approach computed the fair value of the investment using market based and discounted cash flow valuation approaches, and resulted in a fair value that exceeded the carrying value. As a result of the analysis, USPB concluded that the carrying value of its investment in NBP was not impaired as of December 31, 2016 and December 26, 2015.

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost. Property, plant, and equipment are depreciated principally on a straight-line basis over the estimated useful life (based upon original acquisition date) of the individual asset by major asset class as follows:

Buildings and improvements

15 to 25 years

Machinery and equipment2 to 15 years
Furniture and fixtures3 to 5 years
Trailers and automotive equipment2 to 4 years

 

Upon disposition of these assets, any resulting gain or loss is included in other, net. Major repairs and maintenance costs that extend the useful life of the related assets are capitalized. Normal repairs and maintenance costs are charged to operations.

F-9



U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

A summary of cost and accumulated depreciation for property, plant, and equipment as of December 26, 201531, 2016 and December 27, 201426, 2015 follows (thousands of dollars):

 December 26,  December 27, 
 2015  2014 
     
     
Land and improvements  
Building and improvements    
Machinery and equipment  24   37 
Furniture and fixtures  140   126 
Trailers and automotive equipment  59   57 
Construction in process    
Total property, plant, and equipment, at cost  223   220 
Accumulated depreciation  175   215 
Property, plant, and equipment, net 48  
   

December 31, 

  

December 26, 

   2016   2015 
 Machinery and equipment 24  24 
 Furniture and fixtures  140   140 
 Trailers and automotive equipment  59   59 
 

     Total property, plant, and equipment, at cost 

 223   223 
 Accumulated depreciation  188   175 
 

     Property, plant, and equipment, net 

35  48 

 

Depreciation expense was immaterial for fiscal years ended December 26, 201531, 2016 and December 27, 2014.26, 2015.

F-9



U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

Overdraft Balances

USPB utilizes a controlled disbursement account to fund cash distribution checks presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are included in patronage notices payable and distributions payable and the change in the related balances are reflected in financing activities on the consolidated statement of cash flows. Overdraft balances totaled $0.1$1.2 million and $0.1 million as of December 26, 201531, 2016 and December 27, 2014,26, 2015, respectively.

Income Taxes

Effective August 29, 2004, the Company converted to an LLC, and under this structure, taxes are not provided at the Company level because the results of operations are included in the taxable income of the individual members.

Selling, General, and Administrative

Selling expenses consist primarily of salaries, bonuses, phantom unit option expense, trade promotions, advertising, commissions and other marketing costs. General and administrative costs consist primarily of general management, insurance and professional expenses.

Noncompetition Payments

The former CEO’s employment agreement provided for him to receive noncompetition payments in connection with the Leucadia transaction.Transaction. During calendarfiscal years 20152016 and 2014,2015, the former CEO was paid $849,911$852,948 and $847,334,$849,911, respectively, in noncompetition payments. He will continue to receive noncompetition payments of approximately $850,000 per year during calendar years 20162017 through 2021.

The current CEO’s employment agreement provides for him to receive noncompetition payments for a twelve month period following his termination of employment with USPB.

F-10



U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

As of December 26, 201531, 2016 and December 27, 2014,26, 2015, the Company had accrued $4.7$4.1 million and $5.5$4.7 million, respectively, for the noncompetition agreements.

Earnings Per Unit

Under the LLC structure, earnings of the Company are to be distributed to unitholders based on their proportionate share of underlying equity, and, as a result, earnings per unit (EPU) has been presented in the accompanying Consolidated Statement of Operations and in the table that follows.

Basic EPU excludes dilution and is computed by first allocating 10% of net income or loss attributable to USPB to Class A units and the remaining 90% is allocated to Class B units. Net income or loss allocated to the Class A and Class B units is then divided by the weighted-average number of Class A and Class B units outstanding for the period to determine the basic EPU for each respective class of unit.

Diluted EPU reflects the potential dilution that could occur if the purchase rights or appreciation right provided for in the former CEO’s employment agreement were exercised. In April 2014, the former CEO exercised his right to receive unit appreciation rights on his 20,000 Class A phantom units. The diluted loss per Class A unit calculations for fiscal year 2013 in the following table excludes the effect of the 20,000 Class A unit purchase rights noted above as the effect of including them would have been anti-dilutive to the loss per Class A unit calculation. There are no other potentially dilutive Class A or Class B units outstanding.

F-11F-10


 

U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements
U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements
 
 

Loss Per Unit Calculation 

52 weeks ended

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

December 26, 2015

 December 27, 2014 

December 28, 2013

 

Basic loss per unit: 

         

Loss attributable to USPB available to 

         

   unitholders (numerator) 

         

      Class A 

(2,132(904(1,120

      Class B 

(19,184(8,135(10,076
 

Weighted average outstanding units (denominator) 

         

   Class A 

 735,385  735,385  735,385 

   Class B 

 755,385  755,385  755,385 
 

Per unit amount 

         

   Class A 

(2.90(1.23(1.52

   Class B 

(25.40(10.77(13.34
 

Diluted loss per unit: 

         

Loss attributable to USPB available to 

         

   unitholders (numerator) 

         

      Class A 

(2,132(904(1,120

      Class B 

(19,184(8,135(10,076
 

Weighted average outstanding Class A units 

 735,385  735,385  735,385 

Effect of dilutive securities - Class A unit options 

 -  -  - 

   Units (denominator) 

 735,385  735,385  735,385 
 

Weighted average outstanding Class B units 

 755,385  755,385  755,385 

Effect of dilutive securities - Class B unit options 

 -  -  - 

   Units (denominator) 

 755,385  755,385  755,385 
 

Per unit amount 

         

   Class A 

(2.90(1.23(1.52

   Class B 

(25.40(10.77(13.34
 
 
 
 

Income (Loss) Per Unit Calculation 

 

53 weeks ended 

 

52 weeks ended 

 

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

 

December 31, 2016 

  

December 26, 2015

   

December 27, 2014

 
 

 

          

 

Basic income (loss) per unit: 

          

 

Income (loss) attributable to USPB available to 

          

 

   unitholders (numerator) 

          
 

      Class A 

4,637  

(2,132 

(904
 

      Class B 

41,731  

(19,184 

(8,135
 

 

Weighted average outstanding units (denominator) 

          

 

   Class A 

 735,385   735,385   735,385 

 

   Class B 

 755,385   755,385   755,385 
 

 

Per unit amount 

          

 

   Class A 

6.31  

(2.90 

(1.23

 

   Class B 

55.24  

(25.40 

(10.77
 

 

Diluted income (loss) per unit: 

          

 

Income (loss) attributable to USPB available to 

          

 

   unitholders (numerator) 

          
 

      Class A 

4,637  

(2,132 

(904
       Class B 

41,731  

(19,184 

(8,135
 

 

Weighted average outstanding Class A units 

 735,385   735,385   735,385 

 

Effect of dilutive securities - Class A unit options 

   -   - 

 

   Units (denominator) 

 735,385   735,385   735,385 
 

 

Weighted average outstanding Class B units 

 755,385   755,385   755,385 

 

Effect of dilutive securities - Class B unit options 

   -   - 

 

   Units (denominator) 

 755,385   755,385   755,385 
 

 

Per unit amount 

          

 

   Class A 

6.31  

(2.90 

(1.23

 

   Class B 

55.24  (25.40 (10.77
 

NOTE 3.   Long-Term Debt and Loan Agreements 

 

(a)           Master Loan Agreement 

On May 29, 2014, USPB and CoBank entered into a Revolving Term Loan Supplement to the Master Loan Agreement dated July 26, 2011. The new Revolving Term Loan Supplement provides for a $5 million revolving credit commitment, a reduction of $10 million from the prior commitment. The new commitment carries a term of three years, maturing on June 30, 2017. The Pledge Agreement provides CoBank with a first-priority security interest in USPB’s membership interests in, and distributions from, NBP.

All of the $5 million revolving credit commitment was available as of December 26, 2015.31, 2016. Borrowings under the revolving credit commitment bear interest at the base rate or LIBOR rate plus applicable margin.

On December 30, 2011, in connection with the closing of the transaction with Leucadia, 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.

F-12

F-11


 

U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

The Company was in compliance with all of the Master Loan Agreement debt covenants as of December 26, 2015.31, 2016.

(b)Capital and Operating Leases

USPB leases its office space in Kansas City, Missouri and Dodge City Kansas. Rent expense associated with operating leases was $0.1 million for fiscal years 2016, 2015, 2014, and 2013.2014. USPB expects that it will renew lease agreements or enter into new leases as the existing leases expire.

NOTE 4.    Employee Options and Benefit Plans

The cooperative established a phantom stock option plan for the then CEO, Mr. Hunt, which provided for the issuance of 20,000 phantom stock options with an exercise price of $55 per share, all of which had been issued and were exercisable upon election. In connection with the conversion, described in Note 9, this phantom stock option plan was converted into a phantom unit plan in a similar fashion as the conversion of cooperative shares to LLC units. The 20,000 phantom stock options converted into 20,000 phantom Class A units and 20,000 phantom Class B units with an exercise price of $55 per unit and $0 per unit, respectively. In August 2009, Mr. Hunt exercised 20,000 Class B units at an exercise price of $0 per unit. In April 2014, Mr. Hunt exercised his right to receive an appreciation payment for his 20,000 Class A phantom units, which had an exercise price of $55 per unit. The Company recognized compensation expense for Mr. Hunt’s Class A phantom units for the difference between the fair market value for the Class A units and the $55 exercise price. For Mr. Hunt’s phantom plan, an increase in compensation expense of $0.0 million $0.0 million and $1.4 million was recognized in fiscal years 2016, 2015, 2014 and 2013, respectively.2014.

In September 2010, USPB’s Board of Directors approved a management phantom unit plan. The phantom unit plan provides for the award of unit appreciation rights to management employees of USPB. USPB’s CEO administers the phantom unit plan and awards “Phantom Units” (Class A and Class B Units) to employees in amounts determined by the CEO, subject to the total Phantom Unit amount approved by the Board of Directors of USPB. A total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to management employees, with a strike price of $118 and $157, respectively. The closing of the Leucadia Transaction resulted in management employees receiving a payment under the management phantom unit plan. As a result of that payment, the strike price for both the Class A phantom units and Class B phantom units was satisfied and is now $0. The phantom units became fully vested in August 2015. For the management phantom plan, compensation expense of $0.0$0.2 million, $0.0 million, and $0.5$0.0 million was recognized in fiscal years 2016, 2015, 2014 and 2013,2014, respectively.

As a result of the retirement of one of USPB’s employees on December 31, 2014, 50 Class A phantom units and 50 Class B phantom units were forfeited as they were not vested. One third of the retiring employee’s vested phantom units will be exercised and the appreciation rights paid in three tranches (retirement, and first and second anniversary of retirement). At the end of fiscal year 2015, 4,8832016, 4,817 Class A phantom units and 4,8834,817 Class B phantom units remain outstanding.

On November 16, 2012, USPB’s Board of Directors approved the issuance of an additional 1,500 Class A phantom units, with a strike price of $66.04 and 1,500 Class B phantom units, with a strike price of $73.70, to certain members of management, to be effective on January 28, 2013. These phantom units will vest over a five year period. Compensation expense of $0.0 million, $0.0 million and $0.1$0.0 million was recognized in fiscal years 2016, 2015, 2014 and 2013,2014, respectively.

F-13F-12


 

U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

The Company maintains a tax-qualified employee savings and retirement plan (401(k) Plan) covering the Company’s non-union employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the lesser of 75% of their annual compensation or the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan provides for additional matching contributions by the Company, based on specific terms contained in the 401(k) Plan. The trustee of the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code. Expenses related to the 401(k) Plan totaled approximately $0.0 million, $0.1$0.0 million, and $0.0$0.1 million for fiscal years 2016, 2015, 2014, and 2013,2014, respectively.

NOTE 5.    Other Income

Other non-operating income, net was $0.7 million, $0.0 million, $0.2 million, and $0.7$0.2 million for fiscal years 2016, 2015, 2014 and 2013,2014, respectively. Other non-operating income primarily includes income related to lease income on additional delivery rights made available by the Company.

NOTE 6.    Income Taxes

USPB is structured as an LLC and is taxed as a partnership for federal income tax purposes. As a result, its taxable income/loss are passed through to the unitholders at the end of each tax year. Certain states assess an entity level tax, which is paid by USPB. Such taxes are generally immaterial, and the current provision in tax years 2016, 2015, 2014 and 20132014 was $0.0 million.

NOTE 7.    Related Party Transactions

All of the Company’s directors hold units of the Company. By virtue of their ownership of the units, each of these individuals is obligated to deliver cattle to the Company. The amount and terms of the payments received by these individuals (or the entities they represent) for the delivery of cattle are made on exactly the same basis as those received by other unitholders of the Company for the delivery of their cattle.

USPB facilitates the delivery of cattle annually to NBP throughowned by its unitholders and associates.associates to NBP. During fiscal years 2016, 2015, 2014 and 2013,2014, USPB’s owners and associates provided approximately 28%27%, 23%28%, and 21%23%, respectively, of NBP’s total cattle requirements. The purchase price for the cattle is determined by NBP’s pricing grid, which, under the terms of the agreement with USPB, must be competitive with the pricing grids of NBP’s competitors and may not be less favorable than pricing grids offered to other suppliers.

At December 31, 2016 and December 26, 2015, and December 27, 2014, the Company had receivables from unitholders and associates in the amount of $0.1$0.0 million and $0.1 million, respectively.

At December 31, 2016 and December 26, 2015, the Company had payables to unitholders and associates in the amount of $1.3 million and $0.1 million, respectively.

NOTE 8.    Fair Value Measurements

The Company determines fair value utilizing a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of inputs used to measure fair value are as follows:

F-13



U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

  • Level 1 – quoted prices in active markets for identical assets or liabilities accessible by the reporting entity.

  • F-14



U.S. Premium Beef, LLC and Subsidiaries
Notes to Consolidated Financial Statements

• Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

  • Level 3 – unobservable inputs for an asset or liability. Unobservable inputs should only be used to the extent observable inputs are not available.

  • As December 31, 2016 and December 26, 2015, and December 27, 2014, the Company doesdid not carry any assets or liabilities on its consolidated balance sheet using the three-level fair value hierarchy.

    NOTE 9.    Capital Shares and Equities

    LLC Structure

              On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the conversion of the cooperative into a Delaware LLC (Conversion). Under the new ownership structure, each share of common stock of the cooperative was converted to one unit of Class A interest and one unit of Class B interest. Immediately following the Conversion, there were 691,845 Class A units and 691,845 Class B units. For a period of time determined by the board of directors, each Class A unit was linked to its corresponding Class B unit and each pair of linked units was required, if transferred, to be transferred together. On March 27, 2010, the board of directors amended USPB’s LLC Agreement to enable the Class A and Class B units to be transferred separately.

    Class A Units. On November 9, 2009, USPB members approved an amendment to USPB’s limited liability company agreement that changed the allocation of profits and losses toThere are 735,385 Class A units outstanding. Class A unitholders toare allocated 10% from 33%.of the Company’s profits and losses. Holders of USPB Class A units, committed under Uniform Cattle Delivery and Marketing Agreements, have the right and obligation to deliver one head of cattle to USPB annually for each unit held.

    Class B Units. On November, 9, 2009, USPB members approved an amendment to USPB’s limited liability company agreement that changed the allocation of profits and losses toThere are 755,385 Class B units outstanding. Class B unitholders toare allocated 90% from 67%.of the Company’s profits and losses. Holders of USPB Class B units have no cattle delivery commitment.

    NOTE 10.    Legal Proceedings

    As of December 26, 2015,31, 2016, USPB was not a party to any lawsuit or claim arising out of the operation of its business.

    NOTE 11.    Business Segments

    ASC 820,Disclosures about Segments of an Enterprise and Related Informationestablishes annual and interim reporting standards for operating segments of a company. It also requires entity wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. USPB is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, USPB operates in one operating segment and reports only certain enterprise-wide disclosures.

     

    F-15

    F-14


     

    U.S. Premium Beef, LLC and Subsidiaries
    Notes to Consolidated Financial Statements

    NOTE 12.    Quarterly Results (Unaudited)

    Selected quarterly financial data for fiscal years 20152016 and 20142015 are set forth below (dollars in thousands, except per unit data):

             Net                 
             (Loss) Income                 
        Operating   Attributable   

    Basic (Loss) Earnings Per

       

    Diluted (Loss) Earnings Per

     
     

    Net Sales 

    (Loss) Income   to USPB   

    Class A Unit

      

    Class B Unit

       

    Class A Unit

      

    Class B Unit

     

    2015 quarterly results: 

                              

       March 28, 2015 

    -  $ (807 (5,851 (0.80 (6.97 (0.80 (6.97

       June 27, 2015 

       (381  (1,824 (0.25 (2.17 (0.25 (2.17

       September 26, 2015 

       (432  (5,278 (0.72 (6.29 (0.72 (6.29

       December 26, 2015 

       (784  (8,363 (1.13 (9.97 (1.13 (9.97
     - (2,404 (21,316                
     

    2014 quarterly results: 

                              

       March 29, 2014 

    - (984 (5,064 (0.69 (6.03 (0.69 (6.03

       June 28, 2014 

       (830  93  0.01  0.11  0.01  0.11 

       September 27, 2014 

       (540  3,517  0.48  4.19  0.48  4.19 

       December 27, 2014 

     -  (764  (7,585 (1.03 (9.04 (1.03 (9.04
     -  $ (3,118 (9,039                
              Net                 
              

    Income (Loss)

                     
          

    Operating

       

    Attributable

       

    Basic Earnings (Loss) Per

       

    Diluted Earnings (Loss) Per

     
       

    Net Sales 

      Loss   to USPB   

    Class A Unit

      

    Class B Unit

       

    Class A Unit

      

    Class B Unit

     
     

    2016 quarterly results: 

                              
     

    March 26, 2016 

     

    $

    (754 2,733  0.37  3.26  0.37  3.26 
     

    June 25, 2016 

       (808  8,599  1.17  10.25  1.17  10.25 
     

    September 24, 2016 

       (729  15,570  2.12  18.55  2.12  18.55 
     

    December 31, 2016 

       (1,343  19,466  2.65  23.19  2.65  23.19 
       $(3,634 46,368                 
     
     

    2015 quarterly results: 

                              
     

    March 28, 2015 

     $(807 (5,851 (0.80 (6.97 (0.80 (6.97
     

    June 27, 2015 

       (381  (1,824 (0.25 (2.17 (0.25 (2.17
     

    September 26, 2015 

       (432  (5,278 (0.72 (6.29 (0.72 (6.29
     

    December 26, 2015 

       (784  (8,363 (1.13 (9.97 (1.13 (9.97
       $(2,404 (21,316                
     



    Independent Auditor's Report

    The Board of Managers and Members
    National Beef Packing Company, LLC:

    We have audited the accompanying consolidated financial statements of National Beef Packing Company LLC, and its subsidiaries, which comprise the consolidated balance sheets as of December 26, 2015 and December 27, 2014, and the related consolidated statement of operations, cash flows, members’ capital, and comprehensive (loss)/income for the years ended December 26, 2015, December 27, 2014, and December 28, 2013.

    Management's Responsibility for the Consolidated Financial Statements

    Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

    Auditor's Responsibility

    Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

    An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

    Opinion

    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Beef Packing Company, LLC and its subsidiaries at December 26, 2015 and December 27, 2014, and the results of their operations and their cash flows for each of the years ended December 26, 2015, December 27, 2014, and December 28, 2013 in accordance with accounting principles generally accepted in the United States of America.

    /s/ PricewaterhouseCoopers LLP
    Kansas City, Missouri
    March 10, 2016

    F-18



    National Beef Packing Company, LLC and Subsidiaries
    Consolidated Balance Sheets
    (thousands of dollars)
     
     
    Assets December 26, 2015   December 27, 2014 

    Current assets: 

           

       Cash and cash equivalents 

    17,813  15,626 

       Accounts receivable, less allowance for returns and doubtful accounts of $5,429 

           

         and $2,146, respectively 

     203,640   221,122 

       Due from affiliates 

     519   1,056 

       Other receivables 

     3,947   3,162 

       Inventories 

     235,335   373,761 

       Other current assets 

     12,356   14,990 

         Total current assets 

     473,610   629,717 

    Property, plant, and equipment, at cost 

           

       Land and improvements 

     18,288   17,172 

       Buildings and improvements 

     161,104   155,765 

       Machinery and equipment 

     315,238   283,360 

       Trailers and automotive equipment 

     2,200   2,080 

       Furniture and fixtures 

     9,011   7,790 

       Construction in progress 

     37,736   34,876 
      543,577   501,043 

       Less accumulated depreciation 

     149,071   106,058 

         Net property, plant, and equipment 

     394,506   394,985 

    Goodwill 

     14,991   14,991 

    Other intangibles, net of accumulated amortization of $181,010 and $135,756, respectively 

     630,057   675,312 

    Other assets 

     4,830   5,032 

         Total assets 

    1,517,994  1,720,037 
    Liabilities and Members' Capital        
    Current liabilities:        

       Current installments of long-term debt 

    41,991  38,515 

       Cattle purchases payable 

     71,511   109,713 

       Accounts payable - trade 

     55,815   64,517 

       Due to affiliates 

     782   595 

       Accrued compensation and benefits 

     15,143   20,589 

       Accrued insurance 

     31,622   32,464 

       Other accrued expenses and liabilities 

     21,152   17,850 

         Total current liabilities 

     238,016   284,243 

    Long-term liabilities: 

           

       Long-term debt, excluding current installments 

     399,189   454,024 

       Other liabilities 

     757   991 

         Total long-term liabilities 

     399,946   455,015 

         Total liabilities 

     637,962   739,258 

    Commitments and contingencies 

           

    Members' capital 

           

       Members' capital 

     880,155   980,868 

       Accumulated other comprehensive income 

     (123  (89

         Total members' capital 

     880,032   980,779 

         Total liabilities and members' capital 

    1,517,994  1,720,037 
     
    See accompanying notes to consolidated financial statements.        

    F-19



    National Beef Packing Company, LLC and Subsidiaries
    Consolidated Statement of Operations
     
    (thousands of dollars) 
     
     52 weeks ended
     December 26, 2015   December 27, 2014   December 28, 2013 
    Net sales 7,396,868  7,824,247  7,486,332 
    Costs and expenses:            

       Cost of sales 

     7,347,869   7,708,006   7,308,584 

       Selling, general, and administrative 

     62,252   56,112   56,012 

       Depreciation and amortization 

     89,317   85,305   88,484 

       Impairment of long-lived assets 

     4,734   -   63,256 

         Total costs and expenses 

     7,504,172   7,849,423   7,516,336 

            Operating loss 

     (107,304  (25,176  (30,004
    Other income (expense):            

       Interest income 

     21   9   61 

       Interest expense 

     (16,633  (15,135  (12,415

         Total other expense 

     (16,612  (15,126  (12,101

            Loss before taxes 

     (123,916  (40,302  (42,358
    Income tax expense  1,797   435   781 

            Net loss 

     (125,713  (40,737  (43,139
    Less net loss attributable to noncontrolling interest  -   -   255 

       Net loss attributable to NBP 

    (125,713 (40,737 (42,884
    See accompanying notes to consolidated financial statements.            

     

    National Beef Packing Company, LLC and Subsidiaries
    Consolidated Statement of Comprehensive (Loss) Income
    (thousands of dollars) 

     
     52 weeks ended
     December 27, 2014   December 28, 2013   December 29, 2012 

    Net loss 

    (125,713 (40,737 (43,139

    Other comprehensive (loss) income: 

               

       Foreign currency translation adjustments 

     (123  (83  (24

         Comprehensive loss 

     (125,836  (40,820  (43,163

         Comprehensive loss attributable to noncontrolling interest 

     -   -   255 
    Comprehensive loss attributable to NBP (125,836 (40,820 (42,908
     
    See accompanying notes to consolidated financial statements.            

    F-20



    National Beef Packing Company, LLC
    Consolidated Statement of Members' Capital
    (thousands of dollars)
     
      

    Members'
    Capital
    Attributable
    to NBP

      

    Accumulated
    other
    comprehensive
    income (loss)

      

    Non-controlling
    interest in
    Kansas City
    Steak
    Company, LLC

      

    Total

     
    Balance at December 29, 2012 1,097,717  18  

    3,994  1,101,729 

    Net loss 

     (42,884  -   (255  (43,139
    Distributions  (29,967  -   -   (29,967
    Member contributions  10,000   -   -   10,000 
    Foreign currency translation adjustments  -   (24  -   (24
    Distributions paid to noncontrolling interests  -   -   (118  (118
    Acquisition of remaining interest in Kansas City                

             Steak Company, LLC 

     (129  -   (3,621  (3,750
    Balance at December 28, 2013 

    1,034,737  

    (6 

    -  1,034,731 
    Net loss  (40,737  -   -   (40,737
    Distributions  (13,132  -   -   (13,132
    Foreign currency translation adjustments  -   (83  -   (83
    Balance at December 27, 2014 

    980,868  

    (89 

    -  980,779 
    Net loss  (125,713  -   -   (125,713
    Member contributions  25,000   -   -   25,000 
    Foreign currency translation adjustments  -   (34  -   (34
    Balance at December 26, 2015 

    880,155  

    (123 

    -  880,032 

    F-21



    National Beef Packing Company, LLC and Subsidiaries
    Consolidated Statement of Cash Flows
    (thousands of dollars)
     
     
     52 weeks ended
     December 27, 2014  December 27, 2014   December 28, 2013 

    Cash flows from operating activities: 

               

       Net loss 

    (125,713 (40,737 (43,139

       Adjustments to reconcile net loss to net cash provided by operating 

               

         activities: 

               

            Depreciation and amortization 

     89,318   85,305   88,484 

            Impairment of long-lived assets 

     4,734   -   63,256 

            Loss (gain) on disposal of property, plant, and equipment 

     (429  (423  33 

           Amortization of debt issuance costs 

     671   633   144 

            Changes in assets and liabilities: 

               

              Accounts receivable 

     17,482   (14,101  140 

              Due from affiliates 

     537   (235  1,286 

              Other receivables 

     (785  (237  551 

              Inventories 

     138,426   (55,095  (15,752

              Other assets 

     2,265   4,283   3,969 

              Cattle purchases payable 

     (38,202  (20,649  (4,194

              Accounts payable 

     (8,702  (3,177  (19,824

              Due to affiliates 

     187   144   (100

              Accrued compensation and benefits 

     (5,446  (11,094  6,470 

              Accrued insurance 

     (842  1,179   2,892 

              Other accrued expenses and liabilities 

     3,068   (781  4,178 

                 Net cash provided by (used in) operating activities 

     76,569   (54,985  88,394 

    Cash flows from investing activities: 

               

       Capital expenditures, including interest capitalized 

     (48,620  (48,185  (44,381

       Proceeds from sale of property, plant, and equipment 

     731   1,141   168 

                 Net cash used in investing activities 

     (47,889  (47,044  (44,213

    Cash flows from financing activities: 

               

       Net (payments) under revolving credit lines 

     (13,183  135,144   (91,403

       Repayments of term note payable 

     (35,000  (30,000  (27,750

       Borrowings of term note payable 

     -   -   106,750 

       Repayments of other indebtedness/capital leases 

     (3,176  (2,472  (1,479

       Cash paid for financing costs 

     (100  (346  (2,882

       Member distributions 

     -   (13,132  (29,967

       Member contributions 

     25,000   -   10,000 

       Payment for remaining interest in noncontrolling interest 

     -   -   (3,750

       Distributions paid to non-controlling interest 

     -   -   (118

               Net cash (used in) provided by financing activities 

     (26,459  89,194   (40,599

    Effect of exchange rate changes on cash 

     (34  (83  (24

               Net (decrease) increase in cash 

     2,187   (12,918  3,558 

    Cash and cash equivalents at beginning of period 

     15,626   28,544   24,986 

    Cash and cash equivalents at end of period 

    17,813  15,626  28,544 

    Supplemental cash disclosures: 

               

       Cash paid during the period for interest 

    16,092  14,594  12,978 

       Cash paid during the period for taxes 

    1,442  188  642 

    Supplemental noncash disclosures of investing and financing activities: 

               

       Assets acquired through capital lease 

    376  87  121 
     
    See accompanying notes to consolidated financial statements. 

    F-22



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    NOTE 13.    Subsequent Events

    On February 28, 2017, USPB made a $25.9 million cash distribution to its members.

    F-15





    Report of Independent Auditor

    The Board of Managers and Members
    National Beef Packing Company, LLC:

    We have audited the accompanying consolidated financial statements of National Beef Packing Company, LLC, and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2016 and December 26, 2015, and the related consolidated statement of operations, cash flows, members’ capital, and comprehensive income/(loss) for the years ended December 31, 2016, December 26, 2015, and December 27, 2014.

    Management's Responsibility for the Consolidated Financial Statements

    Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

    Auditors’ Responsibility

    Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

    An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

    Opinion

    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Beef Packing Company, LLC and its subsidiaries at December 31, 2016 and December 26, 2015, and the results of their operations and their cash flows for each of the years ended December 31, 2016, December 26, 2015 and December 27, 2014 in accordance with accounting principles generally accepted in the United States of America.

    /s/ PricewaterhouseCoopers LLP
    Kansas City, Missouri
    March 9, 2017

    F-17


    National Beef Packing Company, LLC and Subsidiaries
    Consolidated Balance Sheets
    (thousands of dollars)
     
    Assets December 31, 2016 December 26, 2015
    Current assets:       

    Cash and cash equivalents 

    $ 

    37,702 $ 17,813 

    Accounts receivable, less allowance for returns and doubtful accounts of $3,944 

          

    and $5,429, respectively 

     166,883  203,640 

    Due from affiliates 

     918  519 

    Other receivables 

     6,515  3,947 

    Inventories 

     275,353  235,335 

    Other current assets 

     16,729  12,356 

       Total current assets 

     504,100  473,610 

    Property, plant, and equipment, at cost 

          

    Land and improvements 

     19,226  18,288 

    Buildings and improvements 

     166,644  161,104 

    Machinery and equipment 

     330,453  315,238 

    Trailers and automotive equipment 

     2,461  2,200 

    Furniture and fixtures 

     10,126  9,011 

    Construction in progress 

     54,449  37,736 
      583,359  543,577 

    Less accumulated depreciation 

     197,760  149,071 

       Net property, plant, and equipment 

     385,599  394,506 

    Goodwill 

     14,991  14,991 

    Other intangibles, net of accumulated amortization of $226,265 and $181,010, respectively 

     584,803  630,057 

    Other assets 

     8,824  4,830 

       Total assets 

    $ 

    1,498,317 

    $ 

    1,517,994 
    Liabilities and Members' Capital       

    Current liabilities: 

          

    Current installments of long-term debt 

    $ 

    29,565 

    $ 

    41,991 

    Cattle purchases payable 

     92,272  71,511 

    Accounts payable - trade 

     63,728  55,815 

    Due to affiliates 

     1,013  782 

    Accrued compensation and benefits 

     68,710  15,143 

    Accrued insurance 

     25,042  31,622 

    Other accrued expenses and liabilities 

     18,760  21,152 

       Total current liabilities 

     299,090  238,016 

    Long-term liabilities: 

          

    Long-term debt, excluding current installments 

     246,776  399,189 

    Other liabilities 

     658  757 

       Total long-term liabilities 

     247,434  399,946 

       Total liabilities 

     546,524  637,962 

    Commitments and contingencies 

          

    Members' capital 

          

    Members' capital 

     951,930  880,155 

    Accumulated other comprehensive (loss) 

     (137)  (123) 

       Total members' capital 

     951,793  880,032 

       Total liabilities and members' capital 

    $ 

    1,498,317 

    $ 

    1,517,994 
     
    See accompanying notes to consolidated financial statements. 

    F-18



    National Beef Packing Company, LLC and Subsidiaries
    Consolidated Statement of Operations

    (thousands of dollars) 

     

    53 weeks ended

     

    52 weeks ended 

     

    December 31, 2016

     

    December 26, 2015

      

    December 27, 2014

     
    Net sales $ 7,021,902  $7,396,868  

    $ 

    7,824,247 
    Costs and expenses:            

       Cost of sales 

     6,513,767   7,347,869   7,708,006 

       Selling, general, and administrative 

     71,849   62,252   56,112 

       Depreciation and amortization 

     94,483   89,317   85,305 

       Impairment of long-lived assets 

     -   4,734   - 

          Total costs and expenses 

     6,680,099   7,504,172   7,849,423 

             Operating income (loss) 

     341,803   (107,304)   (25,176) 
    Other income (expense):            

       Interest income 

     166   21   9 

       Interest expense 

     (12,946)   (16,633)   (15,135) 

          Total other expense 

     (12,780)   (16,612)   (15,126) 

             Income (loss) before taxes 

     329,023   (123,916)   (40,302) 
    Income tax expense  2,166   1,797   435 

             Net income (loss) 

     326,857   (125,713)   (40,737) 
     

    See accompanying notes to consolidated financial statements. 

     
     

    National Beef Packing Company, LLC and Subsidiaries

    Consolidated Statement of Comprehensive Income (Loss)

    (thousands of dollars) 
     
     53 weeks ended  52 weeks ended 
     

    December 31, 2016

      December 26, 2015  December 27, 2014 

    Net income (loss) 

    $ 

    326,857  

    $ 

    (125,713)  

    $ 

    (40,737) 

    Other comprehensive (loss): 

              

       Foreign currency translation adjustments 

     (137)   (123)   (83) 

          Comprehensive income (loss) 

     326,720   (125,836)   (40,820) 
     
    See accompanying notes to consolidated financial statements. 

    F-19



    National Beef Packing Company, LLC
    Consolidated Statement of Members' Capital
    (thousands of dollars)

     
      Members'  

    Accumulated

         
      Capital  other      
      Attributable  

    comprehensive

         
      to NBP  

    income (loss)

       

    Total

     

    Balance at December 28, 2013 

    $ 1,034,737  $ (6)  $ 1,034,731 

       Net loss 

     (40,737)   -   (40,737) 

       Member distributions 

     (13,132)   -   (13,132) 

       Foreign currency translation adjustments 

     -   (83)   (83) 

    Balance at December 27, 2014 

    $ 980,868  $ (89)  $ 980,779 

       Net loss 

     (125,713)   -   (125,713) 

       Member contributions 

     25,000   -   25,000 

       Foreign currency translation adjustments 

     -   (34)   (34) 

    Balance at December 26, 2015 

    $ 880,155  $ (123)  $ 880,032 

       Net income 

     326,857   -   326,857 

       Member distributions 

     (255,082)   -   (255,082) 

       Foreign currency translation adjustments 

     -   (14)   (14) 
    Balance at December 31, 2016 $ 951,930  $ (137)  $ 951,793 
              
    See accompanying notes to consolidated financial statements.         

    F-20



    National Beef Packing Company, LLC and Subsidiaries
    Consolidated Statement of Cash Flows
    (thousands of dollars)

     
     53 weeks ended  52 weeks ended 
     December 31, 2016  December 26, 2015  December 27, 2014

    Cash flows from operating activities: 

               

    Net income (loss) 

    $ 

    326,857  $ (125,713)  $ (40,737) 

    Adjustments to reconcile net income (loss) to net cash provided by operating 

              

    activities: 

               

    Depreciation and amortization 

     94,483   89,317   85,305 

    Impairment of long-lived assets 

     -   4,734   - 

    (Gain) on disposal of property, plant, and equipment 

     (98)   (429)   (423) 

    Amortization of debt issuance costs 

     692   671   633 

    Changes in assets and liabilities: 

               

    Accounts receivable 

     36,757   17,482   (14,101) 

    Due from affiliates 

     (399)   537   (235) 

    Other receivables 

     2,432   (785)   (237) 

    Inventories 

     (40,018)   138,426   (55,095) 

    Other assets 

     (10,249)   2,266   4,283 

    Cattle purchases payable 

     20,761   (38,202)   (20,649) 

    Accounts payable 

     7,913   (8,702)   (3,177) 

    Due to affiliates 

     231   187   144 

    Accrued compensation and benefits 

     53,567   (5,446)   (11,094) 

    Accrued insurance 

     (6,580)   (842)   1,179 

    Other accrued expenses and liabilities 

     (2,491)   3,068   (781) 

    Net cash provided by (used in) operating activities 

     483,858   76,569   (54,985) 

    Cash flows from investing activities: 

               

    Capital expenditures, including interest capitalized 

     (62,010)   (48,620)   (48,185) 

    Proceeds from sale of property, plant, and equipment 

     16,788   731   1,141 

    Net cash used in investing activities 

     (45,222)   (47,889)   (47,044) 
    Cash flows from financing activities:            

    Net (payments) under revolving credit lines 

     (121,961)   (13,183)   135,144 

    Repayments of term note payable 

     (35,000)   (35,000)   (30,000) 

    Net repayments of other indebtedness/capital leases 

     (6,688)   (3,176)   (2,472) 

    Cash paid for financing costs 

     -   (100)   (346) 

    Member distributions 

     (255,082)   -   (13,132) 

    Member contributions 

     -   25,000   - 

    Net cash (used in) provided by financing activities 

     (418,731)   (26,459)   89,194 

    Effect of exchange rate changes on cash 

     (16)   (34)   (83) 

    Net increase (decrease) in cash 

     19,889   2,187   (12,918) 

    Cash and cash equivalents at beginning of period 

     17,813   15,626   28,544 

    Cash and cash equivalents at end of period 

    $ 37,702  $ 17,813  $ 15,626 

    Supplemental cash disclosures: 

               

    Cash paid during the period for interest 

    $ 13,851  $ 16,092  $ 14,594 

    Cash paid during the period for taxes 

    $ 1,094  $ 1,442  $ 188 

    Supplemental noncash disclosures of investing and financing activities: 

              

    Assets acquired through capital lease 

    $ 305  $ 376  $ 87 
     
    See accompanying notes to consolidated financial statements.            

    F-21



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    NOTE 1. DESCRIPTION OF BUSINESS

    NBP is a Delaware limited liability company. NBP and its subsidiaries sell meat products to customers in the food service, international, further processor and retail distribution channels. NBP also produces and sells by-products that are derived from its meat processing operations and variety meats to customers in various industries.

    NBP operates beef slaughter and fabrication facilities in Liberal and Dodge City, Kansas, and consumer-ready animal protein processing facilities in Hummels Wharf, Pennsylvania, Moultrie, Georgia, and Kansas City, Kansas. During 2013 NBP acquired the remaining 25% interest in Kansas City Steak Company, LLC, or Kansas City Steak, a portion control processing facility in Kansas City, Kansas.  National Carriers, Inc., or National Carriers, a wholly-owned subsidiary located in Dallas, Texas, provides trucking services to NBP and third parties and National Elite Transportation, LLC, or National Elite, a wholly-owned subsidiary located in Springdale, Arkansas, provides third-party logistics services to the transportation industry. National Beef Leathers, LLC, or NBL, a wholly-owned subsidiary located in St. Joseph, Missouri, provides wet blue hide tanning services to NBP. Kansas City Steak Company, LLC, or Kansas City Steak, includes a direct to consumer business and operates a warehouse and fulfilment facility in Kansas City, Kansas. As of December 26, 2015,31, 2016, approximately 65% of NBP’s employees were represented by collective bargaining agreements. NBP makes certain contributions for the benefit of employees (see Note 7)5).

    On December 30, 2011, Leucadia National Corporation (Leucadia) acquired a 78.9% interest in NBP for aggregate net cash consideration of $867,869,000.approximately $867.9 million.

    In 2015, and 2013, Membersmembers of NBP contributed on a pro rata basis $25 million and $10 million, respectively.million.

    NOTE 2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

    Basis of Presentation and Consolidation

    The consolidated financial statements include the accounts of NBP and its direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

    Fiscal Year

         NBP’s fiscal year consists of 52 or 53 weeks, ending on the last Saturday in December. Fiscal year 2016 was a 53 week year while fiscal years 2015 2014 and 20132014 were 52 week fiscal years. All references to years in these notes to consolidated financial statements represent fiscal years unless otherwise noted.

    Use of Estimates

    The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, using management’s best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the 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.

    Cash and Cash Equivalents

    NBP considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of December 26, 201531, 2016 and December 27, 2014,26, 2015, NBP had cash and cash equivalents of $17.8$37.7 million and $15.6$17.8 million, respectively, as presented in the consolidated balance sheets and consolidated statement of cash flows.

     

    F-23F-22


     

    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    Allowance for Returns and Doubtful Accounts

    The allowance for returns and doubtful accounts is NBP’s best estimate of the amount of probable returns and credit losses in NBP’s existing accounts receivable. NBP determines these allowances based on historical experience, customer conditions and management’s judgments. Management considers factors such as changes in the economy and industry. Specific accounts are reviewed individually for collectability.

    The following table represents the rollforwardroll-forward of the allowance for returns and doubtful accounts for the fiscal years ended December 31, 2016, December 26, 2015 and December 27, 2014, and December 28, 2013 (in thousands).

      Beginning          Ending  Beginning Ending
    Period Ended   Balance   Provision   Charge Off   Balance  

    Balance

     

    Provision

     

    Charge Off 

     Balance
    December 30, 2013  (1,296 (12,663 11,891  (2,068
    December 27, 2014  (2,068 (11,015 10,937  (2,146 $ (2,068)  $ (11,015)  $ 10,937  $ (2,146) 
    December 26, 2015  (2,146 (12,838 9,557  (5,427 $ (2,146)  $ (12,838)  $ 9,557  $ (5,427) 
    December 31, 2016  $ (5,427)  $ (9,910)  $ 11,395  $ (3,942) 

    Inventories

    Inventories consist primarily of meat products,beef and beef by-products and supplies. Meat productsBeef and beef by-products are stated at the lower of cost or market with cost principally determined on the basis of the relative sales value method. Supplies and other inventories are valued on the basis of specific or average cost methods. Inventories are relieved from inventory utilizing the first-in, first-out method.

    Inventories at December 26, 201531, 2016 and December 27, 201426, 2015 consisted of the following (in thousands):

     December 26,   December 27,  

    December 31, 

      

    December 26, 

     2015   2014   2016   2015 
    Dressed and boxed meat products 156,075  211,648 
    Dressed and boxed beef products  173,997  156,075 
    Beef by-products  49,494   140,688  70,557   49,494 
    Supplies and other  29,766   21,425   30,799   29,766 

    Total Inventory

    235,335  373,761  275,353  235,335 

     

    Property, plant and equipment

    Property, plant and equipment were recorded at fair value as of December 31, 2011 as a result of the Leucadia transaction. Property, plant and equipment purchased subsequent to the transaction are recorded at cost. Property, plant, and equipment located at NBP’s Brawley, California facility are recorded at the fair value (see note 3). Property, plant and equipment are depreciated principally on a straight-line basis over the estimated useful life of the individual asset by major asset class as follows:

    Buildings and improvements

    15 to 25 years

    Machinery and equipment2 to 15 years
    Trailers and automotive equipment2 to 4 years
    Furniture and fixtures3 to 5 years

     

    F-24Depreciation expense was $49.2 million, $44.1 million, and $40.0 million for the fiscal years ended December 31, 2016, December 26, 2015 and December 27, 2014 respectively.

    F-23


     

    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

              Depreciation expense was $44.1 million, $40.0 million, and $43.2 million for the fiscal years ended December 26, 2015, December 27, 2014 and December 28, 2013 respectively.

    Upon disposition of these assets, any resulting gain or loss is included in selling, general, and administrative. Major repairs and maintenance costs that extend the useful life of the related assets are capitalized. Normal repairs and maintenance costs are charged to operations.

              NBP capitalizes the cost of interest on borrowed funds which are used to finance the construction of certain property, plant and equipment. Such capitalized interest costs are charged to the property, plant and equipment accounts and are amortized through depreciation charges over the estimated useful lives of the assets. Interest capitalized was $0.5 million, $0.3 million, $0.4 million, and $0.6$0.4 million for the fiscal years ended December 31, 2016, December 26, 2015, and December 27, 2014, and December 28, 2013, respectively.

    NBP reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is assessed based on estimated undiscounted future cash flows. Impairment, if any, is recognized based on fair value of the assets. Assets to be disposed of are reported at the lower of cost or fair value less costs to sell, and are no longer depreciated. There were no events or circumstances which would indicatedindicate that the carrying amount of the property plant, and equipment may not be recoverable during 2015.2016. During 2015, and 2013, NBP recorded an impairment loss on property, plant and equipment located at its Brawley, California facility of approximately $4.7 million to adjust the carrying value of the long-lived assets to its fair value.

    During 2016, NBP completed the sale of its facility located in Brawley, California with proceeds approximating the carrying value of the related long-lived assets. These proceeds include a $5.0 million promissory note. Interest is due quarterly on the promissory note from the buyer, and $63.3principal payments of $0.3 million respectively. Seeare due annually, with the remaining balance of $4.0 million due in June 2021. Other receivables on the Consolidated Balance Sheets includes the current portion of the note 3 for additional information.receivable of $0.3 million, and the remaining balance of $4.7 million is included in Other assets on the Consolidated Balance Sheets.

    Goodwill and Other Intangible Assets

    ASC 350,Intangibles - Goodwill and Other,provides that goodwill shall not be amortized but shall be tested for impairment on an annual basis. Identifiable intangible assets with definite lives are amortized over their estimated useful lives. NBP evaluates goodwill annually for impairment at the end of December and, if there is impairment, the carrying amount of goodwill and other intangible assets are written down to the implied fair value. For goodwill, this test involves comparing the fair value of a reporting unit to the unit’s book value to determine if any impairment exists. Fair values are based on valuation techniques NBP believes market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. NBP calculates the fair value of the reporting unit using estimates of future cash flows and other market comparable information deemed appropriate. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. An independent valuation specialist was engaged to assist with the valuation process. As a result of the testing performed on NBP’s goodwill the fair value exceeded the carrying value of the reporting unit and thus no impairment charge was recorded. Adverse market or economic events could result in impairment charges in future periods.

    The amounts of goodwill are as follows (amounts in(in thousands):

    December 26, 

     

    December 27, 

     

    December 31, 

      

    December 26, 

    2015  2014  2016   2015 
    Beginning balance 14,991  14,991 $ 14,991  $ 14,991 
    Fair value adjustments     -   - 
    Ending balance 14,991  14,991 $ 14,991  $ 14,991 

     

    ASC 360,Impairment and Disposal of Long-Lived Assets, provides that NPB evaluate its long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, NBP groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management’s estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. As a result of the review performed on NBP’s intangible assets, no impairment charge was recorded.

    F-25F-24


     

    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    The amounts of other intangible assets are as follows (amounts in(in thousands):

      

    December 26, 2015 

      

    December 31, 2016 

    Weighted      Weighted     
    Average   Gross    Average  Gross    
    Amortization   Carrying   

    Accumulated 

    Amortization  Carrying  

    Accumulated 

    Period   Amount   

    Amortization 

    Period  Amount  

    Amortization 

    Intangible assets subject to amortization:           
    Customer Relationships 18  406,530  $90,340 18  $ 406,530  $112,925 
    Tradenames 20   260,108   52,046 20   260,108  65,058 
    Cattle supply contracts 15   143,600   38,293 15   143,600  47,867 
    Other 10   830   332 10   830   415 
    18  811,068  $181,011 18  $ 811,068  $226,265 
    Total intangible assets  811,068  $181,011  $ 811,068  $226,265 
      

    December 27, 2014 

      

    December 26, 2015 

    Weighted      Weighted     
    Average   Gross    Average  Gross    
    Amortization   Carrying   

    Accumulated 

    Amortization  Carrying  

    Accumulated 

    Period   Amount   

    Amortization 

    Period  Amount  

    Amortization 

    Intangible assets subject to amortization:           
    Customer Relationships 18  406,530  $67,755 18  $ 406,530  $90,340 
    Tradenames 20   260,108   39,032 20   260,108  52,046 
    Cattle supply contracts 15   143,600   28,720 15   143,600  38,293 
    Other 10   830   249 10   830   332 
    18  811,068  $135,756 18  $ 811,068  $181,011 
    Total intangible assets  811,068  $135,756  $ 811,068  $181,011 

     

         For the fiscal years ended December 31, 2016, December 26, 2015 and December 27, 2014, and December 28, 2013 NBP recognized $45.3 million, $45.3 million and $45.3 million, respectively, of amortization expense on intangible assets. The following table reflects the anticipated amortization expense relative to intangible assets recognized in NBP’s consolidated balance sheet as of December 26, 2015,31, 2016, for each of the next five years and thereafter:

    F-26



    thereafter (in thousands):

    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Consolidated Financial Statements
    Notes to Consolidated Financial Statements

    Estimated amortization expense for fiscal years ended:

    2016 45,254 
    Estimated amortization expense for fiscal years ended:  
    2017  45,254 $ 45,254 
    2018  45,254  45,254 
    2019  45,254  45,254 
    2020  45,254  45,254 
    2021  45,254 
    Thereafter  403,787  358,533 

    Total

    630,057 $ 584,803 

     

    Debt Issuance CostsSelf-insurance

              On April 9, 2015, NBP’s revolving credit facility was increased to $375.0 million. The related financing charges of approximately $0.1 million will be amortized over the life of the loan.

              On March 27, 2014, NBP’s Credit Facility was amended and restated to adjust the minimum tangible net worth covenant requirements, and repayment schedule. The related financing charges of approximately $0.3 million will be amortized over the life of the loan.

              On September 30, 2013, NBP's Credit Facility was amended and restated to increase the term loan to $375.0 million, increase the revolving credit facility to $300.0 million, extend the maturity to October 2018 and reduce the term loan’s required quarterly principal payments to $6.25 million. The related financing charges of approximately $2.9 million will be amortized over the life of the loan.

              Amortization of $0.7 million, $0.6 million, and $0.1 million was charged to interest expense during the fiscal years ended December 26, 2015, December 27, 2014 and December 28, 2013, respectively, related to these costs. NBP had unamortized costs of $1.9 million and $2.5 million included in other assets on the consolidated balance sheets at December 26, 2015 and December 27, 2014, respectively.

    The majority of NBP’s bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are included in the trade accounts payable and cattle purchases payable balances, and the change in the related balances are reflected in operating activities on NBP’s consolidated statement of cash flows. Overdraft balances of $69.5$87.5 million and $90.4$69.5 million were included in trade accounts and cattle purchases payables at December 31, 2016 and December 26, 2015, and December 27, 2014, respectively.

    F-25



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    Self-insurance

    NBP is self-insured for certain losses relating to workers’ compensation, automobile liability, general liability and employee medical and dental benefits. NBP has purchased stop-loss coverage in order to limit its exposure to any significant levels of claims. Self-insured losses are accrued based upon NBP’s estimates of the aggregate uninsured claims incurred using actuarial assumptions accepted in the insurance industry and NBP’s historical experience rates.

    Environmental Expenditures and Remediation Liabilities

    Environmental expenditures that relate to current or future operations and which improve operational capabilities are capitalized at the time of expenditure. Expenditures that relate to an existing or prior condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated.

    F-27



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    Foreign Currency Translation

    NBP has representative offices located in Tokyo, Japan; Seoul, South Korea; and Beijing, China.Taipei, Taiwan. The primary activity of these offices is to assist customers with product and order related issues. For foreign operations, the local currency is the functional currency. Translation into U.S. dollars is performed for assets and liabilities at the exchange rates as of the balance sheet date. Income and expense accounts are recorded at average exchange rates for the period. Adjustments resulting from the translation are reflected as a separate component of other comprehensive income.

    Income Taxes

    The provision for income taxes is computed on a separate legal entity basis. Accordingly, the separate legal entity of NBP does not provide for income taxes, except for certain states which impose privilege taxes on the apportioned taxable income of NBP, as the results of operations are included in the taxable income of the individual members. However, to the extent that entities provide for income taxes, deferred tax assets and liabilities are recognized based on the differences between the financial statement and tax bases of assets and liabilities at each balance sheet date using enacted tax rates expected to be in effect in the year the differences are expected to reverse, and are thus included in the consolidated financial statements of NBP. Based on federal income tax statute of limitations, National Carriers remains subject to examination of its income taxes for calendar years 2015, 2014, 2013 and 2012.2013.

    Fair Value of Financial Instruments

    The carrying amounts of NBP’s financial instruments, including cash and cash equivalents, short-term trade receivables and payables, approximate their fair values due to the short-term nature of the instruments. The carrying value of debt approximates its fair value at December 26, 201531, 2016 and December 27, 2014,26, 2015, as substantially all such debt has a variable interest rate.

    Revenue Recognition

    Revenues are recognized when the following conditions are met: (1) collectability is reasonably assured; (2) title to the product has passed or the service has been rendered and earned; (3) persuasive evidence of an arrangement exists; and (4) there is a fixed or determinable price. NBP recognizes revenue from the sale of products based on the terms of the sale, typically upon delivery to customers. National Carriers, Inc. and National Elite recognize revenue when shipments are complete.

    F-26



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    Selling, General and Administrative Costs

    Selling expenses consist primarily of salaries, trade promotions, advertising, commissions and other marketing costs. General and administrative costs consist primarily of general management, insurance and professional expenses. Selling, general and administrative costs consist of aggregated expenses that generally apply to multiple locations.

    Shipping Costs

    Pass-through finished goods delivery costs reimbursed by customers are reported in sales, while an offsetting expense is included in cost of sales.

    Advertising and Promotion Expenses

    F-28



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    Advertising and promotion expenses are charged to operations in the period incurred and were $19.2 million, $17.1 million $13.1 million and $11.5$13.1 million for the fiscal years ended December 31, 2016, December 26, 2015, and December 27, 2014, and December 28, 2013.2014.

    Comprehensive Income

    Comprehensive income consists of net income and foreign currency translation adjustments. NBP deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting the investment in a foreign currency to U.S. dollars.

    Derivatives and Hedging Activities

    NBP uses futures contracts in order to reduce exposure associated with entering into firm commitments to purchase live cattle at prices determined prior to the delivery of the cattle as well as firm commitments to sell certain beef products at sales prices determined prior to shipment. In accordance with ASC 815,Derivatives and Hedging, NBP accounts for futures contracts and their related firm purchase commitments at fair value. Certain firm commitments for live cattle purchases and all firm commitments for boxed beef sales are treated as “normal purchases and sales” and not marked to market. ASC 815 imposes extensive recordkeeping requirements in order to treat a derivative financial instrument as a hedge for accounting purposes. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the instrument and the related change in fair value of the underlying commitment. For derivatives that qualify as effective hedges, the change in fair value has no net effect on earnings until the hedged transaction is settled. For derivatives that are not designated as hedging instruments, or for the ineffective portion of a hedging instrument, the change in fair value does affect current period net earnings.

    While management believes each of these instruments help mitigate various market risks, they are not designated and accounted for as hedges under ASC 815 as a result of the extensive recordkeeping requirements of this statement. Accordingly, the gains and losses associated with the change in fair value of the instrument and the offsetting gains and losses associated with changes in the market value of certain of the firm purchase commitments related to the futures contracts are recorded to income and expense in the period of change.

    The fair value of derivative assets is recognized within other current assets, while the fair value of derivative liabilities is recognized within accrued liabilities.

    NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS

              NBP’s beef processing facility located in Brawley, California was originally acquired in May 2006. When NBP was acquired by Leucadia in December 2011, the Brawley facility was recorded at its then fair value, which was based in part on market studies and appraisals prepared by an independent valuation and appraisal firm. The facility was profitable for periods through 2011 during a period of favorable industry margins and when the plant had access to a sufficient supply of cattle. However, more recently the Brawley facility struggled to achieve acceptable gross margins and to overcome the declining supply of fed cattle available to the plant and fixed cost inefficiencies inherent in a single shift plant. There was not an adequate supply of fed cattle to operate the plant efficiently and NBP’s outlook was for the supply to continue to decline.

              During the fourth quarter of 2013, after exhausting all opportunities to improve the operating performance of the Brawley beef processing facility, which had been adversely affected by the declining supply of fed cattle available to the plant and fixed cost inefficiencies inherent in a single shift plant, NBP concluded that this facility would continue to generate losses for the foreseeable future. This resulted in a decision in December 2013 to close the facility in May 2014. Management evaluated the recoverability of the long-lived assets at Brawley, which had an aggregate carrying amount of $93.2 million at December 28, 2013, and based on its estimate of future undiscounted cash flows concluded that the carrying value was not recoverable and the facility was impaired. In performing this evaluation, NBP determined that the Brawley facility was the asset group that represented the lowest level of cash flows that were largely independent of the cash flows of other assets and liabilities.

    F-29F-27


     

    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

              Management engaged an independent valuation and appraisal firm to assist in estimating the fair value of the long-lived assets at Brawley. NBP’s estimate of fair value was based on an orderly liquidation technique, which represents the amount that can be realized in a liquidation sale, given a reasonable period of time to find a purchaser, assuming an as-is where-is condition. In preparing its analysis, NBP considered current market conditions, replacement cost, as well as the age, physical and functional characteristics of the long-lived assets.

              As a result, NBP concluded that the fair value of the long-lived assets at the Brawley facility was $29.9 million at December 28, 2013, and recorded an impairment loss of $63.3 million, which is included in Impairment of long-lived assets on the Consolidated Statements of Operations for the year ended December 28, 2013. As with any estimate of fair value, future market, regulatory and general economic conditions as well as the obsolescence, future deterioration of, or inability to locate a purchaser should NBP decide to sell the facility could have a significant effect on the future value.

              In addition, in connection with closing the Brawley facility, NBP recognized $6.9 million of costs in 2014 including employee separation and retention, systems decommissioning and various other expenses. Of these amounts, $4.6 million related to employee separation, of which a majority is included in Selling, general, and administrative in the Consolidated Statements of Income. NBP does not expect to incur significant additional costs related to the closure of the Brawley facility in future periods.

              During 2015, NBP recorded an additional $4.7 million impairment loss on the Brawley facility to adjust the carrying value of the long-lived assets to its current fair value.

    NOTE 4.3.      NEW ACCOUNTING PRONOUNCEMENTS

              Discontinued Operations. Revenue RecognitionIn January 2015, NBP adopted newMay 2014, the Financial Accounting Standards Board (FASB) guidance on the reporting of discontinued operations. The new guidance requires that disposal of a component of an entity or a group of components of an entity be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, and would require expanded disclosures. The adoption of this guidance did not have an impact on NBP’s consolidated financial statements.

              Revenue Recognition. In May 2014, the FASB issued new guidance that defines how companies report revenues from contracts with customers, and also requires enhanced disclosures. The core principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance originally wasis effective for interim and annual periods beginning after December 15, 2016. In August 2015, the FASB issued guidance that deferred the effective date by one year, with early adoption on the original effective date permitted.2017. NBP is currently evaluating the impact this new guidance will have on its consolidated financial statements.

    ConsolidationIn January 2016, NBP adopted the FASB's new guidance that amended the consolidation guidance including changes to both the variable and voting interest models used to evaluate whether an entity should be consolidated. This guidance also eliminates the deferral of certain consolidation standards for entities considered to be investment companies. The adoption of this guidance did not have a significant impact on NBP’s consolidated financial statements.

    Debt Issuance Costs. CostsIn April 2015,January 2016, NBP adopted the FASB issuedFASB's new guidance that requires debt issuance costs related to a recognized debt liability be presented in the Consolidated Balance SheetsStatements of Financial Condition as a direct deduction from the carrying amount of that debt liability. ThisThe guidance will beis effective retrospectively and NBP adopted this guidance in the first quarter of 2016. The adoption of this guidance resulted in the following adjustments to the Consolidated Balance Sheets on December 26, 2015: a decrease of $0.7 million to Current installments of long-term debt and Other current assets, and a decrease of $1.2 million to Long-term debt, excluding current installments and Other assets.

    LeasesIn February 2016, the FASB issued new guidance that affects the accounting and disclosure requirements for leases. The FASB requires the recognition of lease assets and lease liabilities on the statement of financial condition. The guidance is effective for annual and interim periods beginning after December 15, 2015,2018. NBP is currently evaluating the impact this new guidance will have on its consolidated financial statements.

    Cash Flow ClassificationsIn August 2016, the FASB issued new guidance to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance adds or clarifies guidance on the classification of certain cash receipts and early adoption is permitted.payments in the statement of cash flows. The adoption of this guidance is not expected toeffective for annual and interim periods beginning after December 15, 2017. In November 2016, the FASB issued new guidance on restricted cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The guidance is effective for annual and interim periods beginning after December 15, 2017. NBP is currently evaluating the impact this new guidance will have a significant impact on NBP’s Consolidated Balance Sheets.its consolidated financial statements.

    F-30



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    Deferred Taxes.Taxes. In November 2015, the FASB issued new authoritative literature, Balance Sheet Classification of Deferred Taxes, to simplify the financial statement presentation of deferred taxes in the balance sheet. The standard requires that all deferred tax assets and liabilities be classified as noncurrent. The standard is effective for the annual reporting period beginning January 1, 2017, including interim periods within that reporting period, and early adoption is permitted as of the beginning of any interim or annual reporting period. The standard may be adopted either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The adoption of this guidance is not expected to have a significant impact on NBP’s Consolidated Balance Sheets.

    F-28



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    NOTE 5.4.      LONG-TERM DEBT AND LOAN AGREEMENTS

    NBP entered into various debt agreements in order to finance acquisitions and provide liquidity to operate the business on a going forward basis. As of December 26, 2015 and December 27, 2014,26, 2015, debt consisted of the following:following (in thousands):

    December 26, 2015 

    December 27, 2014 

    (amounts in thousands) 

     December 31, 2016   December 26, 2015 
    Short-term debt:     
    Current portion of term loan facility(a) 35,000  35,000 $ 30,000  $ 35,000 
    Industrial Development Revenue Bonds(b)  6,815   3,430  -  6,815 
    Current portion of capital lease obligations and other(c)  176   85 

    Current portion of loan costs(c)

     (679)  (679) 

    Current portion of capital lease obligations(d)

     244   176 
    41,991  38,515 $ 29,565  $ 41,312 
    Long-term debt:        
    Term loan facility(a) 275,000  310,000 $ 245,000 $ 275,000 
    Industrial Development Revenue Bonds(b)  2,000   8,815  2,000 2,000 
    Revolving credit facility(a)  121,961   135,144  - 121,961 
    Long-term capital lease obligations and other(c)  228   65 

    Long-term portion of loan costs(c)

     (509)  (1,202) 

    Long-term capital lease obligations(d)

     286   228 
    399,189  454,024  246,776   397,987 
    Total debt 441,180  492,539 $276,341  $439,299 

     

    (a) Senior Credit Facilities— During 2016, NBP reduced its revolving credit facility from $375.0 million to $285 million. At December 26, 2015,31, 2016, NBP’s credit facility consisted of a $375.0 million term loan and a revolving credit facility of $375.0$285.0 million, which matures in October 2018. The term loan and the revolving credit facility bear interest at the Base Rate or the LIBOR Rate (as defined in the credit facility), plus a margin ranging from .75% to 2.75% depending upon certain financial ratios and the rate selected. At December 26, 2015,31, 2016, the interest rate on the outstanding term loan was 3.0%2.6% and the interest rate on the outstanding revolving credit facility was 3.0%. As of December 27, 2014, interest rate on the outstanding term loan was 2.9% and the interest rate on the outstanding revolving credit facility was 3.4%. The credit facility contains a minimum tangible net worth covenant; at December 26, 2015,31, 2016, NBP met this covenant. The credit facility is secured by a first priority lien on substantially all of NBP and its subsidiaries tangible assets.

    Borrowings under the revolving credit facility are available for NBP’s working capital requirements, capital expenditures and other general corporate purposes. Unused capacity under the facility can also be used to issue letters of credit; letters of credit aggregating $19.8 million were outstanding at December 26, 2015.31, 2016. Amounts available under the revolver are subject to a borrowing base calculation primarily comprised of receivable and inventory balances. At December 26, 2015,31, 2016, after deducting outstanding amounts and issued letters of credit, $109.9$234.5 million of the unused revolver was available to NBP.

    F-31



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    (b)Industrial Development Revenue Bonds— Effective December 30, 2004, NBP entered into a transaction with the City of Dodge City, Kansas, designed to provide property tax savings. Under the transaction, the City purchased NBP’s Dodge City facility, or the facility, by issuing $102.3 million in bonds due in December 2019, used the proceeds to purchase the Dodge City facility and leased the facility to NBP for an identical term under a capital lease. NBP purchased the City's bonds with proceeds of its term loan under the Credit Facility. Because the City has assigned the lease to the bond trustee for the benefit of NBP as the sole bondholder, NBP, effectively controls enforcement of the lease against itself. As a result of the capital lease treatment, the facility will remain a component of property, plant and equipment in NBP’s consolidated balance sheet. As a result of the legal right of offset, the capital lease obligation and the corresponding bond investments have been eliminated in consolidation. The transaction provides NBP with property tax exemptions for the leased facility, that, after netting payments to the City and local school district under payment in lieu of tax agreements, result in an annual property tax savings of approximately 25%. The facility remains subject to a prior mortgage and security interest in favor of the lenders under the Credit Facility. Additional revenue bonds may be issued to cover the costs of certain improvements to this facility. The total amount of revenue bonds authorized for issuance is $120.0 million.

    The cities of Liberal and Dodge City, Kansas issued an aggregate of $13.8 million of industrial development revenue bonds on NBP’s behalf to fund the purchase of equipment and construction improvements at NBP’s facilities in those cities. These bonds were issued in four series of $1.0 million, $1.0 million, $6.0 million and $5.9 million and are due on demand or on February 1, 2029, March 1, 2027, March 1, 2015 and October 1, 2009, respectively. Because each series of bonds is backed by a letter of credit under NBP’s Credit Facility, these due-on-demand bonds have been presented as non-current obligations until twelve months prior to their maturity. As of December 26, 2015, the amount outstanding on the $6.0 million series of bonds had been reduced to $0.0 million, as they were paid at maturity on March 1, 2015 and the $5.9 million series were paid at maturity on October 1, 2009.

    The bonds issued in 1999 and 2000 are variable rate demand obligations that bear interest at a rate that is adjusted weekly, which rate will not exceed 10% per annum. NBP has the option to redeem a series of bonds at any time for an amount equal to the principal plus accrued interest to the date of such redemption. The holders of the bonds have the option to tender the bonds upon seven days’ notice for an amount equal to par plus accrued interest. To the extent that the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent could use the letter of credit to fund such tender.

    F-29



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    Because each series of bonds is backed by a letter of credit under NBP’s Credit Facility, these due-on-demand bonds have been presented as non-current obligations until twelve months prior to their maturity. As of December 31, 2016, the amount outstanding on the $6.0 million series of bonds had been reduced to $0.0 million, as they were paid at maturity on March 1, 2015 and the $5.9 million series were paid at maturity on October 1, 2009.

    In connection with the Brawley Beef acquisition, NBP assumed the obligation under a Trust Indenture securing $6.8 million in California Pollution Control Financing Authority Tax-Exempt variable rate demand solid waste disposal revenue bonds dated as of October 1, 2001. The bonds bear a rate that is adjusted weekly, which rate will not exceed 12% per annum. These bonds have a maturity date of October 1, 2016, and are currently includedwere paid in current installments of long-term debt. NBP has the option to redeem all or a portion of the bonds at any time for an amount equal to the principal plus accrued interest to the date of such redemption. The holders of the bonds have the option to tender the bonds upon seven days’ notice for an amount equal to par plus accrued interest. To the extent that the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent could use the letter of credit to fund such tender.full.

    On December 17, 2010, National Beef Leathers, LLC, or Leathers, a subsidiary of NBP, entered into various agreements with the city of St. Joseph, Missouri, designed to provide NBP property tax savings. Under the transaction, the city of St. Joseph issued $10.2 million in bonds due in December 2022, used the proceeds to purchase equipment within NBP’s Leathers facility and subsequently leased the equipment back to us for an identical term under a capital lease. NBP purchased the City's bonds with proceeds of our term loan under the Credit Facility. Because the city of St. Joseph has assigned the lease to the bond trustee for NBP’s benefit as the sole bondholder, NBP, effectively controls enforcement of the lease against ourselves. As a result of the capital lease treatment, the equipment will remain a component of property, plant and equipment in NBP’s consolidated balance sheet. As a result of the legal right of offset, the capital lease obligation and the corresponding bond investments will be eliminated in consolidation.

    F-32(c)Debt issuance costs

    On April 9, 2015, NBP’s revolving credit facility was increased to $375.0 million. The related financing charges of approximately $0.1 million will be amortized over the life of the loan.

    On March 27, 2014, NBP’s Credit Facility was amended and restated to adjust the minimum tangible net worth covenant requirements, and repayment schedule. The related financing charges of approximately $0.3 million will be amortized over the life of the loan.

    On September 30, 2013, NBP's Credit Facility was amended and restated to increase the term loan to $375.0 million, increase the revolving credit facility to $300.0 million, extend the maturity to October 2018 and reduce the term loan’s required quarterly principal payments to $6.25 million. The related financing charges of approximately $2.9 million will be amortized over the life of the loan.

    Amortization of $0.7 million, $0.7 million, and $0.6 million was charged to interest expense during the fiscal years ended December 31, 2016, December 26, 2015 and December 27, 2014, respectively, related to these costs. NBP had unamortized costs of $0.7 million and $0.7 million included in current installments of long-term debt on the consolidated balance sheets at December 31, 2016 and December 26, 2015, respectively, and unamortized costs of $0.5 million and $1.2 million included in long-term debt, excluding current installments on the consolidated balance sheets at December 31, 2016 and December 26, 2015, respectively.

    F-30


     

    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

              (c) (d)Capital and Operating Leases— NBP leases a variety of buildings and equipment, some of which were acquired through the Brawley Beef acquisition, as well as tractors and trailers through its subsidiary National Carriers, under capital and operating lease agreements that expire in various years. Future minimum lease payments required at December 26, 2015,31, 2016, under capital leases and non-cancelable operating leases with terms exceeding one year, are as follows:follows (in thousands):

      

    Non-Cancelable 

        

    Non-Cancelable 

    Capital  Operating  Capital   Operating 
    Lease  Lease  Lease   Lease 
    Obligations Obligations  Obligations   Obligations 
    Fiscal year ending December:

    (amounts in thousands) 

    2016  176  21,137 

    Fiscal year ending December:

       
    2017   137   17,576 $  244  $ 17,977 
    2018   90   13,801  168  14,206 
    2019   1   6,238  76  6,642 
    2020   -   2,826  25  3,191 

    2021

     17  1,611 
    Thereafter   -   3,446  -   1,837 
    Net minimum lease payments  404  65,024 $  530  $ 45,464 
    Less amount representing interest   (33    (27)  
    Present value of net minimum lease payments  371    $  503   

     

    Rent expense associated with operating leases was $21.2 million, $23.7 million, $18.7 million and $17.3$18.7 million for fiscal years 2016, 2015 2014 and 2013,2014, respectively. NBP expects that it will renew lease agreements or enter into new leases as the existing leases expire.

    The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years and thereafter following December 26, 2015,31, 2016, are as follows:follows (in thousands):

    Minimum 
    Principal 

    Minimum 

    Maturities 

    Principal 

    (amounts in thousands) 

    Maturities 

    Fiscal year ending December:   
    2016 41,991 
    2017  30,137 $ 29,565 
    2018  367,051  244,658 
    2019   76 
    2020   25 
    2021  17 
    Thereafter  2,000  2,000 
    Total minimum principal maturities 441,180 $ 276,341 

     

    Other Commitments

    Utilities Commitment- Effective December 30, 2004, NBP finalized an agreement with the City of Dodge City, Kansas, whereby in consideration of certain improvements made to the city water and wastewater systems, NBP committed to make a series of service charge payments totaling $19.3 million over a 20 year period, of which $0.8 million was paid in each of the fiscal years 2016, 2015, 2014, and 2013,2014, respectively. Payments under the commitment will be $0.8 million in each of the fiscal years 20162017 through 2020,2021, with the remaining balance of $2.5 million to be paid in subsequent years.

    F-33



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    Cattle Commitment- NBP makes verbal commitments to cattle producers to purchase cattle about one week in advance of delivery of the live animals to its plants, with the actual price paid for the cattle determined after the cattle are delivered and inspected at NBP’s facilities. NBP’s cattle commitments as of December 26, 201531, 2016 were $68.5$103.8 million.

    F-31



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    NOTE 6.5.      RETIREMENT PLANS

    NBP maintains tax-qualified employee savings and retirement plans, or the 401(k) Plans, covering certain of NBP’s employees. Pursuant to the 401(k) Plans, eligible employees may elect to reduce their current compensation by up to the lesser of 75% of their annual compensation or the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plans. The 401(k) Plans provide for additional matching contributions by NBP, based on specific terms contained in the 401(k) Plans. The trustees of the 401(k) Plans, at the direction of each participant, invest the assets of the 401(k) Plan in designated investment options. The 401(k) Plans are intended to qualify under Section 401 of the Internal Revenue Code. Expenses related to the 401(k) Plans totaled approximately $1.3$1.2 million, $1.1$1.3 million, and $1.1 million for the fiscal years 2016, 2015 2014 and 2013,2014, respectively.

    NBP has agreed to make contributions to the United Food and Commercial Workers International Union-Industry Pension Fund, or the UFCW Plan, for employees covered by a collective bargaining agreement as provided for in that agreement. Expenses related to the UFCW Plan totaled approximately $0.8$0.7 million, $1.0$0.8 million and $1.0 million for the fiscal years 2016, 2015 2014 and 2013,2014, respectively.

    NOTE 7.6. INCOME TAXES

    Income tax expense includes the following current and deferred provisions:provisions (in thousands):

    52 weeks ended
     

    December 26, 

      December 27,  

    December 28, 

    53 weeks ended   

    52 weeks ended 

     2015   2014  2013 December 31,  December 26,  December 27,
    (in thousands)2016   2015  2014 
    Current provision:    

    Federal

    1,135  309 

    317 

    $ 

    1,139  

    $ 

    1,135  

    $ 

    309 

    State

     362   401   267  775   362   401 

    Foreign

     25   33   73  35   25   33 

    Total current tax expense

     1,522   743   657  1,949   1,522   743 

    Deferred provision:

              

    Federal

     238   (262  97  184   238   (262) 

    State

     37   (46  27  33   37   (46) 

    Foreign

       -    -   -   - 

    Total deferred tax expense

     275   (308  124  217   275   (308) 

    Total income tax expense

    1,797  435  

    $

    781 

    $ 

    2,166  $ 1,797  $ 435 

     

    Income tax expense differed from the “expected” income tax (computed by applying the federal income tax rate of 35% to earnings before income taxes) as follows:follows (in thousands):

    F-34



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements
    Notes to Consolidated Financial Statements
    52 weeks ended

    December 26,

     

    December 27,

     December 28,53 weeks ended  52 weeks ended

    2015

     

    2014

     2013December 31, December 26, December 27,
    (in thousands)2016  2015 2014
    Computed “expected” income tax expense (43,371 (14,106 (14,735$ 115,158  $ (43,371)  $ (14,106) 
    Passthrough “expected” income tax expense  44,304  13,605  15,045  (113,462)  44,304 13,605 
    State taxes, net of federal  399   355   294  815 399 355 
    Permanent differences  358   328   366  312 358 328 
    Other  107   253   (189 (657)   107   253 

    Total income tax expense

    1,797  435  781 $ 2,166  $ 1,797  $ 435 

     

    The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and December 26, 2015 and December 27, 2014 are presented below:below (in thousands):

     
    52 weeks ended 
     December 26,  

    December 27, 

     2015  2014 
    Deferred tax assets: (in thousands) 

         Accounts receivable, due to allowance for doubtful accounts 

    51  25 

         Intangible assets 

     143   166 

         Self-insurance and workers compensation accruals 

     1,201   1,219 

         Employee benefit accruals 

     292   286 

         Ownership in partnership 

     35   69 

         Other 

       39 

            Total gross deferred tax assets 

     1,722   1,804 
    Deferred tax liabilities:      

         Property, plant, and equipment, principally due to differences in depreciation 

     521   288 

         Other 

       52 

            Total gross deferred tax liabilities 

     521   340 

                Net deferred tax assets 

    1,201  1,464 

    F-32



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

     53 weeks ended   52 weeks ended 
     December 31,   December 26, 
     2016   2015 
    Deferred tax assets:      

       Accounts receivable, due to allowance for doubtful accounts 

    $ 51  $ 51 

       Intangible assets 

     114   143 

       Self-insurance and workers compensation accruals 

     1,281   1,201 

       Employee benefit accruals 

     258   292 

       Ownership in partnership 

     -   35 

          Total gross deferred tax assets 

     1,704   1,722 
    Deferred tax liabilities:      

       Property, plant, and equipment, principally due to differences in depreciation 

     691   521 

       Other 

     29   - 

          Total gross deferred tax liabilities 

     720   521 

             Net deferred tax assets 

    $ 984  $ 1,201 

     

         Net deferred tax assets and liabilities at December 26, 201531, 2016 and December 27, 201426, 2015 are included in the consolidated balance sheet as follows:follows (in thousands):

     December 26,  December 27, 
     2015  2014 
     

    (in thousands) 

    December 31,  December 26, 
    2016  2015 
    Other current assets

    1,722 

     

    1,516 $ 1,704  $ 1,722 
    Other liabilities  

    521 

     

     52  720   521 

    1,201 

     

    1,464 $ 984  $ 1,201 

     

    Deferred tax assets and liabilities relate primarily to the operations of National Carriers.

    There was no valuation allowance provided for at December 26, 201531, 2016 and December 27, 2014.26, 2015. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. There are no unrecognized tax benefits recorded in NBP’s Consolidated Financial Statements as of December 31, 2016 and December 26, 2015 or December 27, 2014.2015.

    F-35



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    NOTE 8.7. RELATED PARTY TRANSACTIONS

    NBP entered into various transactions with a company affiliated with NBPCo Holdings in the ordinary course of business. Sales transactions were based upon prevailing market prices, and purchases were on terms no less favorable to NBP than would be obtained from an unaffiliated party.

    During fiscal years 2016, 2015, 2014, and 2013,2014, NBP had sales and purchases with the following related parties (amounts in(in thousands):

    52 weeks ended 

    53 weeks ended   

    52 weeks ended 

    December 26,   December 27,   December 28, December 31,  December 26,   December 27, 
    2015   2014   2013 2016   2015   2014 

    Sales to:

               

    Beef Products, Inc.(1)

    31,008  43,204  25,553 $ 30,879  $ 

    31,008 

     

    $ 

    43,204 

    Total sales to affiliate

    31,008 

     

    43,204  25,553 $ 30,879  $ 

    31,008 

     

    $ 

    43,204 

    Purchases from:

                 

    Beef Products, Inc.(1)

    15,124  12,724  9,445 $ 14,850  $ 

    15,124 

     

    $ 

    12,724 

    Total purchases from affiliate

    15,124 

     

    12,724  9,445 $ 14,850  $ 

    15,124 

     

    $ 

    12,724 

    (1)Beef Products, Inc. (BPI) is an affiliate of NBPCo Holdings (1)Beef Products, Inc. (BPI) is an affiliate of NBPCo Holdings    

     

    F-33



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    At December 31, 2016 and December 26, 2015, and December 27, 2014, the amounts due from BPI for the sale of beef trimmings were approximately $0.5$0.9 million and $1.1$0.5 million, respectively. At December 26, 201531, 2016 and December 27, 2014,26, 2015, the amounts due to BPI for the purchase of processed lean beef were approximately $0.3$0.5 million and $0.2$0.3 million, respectively.

    In January 2007, NBP entered into an agreement with BPI for BPI to manufacture and install a grinding system in one of NBP’s plants. In accordance with the agreement with BPI, NBP is to pay BPI a technology and support fee based on the number of pounds of product produced using the grinding system. The installation of the grinding system was completed in fiscal year 2008. During fiscal years 20152016 and 2014,2015, NBP paid approximately $1.6$1.7 million and $1.6 million, respectively, to BPI in technology and support fees.

              In December 1997, the former Farmland National Beef Packing Company, L.P., or FNBPC, the predecessor entity to NBP entered intoparticipates in a contractcattle supply agreement with USPBUSPB.  Under this agreement  NBP has agreed to purchase a portion735,385 head of its annual cattle requirements. In connectioneach year (subject to adjustment), from the members of USPB, with USPB’s purchaseprices based on those published by the U.S. Department of its interest in Farmland National Beef, USPB obtained the right, and becameAgriculture, subject to the obligation, if requested, to deliveradjustments for cattle annually to NBP relative to: (i) USPB’s ownership in NBP and (ii) the number of cattle processed annually by NBP. At the beginning of fiscal year 2005, USPB converted to a limited liability company. USPB now facilitates the delivery of cattle annually to NBP through its individual producer-owners. The purchase price for the cattle is determined by NBP’s pricing grid, which, under the terms of the agreement with USPB, must be competitive with the pricing grids of NBP’s competitors and may not be less favorable than pricing grids offered to other suppliers. During the fiscal year ended December 26, 2015, December 27, 2014, and December 28, 2013performance.  NBP obtained approximately 28%, 23%,27% and 21% respectively,28% of its cattle requirements throughunder this pricing grid process from USPBagreement during fiscal years 2016 and its producer-owners.2015, respectively.

    NOTE 9.8. FAIR VALUE MEASUREMENTS

         NBP determines fair value utilizing a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of inputs used to measure fair value are as follows:

    F-36



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    Level 1 — quoted prices in active markets for identical assets or liabilities accessible by the reporting entity.
    Level 2 — observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
    Level 3 — unobservable inputs for an asset or liability. Unobservable inputs should only be used to the extent observable inputs are not available.

         The following table details the assets and liabilities measured at fair value on a recurring basis as of December 26, 2015,31, 2016 and December 27, 201426, 2015 and also the level within the fair value hierarchy used to measure each category of assets (in thousands).

    F-34


         

    Quoted Prices in 

        
         Active Markets for Significant Other Significant 
         

    Identical Assets 

    Observable Inputs Unobservable 

    Description 

     December 26, 2015    (Level 1)   (Level 2)  Inputs (Level 3) 
     

    Other current assets - 

                

    derivatives 

     

    891  

    891  

     
     

    Other accrued expenses and 

                

    liabilities - derivatives 

     

    882  

     

    882  
     
     
         

    Quoted Prices in 

         
         

    Active Markets for 

    Significant Other Significant  
         

    Identical Assets 

    Observable Inputs Unobservable  

    Description 

     

    December 27, 2014 

       (Level 1)   (Level 2)  Inputs (Level 3) 
     

    Other current assets - 

                

    derivatives 

     

    5,402  

    5,402  

     

     

    Other accrued expenses and 

                

    liabilities - derivatives 

     

    556  

     

    556  

     
     
    NOTE 10. DISCLOSURE ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES  

    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements
    Notes to Consolidated Financial Statements

     

         Active Markets for  Significant Other  Significant  
         

    Identical Assets 

     Observable Inputs  Unobservable  
    Description  

    December 31, 2016 

     (Level 1)  (Level 2)  Inputs (Level 3) 
     
    Other current assets -             
    derivatives  

    $ 

    1,906  

    $ 

    -  

    $ 

    1,906  $ - 
     
    Other accrued expenses and             
    liabilities - derivatives  

    $ 

    1,998  

    $ 

    1,998  

    $ 

    -  

    $ 

    - 
     
     
         

    Quoted Prices in 

        
         

    Active Markets for 

     Significant Other  Significant 
         

    Identical Assets 

     Observable Inputs  Unobservable 
    Description  

    December 26, 2015 

     (Level 1)  (Level 2)  Inputs (Level 3) 
     
    Other current assets -             
    derivatives  

    $ 

    891  

    $ 

    891  

    $ 

    -  

    $ 

    - 
     
    Other accrued expenses and             
    liabilities - derivatives  

    $ 

    882  

    $ 

    -  

    $ 

    882  

    $ 

    - 
     
     
    NOTE 9.    DISCLOSURE ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES  

    As part of NBP’s ongoing operations, NBP is exposed to market risks such as changes in commodity prices. To manage these risks, NBP may enter into the following derivative instruments pursuant to its established policies:

    While management believes each of these instruments help mitigate various market risks, they are not designated and accounted for as hedges as a result of the extensive recordkeeping requirements associated with hedge accounting. Accordingly, the gains and losses associated with the change in fair value of the instruments are recorded to net sales and cost of goods sold in the period of change. Certain firm commitments for live cattle purchases and all firm commitments for boxed beef sales are treated as normal purchases and sales and not recorded at fair value.

    F-37



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    NBP enters into certain commodity derivatives, primarily with a diversified group of highly rated counterparties. The maximum amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is deemed to be immaterial as of December 26, 201531, 2016 and December 27, 2014.26, 2015. The exchange-traded contracts have been entered into under a master netting agreement. None of the derivatives entered into have credit-related contingent features.

    The following table presents the fair values as discussed in Note 108 and other information regarding derivative instruments not designated as hedging instruments as of December 31, 2016 and December 26, 2015 and December 27, 2014 (in thousands(thousands of dollars):

    F-35


    December 26, 2015  

    Derivative Asset 

     

     

    Derivative Liability 

      

    Balance Sheet 

        

    Balance Sheet 

       
      Location   Fair Value  Location   Fair Value 
     
           Other accrued    
      Other current     expenses and    
    Commodity contracts  assets  891  liabilities  

    882 

    Total    

    891    

    882 

     
    December 27, 2014  

    Derivative Asset 

    Derivative Liability 

      

    Balance Sheet 

        

    Balance Sheet 

       
      Location   Fair Value  Location   

    Fair Value 

     
           

    Other accrued 

       
      

    Other current 

        

    expenses and 

       
    Commodity contracts  

    assets 

     

    5,402  

    liabilities 

     

    556 

    Total    

    5,402    

    556 


    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    December 31, 2016 

    Derivative Asset 

     

    Derivative Liability 

     

    Balance Sheet 

       

    Balance Sheet 

      
     Location  Fair Value  Location  Fair Value 
     
         Other accrued   
     Other current    expenses and   
    Commodity contracts assets $ 1,906  liabilities 

    $ 

    1,998 
    Total  $ 1,906   $ 1,998 
     
    December 26, 2015 

    Derivative Asset 

     

    Derivative Liability 

     

    Balance Sheet 

       

    Balance Sheet 

      
     Location  Fair Value  Location  Fair Value 
     
         Other accrued   
     Other current    expenses and   
    Commodity contracts assets $ 891  liabilities 

    $ 

    882 
    Total  $ 891   $ 882 

     

         The following table presents the unrealized and realized gains (losses) on derivative contracts as reflected in the Consolidated Statement of Operations for the fiscal years ended December 31, 2016, December 26, 2015 and December 27, 2014 and December 28, 2013 (in thousands(thousands of dollars):

         

    Amount of Gain (Loss) Recognized in Income On Derivatives

       

    Amount of Gain (Loss) Recognized in Income On Derivatives

     
    Derivatives Not Location of Gain (Loss)             Location of Gain (Loss)   
    Designated as Recognized in Income on             Recognized in Income on   
    Hedging Instruments Derivatives December 26, 2015 December 27, 2014 December 28, 2013 Derivatives   

    December 31, 2016 

     

    December 26, 2015

      

    December 27, 2014

     
    Commodity contracts Net sales $ (52,889) $ 14,071  $ (12,791) Net sales  $ 3,261  $ (52,889)  $ 14,071 
    Commodity contracts Cost of sales   9,162    (19,721)   11,530  Cost of sales   1,185   9,162   (19,721) 
    Total   $ (43,727) $ (5,650) $ (1,261)  $ 4,446  $ (43,727)  $ (5,650) 

    NOTE 11.10.     LEGAL PROCEEDINGS

              NBP has been named as a defendant in a wage-and-hour lawsuit entitled Valente Sandoval Barbosa, et al. v. NBP, Case No. 12-cv-2311 KHV/DJW (United States District Court, State of Kansas), instituted on May 22, 2012. The plaintiffs allege that NBP violated the Fair Labor Standards Act by failing to compensate non-exempt production line employees at its facility in Liberal, Kansas for time spent performing pre-and post-production activities. The plaintiffs seek actual damages, pre-and post-judgment interest, and costs and expenses incurred in the action, including attorneys’ fees. The parties agreed to settle this matter in July 2013 for $350,000, including attorneys’ fees, and all settlement proceeds required by the settlement agreement were disbursed in October 2015.

    F-38



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements

    Notes to Consolidated Financial Statements

    In April 2014, the California Regional Water Quality Control Board Colorado River Basin Region (Regional Board) issued an administrative civil liability complaint to NBP sNBP’s wholly-owned subsidiary, National Beef California, L. P.L.P. (NBC). The Complaint alleged that NBC violated federal National Pretreatment Standards regulations by introducing into the Brawley, California wastewater treatment plant (WWTP) pollutants that caused pass through“pass through” or interference“interference” with the WWTP. The complaint assessed a penalty of $3,750,000.approximately $3.8 million. A hearing before the Regional Board was scheduled for late October 2014, but the Regional Board withdrew its complaint in early October 2014 and requested the California State Water Resources Control Board (State Board) to take up the matter. In response, the State Board issued an administrative civil liability complaint against NBC in January 2016, which sought a penalty of $1.65 million. The State Board withdrew its complaint in February 2016; however, it has indicated that it intends to refile its complaint at a later date. NBP believes it has meritorious defenses to the State Board complaint and intends to defend against the complaint vigorously. There can be no assurances, however, as to the outcome of this matter or the impact on NBP sNBP’s consolidated financial position, results of operations and cash flows.

    NBP is a party to a number of 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 NBP’s financial condition, results of operations or liquidity.

    NOTE 12.11.     SUBSEQUENT EVENTS

    F-36



    NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
    Consolidated Financial Statements


    Notes to Consolidated Financial Statements

    NBP evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through March 10, 2016,9, 2017, the date the financial statements were available for issuance.

     

     

     

     

     

    F-39

    F-37