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 30, 201725, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to ______.to .
Commission file number333-115164
U.S.U. S. PREMIUM BEEF, LLC
(Exact name of registrant as specified in its charter)
| 20-1576986 | |
| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. |
12200 North Ambassador Drive, Kansas City, MO64163
(Address of principal executive offices)
Registrant’s telephone number, including area code: 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 ☑ ☒ 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☑ ☒ Smaller Reporting Company ☐ Emerging Growth Company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ Yes ☐ No ☑ ☒
The registrant’s equity is not traded on any exchange or other public market; however, there have been private transactions. As of February 24, 2018,26, 2022, there were Class A units and Class B units outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
0
NoneNone.
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV on page 37.
TABLE OF CONTENTS
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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”, “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,bovine spongiform encephalopathy (BSE), competitive practices and consolidation in the cattle production and processing industries, actions of domestic or foreign governments, hedging risk, changes in interest rates and foreign currency exchange rates, consumer demand and preferences, the cost of compliance with environmental and health laws, loss of key customers, loss of key employees, labor relations, and consolidation among our customers.
In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this report will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Please review 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.).LLC. 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” 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, LLCOverview
U.S. Premium Beef’s (USPB or the Company)
Overview
USPB’s 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. 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)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.
Products and Production
Ownership in USPB provides unitholders access to an integrated cattle production, processing and marketing system. As the basis of that system, USPB’s Class A unitholders have a guaranteed right plus an obligation (on a one head per Class A unit per delivery year basis) to deliver cattle to NBP,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 verifiedknown 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.
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. Under that arrangement, USPB has delivered more than 14.1 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.
On December 5, 2011, USPB entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Leucadia). The Purchase Agreement provided for Leucadia to purchase 56.2415% of the membership interests in NBP (National Interests) from the Company for approximately $646.8 million. The Leucadia Transaction closed on December 30, 2011. Following the close, USPB owned 15.0729% of NBP’s membership interests.
Employees
USPB has seven employees as of December 30, 2017. 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. 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 fivefive-year period. These arrangements are described in greater detail in Cattle 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. Under that arrangement, USPB has delivered more than 16.6 million head of cattle to NBP for processing since it commenced deliveries.
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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.
On December 5, 2011, USPB entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Leucadia). The Purchase Agreement provided for Leucadia to purchase 56.2415% of the membership interests in NBP (National Interests) from the Company for approximately $646.8 million. The Leucadia Transaction closed on December 30, 2011. Following the close, USPB owned 15.0729% of NBP’s membership interests.
On November 29, 2019, Jefferies Financial Group, Inc. (Jefferies or Leucadia) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%.
Employees
USPB has seven employees as of December 25, 2021. 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. Operational activities are conducted through NBP and significant efforts with respect to governmental and environmental regulation are conducted by NBP. See Business of National Beef Packing Company, LLC - Regulation and Environmental.
Sales, Marketing, and Customers
NBP is the only beef processor with which USPB has a cattle delivery agreement. 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 in Business 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 in Business of National Beef Packing Company, LLC.
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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.
USPB’s Class A unitholders and associates deliver cattle 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 NBP based on a market-based purchase price that is subject to the agreements between USPB and NBP.
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%14.5% of the fed cattle slaughter market.in the U.S. NBP processes and markets fresh and chilled boxed beef, ground beef, beef byproducts,by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had approximately 8,2009,900 employees on December 30, 201725, 2021 and generated total revenues of $7.4$11.7 billion in 2017.2021.
The largest share of NBP’s revenue about 92.7%, is generated from the sale of boxed beef and beef byproducts.by-products. NBP also generates revenues through value-added production with its consumer-ready products. In addition, NBP operates one of the largest wet bluehide tanning facilities in the world, (wetselling wet blue tanning refers to the first step in processing raw and brine-cured hides into tanned leather), selling processed hidesleather 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 directly 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, based on the availability of fed cattle.
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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 productsbeef by-products coupled with its overall volume. NBP operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. NBP’s profitability typically fluctuates seasonally and cyclically with relatively higher margins in the spring and summer months and during times of ample cattle availability.
Revenues in 20172021 increased 5%approximately 24% in comparison to 2016,2020, primarily due to an increase in the average selling price of beef products, cattle weights and number of cattle processed. Cost of sales increased by 4%approximately 14% in 20172021 as compared to 2016.2020. The increase is also due primarily to higher volumes, increased cattle weights and an increase in the numberaverage price of cattle processed.fed cattle. The combined effects of increased margin per head and an increase in volume led to higher profitability in 20172021 as compared to 2016.2020.
Revenues in 2016 decreased about 5%2020 increased approximately 11% in comparison to 2015,2019, primarily due to lower average selling prices for beef and beef by-products, partially offset by an increase in the average selling price of beef products, cattle weights and number of cattle processed. Additionally, during 2015, decreases to revenuesIncreased volume of $52.9 million were recorded asconsumer ready product sales and a resultfull year of operations of NBP’s use of derivativesbeef patty processing facility also contributed to the increase in its hedging activity. For 2016, costrevenue. Cost of sales declined 11%increased by approximately 5% in 2020 as compared to 2015,2019. The increase is due primarily to higher volumes, increased cattle weights and costs associated with NBP’s response to the coronavirus pandemic, offset, in part, by a decrease in the average price of fed cattle, partially offset by an increase in volume. For 2016, thecattle. The combined effects of increased margin per head and an increase in volume led to higher profitability in 2020 as compared to 2015.2019.
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 and further processors. In addition, NBP sells beef by-products to the medical, feed processing, fertilizer and pet food industries. NBP exportsexported products to more than 2036 countries; in 2017,2021, export sales represented approximately 11.2%11.6% 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 controlportion-control beef and wet blue hides. NBP believes its value-added products can command higher prices than commodity products because of NBP’sits 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, NBPit 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.
Raw Materials and Procurement
The primary raw material for the beef processing plants is live cattle. Live cattle prices change daily based on supply and demand for beef and other proteins, cattle inventory levels relative to packer demand for cattle, weather and other factors. NBP’sNBP has two largest beef processing facilities are located in southwest Kansas.Kansas and a third beef processing plant in central Iowa. The primary market area for the purchase of cattle for those facilities includes Kansas, Texas, Nebraska, Iowa 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, reducesreduce its reliance on any one cattle supplier and lowerslower in-bound transportation costs.
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On December 30, 2011,June 10, 2019, USPB entered into a newthe First Amended and Restated Cattle Purchase and Sale Agreement with NBP.NBP (Amended Agreement). Per the terms and conditions of the Amended Agreement, NBP is required to purchase throughfrom USPB from its members,Class A unitholders, and USPB is required to cause to be sold and delivered from its membersClass A unitholders to NBP, a base amount of 735,385 (subject to adjustment) head of cattle per year. In fiscal years 2021, 2020, and 2019, USPB elected to increase the number of cattle that its Class A unitholders could deliver during USPB’s delivery year by up to 10%. During fiscal years 2021, 2020, and 2019, USPB’s Class A unitholders and associates provided approximately 23% of NBP’s total cattle requirements, under the Amended Agreement. 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 believesThe terms and conditions of the pricing gridsAmended Agreement are based on terms that could be obtained from an unaffiliated party. The cattle supplysubstantially the same as the previous agreement extends through December 30, 2022, with automatic, but optional one year extensions on each December 30, unless either party provides a notice not to extend sixty days prior toexcept in the annual anniversary date. following material ways:
| · | Under the Amended Agreement, if NBP acquires or develops new processing (slaughter) facilities, then USPB has a first right to provide 25% of the cattle to the new NBP facility. |
| · | The purchase price of cattle delivered by USPB Class A unitholders to the Tama, Iowa processing facility shall be no less favorable than any other pricing grid that NBP offers to any other seller of cattle delivering to the Tama, Iowa processing facility or to non-grid cattle with comparable performance. |
| · | On each anniversary of the Amended Agreement, the term of the Amended Agreement shall be extended be five years from the date of such anniversary, unless either party elects to not extend the term. The Amended Agreement currently extends through June 10, 2026. |
NBP also purchased additional cattle from certain USPB members and associates outside of the cattle supply agreement.Amended Agreement.
During fiscal years 2017, 2016, and 2015, USPB’s members and associates provided approximately 24%, 27%, and 28%, 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 and a third beef processing facility in Tama, Iowa which can process approximately 1,200 head per day. NBP’s three consumer-ready facilities are in Hummels Wharf, Pennsylvania, Moultrie, Georgia and Kansas City, Kansas. NBP’s wet blue tanningIts ground beef patty facility is in North Baltimore, Ohio, and its tannery is in St. Joseph, Missouri.
Competition
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 U.S. Department of Agriculture (USDA) including its Food Safety and Inspection Service (FSIS), its Animal and Plant Health Inspection Service (APHIS) 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.
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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 cash livestock suppliers all receivables, inventory and proceeds derived from NBP's sale of such cattle until the sellers have received full payment. In addition, pursuant to PSA rules, atas of December 30, 2017,25, 2021, NBP has obtained from an insurance company a surety bond in the amount of $50.4 million as a measure of protection for livestock sellers.
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 isand Tama facilities are subject to, aand operating under, secondary air permit which is in place.permits. The Dodge City, Liberal, Tama, 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, other than Tama, 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. NBP’s plant in Tama operates a wastewater treatment plant and is a direct discharger to the Iowa River under a National Pollutant Discharge Elimination System permit issued by the Iowa Department of Natural Resources. 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.wastes, and the St. Joseph facility is classified as a large-quantity generator of hazardous waste. 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 8,2009,900 employees, approximately 5,2005,670 are represented by collective bargaining agreements. Approximately 2,5002,800 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 2022,2026, approximately 2,500 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 2021,2026. Approximately 200 employees at the North Baltimore plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2025 and another approximately 200170 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 2019.2024.
| 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 Class A 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 its beef processing and manufacturing operations.
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. The cost of raw materials used by our manufacturing businesses have fluctuated over time as a result of a variety of factors. Although our manufacturing businesses are not currently experiencing any shortage of raw materials, if such 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 our 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) 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 our consolidated financial condition, cash flows and results of operations.
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.
| 10 |
NBP’s exports expose it to political and economic risks in the U.S. and foreign countries, as well as to risks related to currency fluctuations.
Approximately 11.2%11.6% of NBP’s annual2021 sales arewere export sales, primarily to Japan, Mexico, South Korea, Hong Kong, China, Taiwan, Italy and Canada, 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.
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 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”)(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
In addition to the environmental laws and regulations noted above, NBP is subject to extensive and evolving regulation and oversight, including regulation by the USDA including(and its FSIS, APHIS and GIPSA agencies,agencies), the FDA, the DOL, the EEOC, the DHS and other federal, state, local and foreign authorities regardingauthorities. This regulation and oversight pertains to all aspects of NBP’s operations, including (i) the procurement of cattle, and(ii) the processing, packaging, storage, safety, distribution and sale, advertising and labeling of its products. Recently, foodproducts, and (iii) the recruitment, employment, retention and safety practices and procedures inof its employees. Accordingly, 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. Failurefailure or alleged failure to comply with existing or new laws and regulations could expose NBP to legal claims and enforcement actions and 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.
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NBP’s performance depends on an adequate labor supply and 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. In addition, many industries in the United States have recently experienced a shortage of trained labor, often for reasons beyond their control. A failure to procure and retain an adequate labor supply or 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 decrease in adequately-trained labor, 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, pandemic or otherwise, could have a material adverse effect on our financial condition, cash flows and results of operations.
NBP faces industry-wide legal actions in connection with its business activities, and current or future legal actions may result in material liabilities and losses.
NBP has been named, and from time to time may be named, in various industry-wide legal actions, including arbitrations, class or representative actions, actions or inquiries by state attorneys general and other regulators, and other litigation arising in connection with its business activities. Adverse outcomes related to legal actions could result in substantial damages and could cause NBP’s earnings to decline.
NBP is a defendant in four class action lawsuits in the United States District Court, Minnesota District alleging that it violated the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws (the “Antitrust Cases”). NBP is also a defendant in two class action lawsuits filed on January 7, 2020, alleging that it misrepresented the origin of its products in violation of the New Mexico Unfair Practices Act (the “Labelling Cases”). NBP believes it has meritorious defenses to the claims in the Antitrust Cases and the Labelling Cases and intends to defend these cases, and any other cases, vigorously. There can be no assurances, however, as to the outcome of these matters or the impact on the NBP’s consolidated financial position, results of operations and cash flows. USPB has no way of predicting what, if any, impact the litigation will have on the earnings distributed by NBP to USPB.
Risk Factors Associated with USPB
USPB facilitates the delivery of the cattle provided by its Class A unitholders and associates to NBP and does not have arrangements for alternative markets for its Class A unitholders and associates cattle.
NBP is the only beef processor that USPB has a cattle delivery agreement with. USPB has not developed alternative customers for the cattle delivered by USPB’s Class A unitholders and associates. If events were to occur which would prevent NBP from purchasing and processing the cattle supplied by USPB’s Class A unitholders and associates, USPB would need to exercise provisions in its agreements with both NBP and USPB’s Class A unitholders that would permit USPB to reduce the number of cattle acquired from Class A 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 Class A unitholders would be impaired.
USPB’s investment in NBP could become impaired.
USPB’s investment in NBP is carried under the equity method of accounting. Operating losses,Although NBP’s results from operations are currently highly profitable, pandemic events such as COVID-19, industry trends, and other economic factors could have a negative impact on NBP’s operations and industry events, andcash flows. As a variety of other factors may result, in a decrease in the fair market value of USPB’s investment in NBP could decrease to a level that is less than the investment, whichcarrying value. If such situation is other than temporary. Such potential decreases in value will cause the Companydeemed to not be temporary, USPB would record an impairment charge, which may have an impact on the trading values of USPB’s Class A and Class B units.
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If the COVID-19 pandemic adversely affects NBP’s ability to keep the cattle slaughter at normal levels, the ability of USPB members to deliver cattle for processing based on their ownership of Class A units may be impacted.
COVID-19 temporarily caused NBP to reduce fed cattle slaughter at several of its beef processing plants. If NBP is unable to maintain the slaughter at normal levels for an extended period, USPB members may be delayed in delivering their cattle or may be required to deliver to a different NBP processing plant. As the right and obligation to deliver cattle is associated with ownership of USPB’s Class A units, such a result may impact the value or liquidity of Class A units.
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 Class A units and Class B units and could substantially reduce the value of the Class A units and Class B units.
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.
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
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,Ambassador Building, LLC, with offices at 601 Brasilia Avenue, Kansas City, Missouri 64153.433 S. Spring Street, Suite 700, Los Angeles, CA 90013.
| ITEM 3. | LEGAL PROCEEDINGS |
For information regarding legal proceedings, see Note 8.Legal Proceedings.
| ITEM 4. | NOT USED |
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ITEM 4. NOT USED.PART II
| ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
PART II
There is no established public trading market for any class of common equity of U.S. Premium Beef, LLC.USPB. As of February 24, 2018,26, 2022, there were 478484 record holders of Class A units and 477500 record holders of Class B units. The per unit salestransfer prices for the fiscal years 20172021 and 20162020 by quarter were as follows:
Affiliated Sales | Third Party Sales | ||||||||||||||||||||||
Class A | Class B | Class A | Class B | ||||||||||||||||||||
Low | High | Low | High | Low | High | Low | High | ||||||||||||||||
Fiscal Year 2017 |
|
|
|
| |||||||||||||||||||
Quarter ending: |
|
|
|
| |||||||||||||||||||
March 25, 2017 | $ | 16.00 | $ | 122.00 | $ | 15.10 |
| $ | 118.00 | $ | 110.00 | $ | 120.00 | $ | 105.00 | $ | 125.00 | ||||||
June 24, 2017 | $ | - | $ | - | $ | - |
| $ | - | $ | 125.00 | $ | 125.00 | $ | - | $ | - | ||||||
September 30, 2017 | $ | 110.00 | $ | 150.00 | $ | 83.00 |
| $ | 150.00 | $ | - | $ | - | $ | 151.00 | $ | 161.00 | ||||||
December 30, 2017 | $ | 121.00 | $ | 163.73 | $ | 105.00 |
| $ | 180.00 | $ | - | $ | - | $ | 177.00 | $ | 180.00 | ||||||
Subsequent to December 30, 2017 | $ | - | $ | - | $ | - |
| $ | - | $ | 136.67 | $ | 136.67 | $ | 165.00 | $ | 180.00 | ||||||
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 | ||||||
| Affiliated Sales | Third Party Sales | |||||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||||||||||||||||||
| Low | High | Low | High | Low | High | Low | High | |||||||||||||||||||||||||
| Fiscal Year 2021 | ||||||||||||||||||||||||||||||||
| Quarter ending: | ||||||||||||||||||||||||||||||||
| March 27, 2021 | $ | 91.44 | $ | 302.00 | $ | 91.44 | $ | 720.00 | $ | 270.00 | $ | 302.00 | $ | 700.00 | $ | 720.00 | ||||||||||||||||
| June 26, 2021 | $ | 270.00 | $ | 346.00 | $ | 655.00 | $ | 726.00 | $ | 346.00 | $ | 346.00 | $ | 726.00 | $ | 726.00 | ||||||||||||||||
| September 25, 2021 | $ | 350.00 | $ | 350.00 | $ | 900.00 | $ | 900.00 | $ | 381.00 | $ | 381.00 | $ | 926.00 | $ | 930.00 | ||||||||||||||||
| December 25, 2021 | $ | 50.00 | $ | 363.00 | $ | 100.00 | $ | 941.40 | $ | – | $ | – | $ | 940.00 | $ | 961.00 | ||||||||||||||||
| Subsequent to December 25, 2021 | $ | 140.00 | $ | 315.00 | $ | 310.00 | $ | 941.40 | $ | – | $ | – | $ | 926.00 | $ | 926.00 | ||||||||||||||||
| Fiscal Year 2020 | ||||||||||||||||||||||||||||||||
| Quarter ending: | ||||||||||||||||||||||||||||||||
| March 28, 2020 | $ | 10.00 | $ | 160.00 | $ | 90.00 | $ | 355.00 | $ | – | $ | – | $ | 640.00 | $ | 640.00 | ||||||||||||||||
| June 27, 2020 | $ | 155.00 | $ | 175.00 | $ | 260.00 | $ | 300.00 | $ | 175.00 | $ | 263.00 | $ | 575.00 | $ | 750.00 | ||||||||||||||||
| September 26, 2020 | $ | 125.00 | $ | 131.00 | $ | 209.00 | $ | 701.00 | $ | 291.00 | $ | 291.00 | $ | 700.00 | $ | 775.00 | ||||||||||||||||
| December 26, 2020 | $ | – | $ | – | $ | 700.00 | $ | 725.00 | $ | – | $ | – | $ | 650.00 | $ | 725.00 | ||||||||||||||||
| Subsequent to December 26, 2020 | $ | 91.44 | $ | 302.00 | $ | 91.44 | $ | 300.00 | $ | 270.00 | $ | 302.00 | $ | 700.00 | $ | 700.00 | ||||||||||||||||
The affiliated sales represent sales for each of the periods shown abovetransfers that were not at arms-length and, therefore, the salestransfer 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 20172021 and 2016,2020, USPB’s Board of Directors (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 2021 | ||||||||
| March 10, 2021 | $ | 3.27 | $ | 28.66 | ||||
| March 18, 2021 | $ | 1.48 | $ | 12.93 | ||||
| March 26, 2021 | $ | 1.57 | $ | 13.76 | ||||
| May 14, 2021 | $ | 2.42 | $ | 21.22 | ||||
| June 7, 2021 | $ | 4.07 | $ | 35.70 | ||||
| August 11, 2021 | $ | 7.69 | $ | 67.34 | ||||
| September 8, 2021 | $ | 5.61 | $ | 49.14 | ||||
| December 14, 2021 | $ | 4.82 | $ | 42.26 | ||||
| Fiscal Year 2020 | ||||||||
| April 6, 2020 | $ | 2.05 | $ | 17.99 | ||||
| April 14, 2020 | $ | 0.38 | $ | 3.30 | ||||
| May 26, 2020 | $ | 1.02 | $ | 8.98 | ||||
| June 5, 2020 | $ | 3.36 | $ | 29.40 | ||||
| August 17, 2020 | $ | 7.48 | $ | 65.53 | ||||
| September 8, 2020 | $ | 1.12 | $ | 9.81 | ||||
| December 10, 2020 | $ | 2.96 | $ | 25.90 | ||||
| December 24, 2020 | $ | 8.19 | $ | 71.75 | ||||
| Class A | Class B | ||
| Fiscal Year 2017 | |||
| February 28, 2017 | $3.52 | $30.85 | |
| December 28, 2017 | $3.89 | $34.12 | |
| Fiscal Year 2016 | |||
| December 7, 2016 | $5.02 | $44.02 | |
| 15 |
The payment of cash distributions areis made only from assets legally available for that purpose and dependdepends on the Company’s financial condition, results of operations, and other factors then deemed relevant by USPB’s boardBoard of directors.Directors. Cash distributions are paid to the holders of Class A and Class B units at the discretion of the boardBoard of directorsDirectors and with notice 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
USPB’s 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.
The following table sets forth selected statement of operations and balance sheet data for fiscal years ended December 30, 2017, December 31, 2016, December 26, 2015, December 27, 2014, and December 28, 2013. 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.
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.
Fiscal Year Ended (1) | ||||||||||||||
December 30, | December 31, | December 26, | December 27, | December 28, | ||||||||||
(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 | 4.0 | 3.6 | 2.4 | 3.1 | 5.4 | |||||||||
| Depreciation and amortization | - | - | - | - | - | |||||||||
| Operating loss | (4.0) | (3.6) | (2.4) | (3.1) | (5.4) | |||||||||
| Other income (expense): | ||||||||||||||
| Interest income | 0.3 | - | - | - | - | |||||||||
| Equity in income (loss) of National Beef Packing Company, LLC | 61.1 | 49.3 | (18.9) | (6.1) | (6.5) | |||||||||
| Other, net | 0.1 | 0.7 | - | 0.2 | 0.7 | |||||||||
| Total other income (expense) | 61.5 | 50.0 | (18.9) | (5.9) | (5.8) | |||||||||
| Net income (loss) | $ | 57.5 | $ | 46.4 | $ | (21.3) | $ | (9.0) | $ | (11.2) | ||||
| Selected Balance Sheet Data: | ||||||||||||||
| Cash and cash equivalents | $ | 119.1 | $ | 85.2 | $ | 85.2 | $ | 92.3 | $ | 59.8 | ||||
| Total assets | $ | 259.4 | $ | 228.9 | $ | 218.2 | $ | 240.5 | $ | 254.9 | ||||
| Capital shares and equities | $ | 224.1 | $ | 221.2 | $ | 211.8 | $ | 233.1 | $ | 244.2 | ||||
| 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 and diluted | ||||||||||||||
| Class A Units | $7.82 | $6.31 | ($2.90) | ($1.23) | ($1.52) | |||||||||
| Class B Units | $68.49 | $55.24 | ($25.40) | ($10.77) | ($13.34) | |||||||||
| Outstanding weighted-average units | ||||||||||||||
| Basic and diluted | ||||||||||||||
| 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 | |||||||||
| ITEM 6. | SELECTED FINANCIAL DATA |
1) Fiscal year 2017 consisted of a 52 week year, fiscal year 2016 consisted of a 53 week year and fiscal years 2015, 2014, and 2013 consisted of 52 week years.Not applicable.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this report. 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.
Overview
U.S. Premium Beef (USPB or the Company)Overview
USPB 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. 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)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 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 5,30, 2011, USPB entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Leucadia). The Purchase Agreement provided for Leucadia to purchase 56.2415%sold the majority of theits membership interests in NBP (National Interests) from the Company for approximately $646.8 million. Theto Leucadia Transaction closed on December 30, 2011.National Corporation. Following the close,sale, USPB owned 15.0729% of NBP’s membership interests.
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On November 29, 2019, Jefferies (formerly Leucadia National Corporation) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%.
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. NBP’s financial statements and footnotes are attached 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 Class A unitholders have a guaranteed right plus an obligation (on a one head per Class A unit per delivery year basis) to deliver cattle to USPB, pursuant to 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 verifiedknown 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%14.5% of the fed cattle slaughter market.in the U.S. NBP processes and markets fresh and chilled boxed beef, ground beef, beef byproducts,by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had approximately 8,2009,900 employees on December 3, 201725, 2021 and generated total revenues of $7.4$11.7 billion in 2017.2021.
The largest share of NBP’s revenue about 92.7%, is generated from the sale of boxed beef and beef byproducts.by-products. NBP also generates revenues through value-added production with its consumer-ready products. In addition, NBP operates one of the largest wet bluehide tanning facilities in the world, (wetselling wet blue tanning refers to the first step in processing raw and brine-cured hides into tanned leather), selling processed hidesleather 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 directly 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, based on the availability of fed cattle.
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 other than temporary 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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Results of Operations
The following table presents the statements of operations data for USPB for the periods indicated:
52 weeks ended | 53 weeks ended | 52 weeks ended | ||||||
December 30, 2017 | December 31, 2016 | December 26, 2015 | ||||||
(millions of dollars) | ||||||||
| Net sales | $ | - | $ | - | $ | - | ||
| Costs and expenses: | ||||||||
| Cost of sales | - | - | - | |||||
| Selling, general, and administrative | 4.0 | 3.6 | 2.4 | |||||
| Operating loss | (4.0) | (3.6) | (2.4) | |||||
| Other income (expense): | ||||||||
| Interest income | 0.3 | - | - | |||||
| Equity in income (loss) of National Beef Packing Company, LLC | 61.1 | 49.3 | (18.9) | |||||
| Other, net | 0.1 | 0.7 | - | |||||
| Total other income (expense), net | 61.5 | 50.0 | (18.9) | |||||
| Net income (loss) | $ | 57.5 | $ | 46.4 | $ | (21.3) | ||
| 52 weeks ended | 52 weeks ended | 52 weeks ended | ||||||||||
| December 25, 2021 | December 26, 2020 | December 28, 2019 | ||||||||||
| (millions of dollars) | ||||||||||||
| Net sales | $ | – | $ | – | $ | – | ||||||
| Costs and expenses: | ||||||||||||
| Cost of sales | – | – | – | |||||||||
| Selling, general, and administrative | 6.2 | 7.9 | 5.1 | |||||||||
| Operating loss | (6.2 | ) | (7.9 | ) | (5.1 | ) | ||||||
| Other income: | ||||||||||||
| Interest income | – | 0.2 | 1.2 | |||||||||
| Equity in income of National Beef Packing Company, LLC | 365.0 | 199.7 | 121.5 | |||||||||
| Other, net | 0.7 | 0.7 | 0.4 | |||||||||
| Total other income, net | 365.7 | 200.6 | 123.1 | |||||||||
| Net income | $ | 359.5 | $ | 192.7 | $ | 118.0 | ||||||
Fiscal Year Ended December 30, 201725, 2021 compared to December 31, 201626, 2020
Net Sales.There were no sales during the fifty-two weeksweek periods ended December 30, 201725, 2021 and the fifty-three weeks ended December 31, 2016.26, 2020.
Cost of Sales. There were no cost of sales during the fifty-two weeksweek periods ended December 30, 201725, 2021 and the fifty-three weeks ended December 31, 2016.26, 2020.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $4.0$6.2 million for the fifty-two weeks ended December 30, 2017,25, 2021, compared to approximately $3.6 million for the fifty-three weeks ended December 31, 2016, an increase of approximately $0.4 million. The increase is primarily due to higher expenses associated with the bonus plans and phantom unit plans, which were partially offset by lower legal and non-compete expenses.
Depreciation and Amortization Expense. There were immaterial depreciation and amortization expenses during the fifty-two weeks ended December 30, 2017 compared to the fifty-three weeks ended December 31, 2016.
Operating Loss.Operating loss was approximately $4.0$7.9 million for the fifty-two weeks ended December 30, 201726, 2020, a decrease of approximately $1.7 million. The decrease is primarily due to lower phantom unit plan expense, which decreased as a result of a smaller year over year increase in unit transfer prices and lower distribution dilution accruals.
Operating Loss. Operating loss was approximately $6.2 million for the fifty-two weeks ended December 25, 2021 compared to approximately $3.6$7.9 million for the fifty-threefifty-two weeks ended December 31, 2016, an increase26, 2020, a decrease of approximately $0.4$1.7 million.
Interest Income. Interest income was $0.3$0.0 million during the fifty-two weeks ended December 30, 201725, 2021 and immaterial$0.2 million in the fifty-threefifty-two weeks ended December 31, 2016.26, 2020, a decrease of $0.2 million due to lower interest rates.
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Equity in Income (Loss) of National Beef Packing Company, LLC. Equity in NBP income was $61.1$365.0 million for the fifty-two weeks ended December 30, 201725, 2021 compared to $49.3$199.7 million for the fifty-threefifty-two weeks ended December 31, 2016.26, 2020, an increase of approximately $165.3 million. The combined effects of increased margin per head and an increase in volume led to higher profitability in 2021 as compared to 2020. USPB carries its 15.0729% investment in NBP under the equity method of accounting.
Other, net. Other income was $0.1$0.7 million for the fifty-two weeks ended December 30, 201725, 2021 compared to $0.7 million for the fifty-threefifty-two weeks ended December 31, 2016, a decrease of approximately $0.6 million. The decrease was26, 2020. Other, net is primarily due to lowerdelivery right lease income on the Company ownedcompany-owned delivery rights.
Income Tax Expense. USPB is structured as an LLC and is therefore not subject to income taxes at the Companycompany level. See footnote 2USPB’s Notes to Financial Statements (Note 2) for further information.
Net Income.Net income for the fifty-two weeks ended December 30, 201725, 2021 was approximately $57.5$359.5 million compared to approximately $46.4$192.7 million for the fifty-threefifty-two weeks ended December 31, 2016,26, 2020, an improvement of approximately $11.1$166.8 million. The improvement was due to substantially higher net income at NBP.
Fiscal Year Ended December 31, 201626, 2020 compared to December 26, 201528, 2019
Net Sales.There were no sales during the fifty-three weeks ended December 31, 2016 and the fifty-two weeksweek periods ended December 26, 2015.2020 and December 28, 2019.
Cost of Sales. There were no cost of sales during the fifty-three weeks ended December 31, 2016 and the fifty-two weeksweek periods ended December 26, 2015.2020 and December 28, 2019.
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$7.9 million for the fifty-two weeks ended December 26, 2015,2020, compared to approximately $5.1 million for the fifty-two weeks ended December 28, 2019, an increase of approximately $1.2$2.8 million. The increase is primarily due to higher expenses associated with the bonus plans, non-compete agreements and phantom unit plans.plan expense, which increased as a result of higher unit transfer prices, and higher accounting expense.
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$7.9 million for the fifty-two weeks ended December 26, 2015,2020 compared to approximately $5.1 million for the fifty-two weeks ended December 28, 2019, an increase of approximately $1.2$2.8 million.
Interest Income. Interest income was immaterial$0.2 million during the fifty-three weeks ended December 31, 2016 and fifty-two weeks ended December 26, 2015.2020 and $1.2 million in the fifty-two weeks ended December 28, 2019, a decrease of $1.0 million due to lower interest rates.
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$199.7 million for the fifty-two weeks ended December 26, 2015.2020 compared to $121.5 million for the fifty-two weeks ended December 28, 2019, an increase of approximately $78.2 million. The combined effects of increased margin per head and an increase in volume led to higher profitability in 2020 as compared to 2019. USPB carries its 15.0729% investment in NBP under the equity method of accounting.
Other, net. Other income was $0.7 million for the fifty-threefifty-two weeks ended December 31, 201626, 2020 compared to $0.0$0.4 million for the fifty-two weeks ended December 26, 2015, an increase of approximately $0.7 million.28, 2019. The increase wasis primarily due to higher delivery right lease income on the Companycompany owned delivery rights.
Income Tax Expense. USPB is structured as an LLC and is therefore not subject to income taxes at the Companycompany level. See footnote 2USPB’s Notes to Financial Statements (Note 2) for further information.
Net Income (Loss).Income.Net income for the fifty-threefifty-two weeks ended December 31, 201626, 2020 was approximately $46.4$192.7 million compared to a net loss of approximately $21.3$118.0 million for the fifty-two weeks ended December 26, 2015,28, 2019, an improvement of approximately $67.7$74.7 million. The improvement was due to substantially higher net income at NBP.
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Liquidity and Capital Resources
As of December 30, 2017,25, 2021, we had net working capital (the excess of current assets over current liabilities) of approximately $87.9$126.4 million, which included cash and cash equivalents of $119.1$130.4 million. As of December 31, 2016,26, 2020, we had net working capital (the excess of current assets over current liabilities) of approximately $82.0$74.3 million, which included cash and cash equivalents of $85.2$76.8 million. Our primary sources of liquidity for fiscal year 2017 wasyears 2021 and 2020 were cash, and cash flows from operating and investing activities, which includes distributions received from NBP, and available borrowings under the Credit Agreement and Master Loan Agreement with CoBank. Our principal uses of cash are distributions to our members and working capital.
USPB’s material contractual obligations include non-compete payments to be made to its Chief Executive Officer when he retires and payments for leased office space, the present value of which are approximately $0.3 million and $0.1 million, respectively.
CoBank Debt
USPB’s Amended and Restated Revolving Term Supplement’s matured on June 30, 2020. On June 24, 2020, CoBank unilaterally extended the Term Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to and including August 31, 2020. On July 13, 2020, USPB, and CoBank, ACB (CoBank), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (Promissory Note), and an Affirmation of Pledge Agreement (New Loan Agreements). The New Loan Agreements replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, Pledge Agreement, and Security Agreement dated July 26, 2011, as amended.
The New Loan Agreements provide for a $1.0 million Revolving Term Commitment, carries a term of five years and matures on June 30, 2025. The Promissory Note defines Interest as equal to the One-Month LIBOR Index Rate or if LIBOR quotes are no longer available, CoBank will replace the LIBOR Index Rate with a replacement benchmark rate. The other terms and conditions of the Credit Agreement and the Revolving Term Loan Supplement continue the terms and conditions of the Prior Agreements without material modifications. The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, National Beef Packing Company, LLC.
As of December 30, 2017,25, 2021, USPB had no long-term debt outstanding. We had a $5.0$1.0 million revolving term loanRevolving Term Commitment with CoBank, all of which was available. USPB was in compliance with all of the financial covenantscovenant under its Master LoanCredit Agreement as of December 30, 2017.25, 2021 and December 26, 2020.
Cash Flows
| 52 weeks ended | 52 weeks ended | 52 weeks ended | ||||||||||
| December 25, 2021 | December 26, 2020 | December 28, 2019 | ||||||||||
| (thousands of dollars) | ||||||||||||
| Net cash provided by (used in): | ||||||||||||
| Operating activities | $ | 280,267 | $ | 194,190 | $ | 130,098 | ||||||
| Investing activities | – | (6 | ) | (43 | ) | |||||||
| Financing activities | (226,636 | ) | (195,324 | ) | (140,557 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | 53,631 | $ | (1,140 | ) | $ | (10,502 | ) | ||||
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Operating Activities
Net cash provided by operating activities was $280.3 million in fiscal year 2021 as compared to $194.2 million in fiscal year 2020. The $86.1 million increase was primarily due to increased distributions received from NBP that were classified as a distribution from Operating Activities.
Net cash provided by operating activities was $194.2 million in fiscal year 2020 as compared to $130.1 million in fiscal year 2019. The $64.1 million increase was primarily due to the higher distributions received from NBP that were classified as a distribution from Operating Activities.
Investing Activities
Net cash used in investing activities was $0.0 million and less than $0.1 million in fiscal years 2021 and 2020.
Net cash used in investing activities was less than $0.1 million in fiscal years 2020 and 2019.
Financing Activities
Net cash used in financing activities was $226.6 million in fiscal year 2021 as compared to $195.3 million in fiscal year 2020. The $31.3 million increase was due to an increase in distributions to members in fiscal year 2021, as a result of an increase in earnings, compared to fiscal year 2020.
Net cash used in financing activities was $195.3 million in fiscal year 2020 as compared to $140.6 million in fiscal year 2019. The $54.7 million increase was due to higher distributions to members in fiscal year 2020, as a result of an increase in earnings, compared to fiscal year 2019.
USPB believes cash, cash flows from operating activities, and available borrowings under the Master LoanCredit 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 $30.3 million in fiscal year 2017 as compared to net cash provided by operating activities of $8.3 million in fiscal year 2016. The $22.0 million increase was primarily due to the higher distributions received from NBP.
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.
Investing Activities
Net cash provided by investing activities was $30.9 million in fiscal year 2017 as compared to net cash provided by investing activities was $27.5 in fiscal year 2016. The $3.4 million change was due to higher distributions received from NBP.
Net cash provided by investing activities was $27.5 million in fiscal year 2016 as compared to net cash used in investing activities of $3.8 million in fiscal year 2015. The $31.3 million change was due to distributions received from NBP in fiscal year 2016 as compared to 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 used in financing activities was $27.4 million in fiscal year 2017 as compared to $35.8 million in fiscal year 2016. The $8.4 million change was due to lower cash payments to members in fiscal year 2017 compared to fiscal year 2016.
Net cash used in financing activities was $35.8 million in fiscal year 2016 as compared to $0.0 million in fiscal year 2015. The $35.8 million change was primarily related to a distribution to USPB’s unitholders in fiscal year 2016.
CoBank Debt
On June 13, 2017, USPB and CoBank entered into a Revolving Term Loan Supplement to the Master Loan Agreement dated July 26, 2011. The Revolving Term Loan Supplement provides for a $5 million revolving credit commitment. The new commitment carries a term of three years, maturing on June 30, 2020. 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 30, 2017. 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 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.
Cash Payment Obligations
The following table describes the cash payment obligations as of December 30, 2017 (thousands of dollars):
| Fiscal Year | Fiscal Year | Fiscal Year | Fiscal Year | Fiscal Year |
| ||||||||||||||
Total | 2018 (Year 1) | 2019 (Year 2) | 2020 (Year 3) | 2021 (Year 4) | 2022 (Year 5) | After Year 5 | ||||||||||||||
| Revolving credit facility | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
| Interest on long-term debt | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
| Non-competition payments(1) | $ | 3,720 | $ | 845 | $ | 847 | $ | 849 | $ | 851 | $ | 328 | $ | - | ||||||
| Operating leases | $ | 349 | $ | 56 | $ | 57 | $ | 58 | $ | 59 | $ | 59 | $ | 60 | ||||||
Total | $ | 4,069 | $ | 901 | $ | 904 | $ | 907 | $ | 910 | $ | 387 | $ | 60 | ||||||
| (1)Reflects payments to be made to current and former Chief Executive Officer's pursuant to their employment agreements. | ||||||||||||||||||||
Off-Balance Sheet Arrangements
As of December 30, 2017,25, 2021 and December 26, 2020, we did not have any material 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 20172021 and 2016.2020. 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.
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| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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 30, 2017,25, 2021, the Company did not have any outstanding debt.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto, and other information required by this Item 8, are included in this report beginning on page F-1.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A. CONTROLS AND PROCEDURES
We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, as of the end of the period covered by this 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 fourteenfifty-two weeks ended December 30, 201725, 2021 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:
| · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and managers of the Company; and |
| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. |
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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 30, 2017.25, 2021. 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 30, 2017,25, 2021, the Company’s internal control over financial reporting was operating effectively.
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.
| 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 LoanCredit Agreement.
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PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors
USPB’s business and affairs are governed by its boardBoard of directors.Directors. The boardBoard of directorsDirectors is to consist of seven directors. The boardBoard of directorsDirectors has full authority to act on behalf of USPB. The boardBoard of directorsDirectors 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 boardBoard of directors,Directors, nominees to the boardBoard of directorsDirectors 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 | ||||||
| Term Expires | ||||||
| Name | Age | Positions and Offices with Registrant | After FY | |||
| Mark R. Gardiner | 57 | Chairman of the Board | 2019 | |||
| Joe M. Morgan | 66 | Vice Chairman of the Board | 2019 | |||
| Jerry L. Bohn | 68 | Secretary | 2018 | |||
| Wayne L. Carpenter | 56 | Director | 2018 | |||
| John M. Freund | 50 | Director | 2019 | |||
| RexW. McCloy | 63 | Director | 2017 | |||
| Jeff H. Sternberger | 57 | Director | 2017 | |||
| Stanley D. Linville | 59 | Chief Executive Officer | — | |||
| Scott J. Miller | 53 | Chief Financial Officer | — | |||
| Danielle D. Imel | 42 | Treasurer | — | |||
Directors, Director Nominee and Executive Officers
| Name | Age | Positions and Offices with Registrant | Term Expires in March of FY | |||
| Mark R. Gardiner | 61 | Chairman of the Board | 2023 | |||
| Joe M. Morgan | 70 | Vice Chairman of the Board | 2023 | |||
| Jerry L. Bohn | 72 | Secretary | 2022 | |||
| Wayne L. Carpenter | 60 | Director | 2022 | |||
| John M. Freund | 54 | Director | 2023 | |||
| Rex W. McCloy | 67 | Director | 2024 | |||
| Jeff H. Sternberger | 61 | Director | 2024 | |||
| Stanley D. Linville | 63 | Chief Executive Officer | – | |||
| Scott J. Miller | 57 | Chief Financial Officer | – | |||
| Danielle D. Imel | 46 | 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 boardBoard of directors,Directors, Mr. Gardiner and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.
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Joe M. Morgan.Mr. Morgan has been managing commercial feed yards since 1983. He has been Manageris now CEO 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 85,000100,000 head), plus ranches in sevensix states. Mr. Morgan has had responsibility for all banking of Poky Feeders for over 3035 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 boardBoard of Directors since 2007 and as a Nominating Committee member prior to 2007. As a member of USPB’s boardBoard of directors,Directors, Mr. Morgan and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.
Jerry L. Bohn. Mr. Bohn is a board member and owner of Pratt Feeders. 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 alsois NCBA’s President in 2021, President Elect in 2020 and as NCBA’s Vice President in 2019, served on the NCBA’s Executive Committee, and as chairman of NCBA’s Live Cattle Marketing.Marketing, and NCBA’s Policy Committee, serving as Chair in 2018 and Vice-Chair in 2017. 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 boardBoard of directors,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 15,000 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.USPB’s inception. Mr. Carpenter has served as a member of the Company’s boardBoard of Directors since 2016. As a member of USPB’s boardBoard of directors,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 from 2011 to 2015. As a member of USPB’s boardBoard of directors,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 3440 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 boardBoard of directors,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 managerGeneral Manager and part owner of Midwest Feeders, Inc. Mr. Sternberger has been the manager ofserved Midwest Feeders, Inc. in this capacity since 1992 and has overseen large growth in his company and directed the acquisition of other businessbusinesses 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 and Kansas 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.LLC, Lloyd Waller Feedyard LLC and Plains State Bank. Mr. Sternberger holds a Bachelor of Science Degree in Agricultural Economics from Oklahoma State University. As a member of USPB’s boardBoard of directors,Directors, Mr. Sternberger and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.
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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.
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. 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 degrees in Accounting and Agricultural Economics from Kansas State University.
Board of Directors
Under USPB’s limited liability company agreement, the number of directors is set by the boardBoard of directorsDirectors 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 boardBoard of directorsDirectors 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 boardBoard of directors,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 boardBoard of directorsDirectors or by the holders of Class B units.
Compensation of Directors
The boardBoard of directorsDirectors meets from time to time at such time and place as may be fixed by resolution adopted by a majority of the whole boardBoard of directors.Directors. Members of the boardBoard of directorsDirectors 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 boardBoard of directors.Directors.
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Audit Committee
The boardBoard of directorsDirectors has an Audit Committee consisting of Messrs. Gardiner, 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 of Directors has identified Mr. Bohn as an “audit committee financial expert”. The Audit Committee selects and retains independent auditors and assists the boardBoard of directorsDirectors 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.
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,Chief Executive Officer, Chief Financial Officer, and treasurerTreasurer 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 |
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:
| · | Attracting and retaining top talent—The compensation of USPB’s executive officers must be commensurate with the competitive regional marketplace taking into consideration job responsibilities and supply of competent employees with the education and background to perform at the highest levels in their field. |
| · | Paying for financial and operational performance—The compensation of USPB’s executive officers should motivate them to achieve strong financial and operational results. USPB must achieve specific levels of financial and operational performance to allow executives to earn this portion of their compensation. |
| · | Alignment with the equity interests of our unitholders—Management phantom unit plans approved in September 2010 and January 2013 aligns management’s interest with the equity interests of USPB’s unitholders. |
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.
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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.
Fiscal Year 20172021 Executive Compensation Elements
The elements of our named executive officers total compensation package are as follows:
| · | base salary; |
| · | annual cash bonuses; |
| · | long-term cash bonus; |
| · | discretionary cash bonuses; |
| · | retirement plans; and |
| · | limited personal benefits. |
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 December 21, 2015,22, 2021, USPB entered into a newan amended employment agreement with Mr. Linville (Linville(2022 Employment Agreement), which became effective on January 1, 2016.December 26, 2021. The Linville2022 Employment Agreement provides for Mr. Linville to serve as USPB’s CEO for a term that started on January 1, 2016December 26, 2021 and expires on December 29, 2018.26, 2026. The Linville2022 Employment Agreement provides for Mr. Linville to receive an annual base salary of $300,000.$363,000.
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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 Linville2022 Employment Agreement, if Mr. Linville is employed by USPB on the last day of any fiscal year, (except as otherwise provided in the agreement) during the term of the Linville Employment Agreement, he shall be paid an 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 Linville2022 Employment Agreement.
For fiscal year 2017,2021, 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 fiscal year 20172021 USPB earnings before tax plus USPB grid premiums during the fiscal year, less (2) $15,000,000,$25,000,000, 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 Linville2022 Employment Agreement. If he is employed by USPB on December 29, 2018,26, 2026, 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, 2016December 26, 2021 to December 29, 201826, 2026 exceed $75,000,000 (Long-Term Incentive).
The Linville2022 Employment Agreement provides for a cumulative annual cap of $450,000$544,500 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive cash bonuses.
Discretionary Cash Bonuses
Discretionary bonuses may be 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.
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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, 4,750 Class A phantom units and 4,750 Class B phantom units remained outstanding, at December 30, 2017, 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 were fully vested on January 28, 2018.and remain outstanding at December 25, 2021.
Employment Agreements
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 December 21, 2015,22, 2021, USPB entered into the Linville2022 Employment Agreement with Mr. Linville, which became effective on January 1, 2016December 26, 2021 and expires on December 29, 2018,26, 2026, subject to earlier termination as provided in the 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 Linville The 2022 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 Linville Employment Agreement, he shall be paid an Annual Incentive. If he is employed by USPB on December 29, 2018, he is to be paid Long-Term Incentive compensation.provides for a $363,000 salary and annual and long-term cash bonuses. The Linville2022 Employment Agreement provides for a cumulative average annual cap of $450,000$544,500 for payments to Mr. Linville for annual and long-term incentive amounts. Mr. Linville currently holds a total of 2,300 Class A and 2,300 Class B phantom units.cash bonuses.
The Linville2022 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 Linville2022 Employment Agreement for good reason, Mr. Linville shall be entitled to salary and benefits through fiscalemployment year 2018;2026; payment of certain fringe benefits through fiscalemployment year 2018;2026; the annual incentive bonus for the year in which the termination occurs and each subsequent year through fiscalemployment year 2018;2026; the long-term incentive bonus that would have accrued had Mr. Linville been employed through fiscalemployment year 2018;2026; and the payment of the noncompetition compensation.
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.
Unit Ownership Guidelines
USPB does not allow its named executive officers to own USPB’s Class A units. As of December 30 2017,25, 2021, 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.
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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 of Directors that this Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
Compensation Committee Mark Gardiner – Chairman Joe Morgan Jerry Bohn
|
Summary Compensation Table
The table below sets forth information regarding compensation for our named executive officers for fiscal years 2017, 2016,2021, 2020, and 2015.2019. 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.
Name and Principal | Period | Salary | Bonus |
| Option |
| Non-Equity | All Other | Total | |||||
| Stanley D. Linville | FY 2017 | 305,172 | - | - | 450,000 (3) | 62,554 (1) | 817,726 | |||||||
| Chief Executive Officer | FY 2016 | 308,190 | - | - | 447,628 (3) | 77,387 (1) | 833,205 | |||||||
FY 2015 | 308,154 | - | - | 32,810 (3) | 13,410 (1) | 354,374 | ||||||||
| Scott J. Miller | FY 2017 | 188,246 | - | - | 245,006 (2) | 39,933 (1) | 473,185 | |||||||
| Chief Financial Officer | FY 2016 | 190,714 | - | - | 210,842 (2) | 71,978 (1) | 473,534 | |||||||
FY 2015 | 183,891 | - | - | 11,741 (2) | 11,386 (1) | 207,018 | ||||||||
| Danielle D. Imel | FY 2017 | 131,595 | - | - | 176,355 (2) | 14,625 (1) | 322,575 | |||||||
| Treasurer | FY 2016 | 132,964 | - | - | 151,764 (2) | 58,727 (1) | 343,455 | |||||||
FY 2015 | 128,681 | - | - | 8,451 (2) | - (1) | 137,132 | ||||||||
| Name and Principal Position | Period | Salary ($) | Bonus ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Stanley D. Linville | FY 2021 | 337,933 | – | – | 495,000 | (3) | 15,960 | (1) | 848,893 | |||||||||||||||||||
| Chief Executive Officer | FY 2020 | 339,995 | – | – | 495,000 | (3) | 388,853 | (1) | 1,223,848 | |||||||||||||||||||
| FY 2019 | 340,154 | – | – | 495,000 | (3) | 351,766 | (1) | 1,186,920 | ||||||||||||||||||||
| Scott J. Miller | FY 2021 | 188,273 | 271,950 | (2) | 14,823 | (1) | 475,046 | |||||||||||||||||||||
| Chief Financial Officer | FY 2020 | 188,273 | – | – | 271,950 | (2) | 290,387 | (1) | 750,610 | |||||||||||||||||||
| FY 2019 | 188,273 | – | – | 271,950 | (2) | 262,922 | (1) | 723,145 | ||||||||||||||||||||
| Danielle D. Imel | FY 2021 | 131,755 | 195,750 | (2) | 11,157 | (1) | 338,662 | |||||||||||||||||||||
| Treasurer | FY 2020 | 134,515 | – | – | 195,750 | (2) | 175,510 | (1) | 505,775 | |||||||||||||||||||
| FY 2019 | 132,006 | – | – | 195,750 | (2) | 159,272 | (1) | 487,028 | ||||||||||||||||||||
(1)Mr. Linville- Amounts for Mr. Linville include Company match under our 401(k) plan and non-dilution payments resulting from excess tax distributions andmade as a result of the management phantom unit plan, payment resulting from the payment of funds escrowed in the Leucadia Transaction, $10,800, $51,754,$11,600 and $0,$4,360, respectively in fiscal year 2017; $10,747, $2,8882021; $11,400 and $63,752,$377,453, respectively in fiscal year 2016;2020; and $10,523, $2,887$11,200 and $0,$340,566, respectively in fiscal year 2015.
2019.
Mr. Miller- Amounts for Mr. Miller include Company match under our 401(k) plan and non-dilution payments resulting from excess tax distributions andmade as a result of the management phantom unit plan, payment resulting from the payment of funds escrowed in the Leucadia Transaction, $10,800, $29,133,$11,600 and $0, repectively in fiscal year 2017; $10,322, $2,628 and $58,848,$3,223, respectively in fiscal year 2016;2021; $11,400 and $8,758, $2,628 and $0,$278,987, respectively in fiscal year 2015.
2020; and $11,200 and $251,722, respectively in fiscal year 2019.
Ms. Imel- Amounts for Ms. Imel include Company match under our 401(k) plan and non-dilution payments resulting from excess tax distributions andmade as a result of the management phantom unit plan, payment resulting from the payment of funds escrowed in the Leucadia Transaction, $8,705, $5,920,$9,261 and $0,$1,896, respectively in fiscal year 20172021; $11,400 and $7,535, $2,152 and $49,040,$164,110, respectively in fiscal year 2016. None of the benefits paid to Ms. Imel2020; and $11,200 and $148,072, respectively in fiscal year 2015 exceeded $10,000.2019.
(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-equity incentive plan compensation, which is to include the annual cash bonus and amounts earned pursuant to the long-term cash bonus plan pursuant to Mr. Linville's employment agreement. The amounts represent annual cash bonus of $450,000, $447,628,$495,000, $495,000, and $0$450,000 for fiscal years 2017, 2016,2021, 2020, and 2015,2019, respectively, and $0, $0, and $32,810$0 of long-term cash bonusbonuses for fiscal years 2017, 2016,2021, 2020, and 2015,2019, respectively. The Linville Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for annual and long-term incentive amounts. The cumulative annual cap is $495,000 for fiscal years 2021, 2020, and 2019.
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Grants of Plan-Based Awards in the Fiscal Year 20172021
The table below sets forth information regarding grants of a non-equity incentive plan-based award made to our named executive officers during fiscal year 2017.2021.
Estimated Future Payouts under Non-Equity Incentive Plan Awards | ||||||||||
| Name and Principal Position | Grant Date | Threshold ($) | Target ($) | Maximum ($) | ||||||
| Stanley D. Linville (2) | n/a | |||||||||
| Chief Executive Officer | ||||||||||
| Scott J. Miller | 11/1/2017 | $ | - | $ | 199,199(1) | $ 271,950 | ||||
| Chief Financial Officer | ||||||||||
| Danielle D. Imel | 11/1/2017 | $ | - | $ | 143,384(1) | $ 195,750 | ||||
| Treasurer | ||||||||||
| Estimated Future Payouts under Non-Equity Incentive Plan Awards | ||||||||||||||
| Name and Principal Position | Grant Date | Threshold ($) | Target ($) | Maximum ($) | ||||||||||
| Stanley D. Linville | 12/22/2021 | $ | – | (3) | – | (3) | $ | 2,722,500 | ||||||
| Chief Executive Officer | ||||||||||||||
| Scott J. Miller | 10/15/2021 | $ | – | $ | 230,809 | (1) | $ | 300,000 | ||||||
| Chief Financial Officer | ||||||||||||||
| Danielle D. Imel | 10/15/2021 | $ | – | $ | 150,603 | (1) | $ | 195,750 | ||||||
| Treasurer | ||||||||||||||
(1) The target amount is based on estimated benefits for fiscal year 2018.2022. Amounts to be paid, which could be more or less, will be based on actual input amounts for fiscal year 20182022 and will be paid out over a two-year period.
(2) There were no grantsOn December 22, 2021, USPB entered into the 2022 Employment Agreement, effective through December 26, 2026, with Mr. Linville that provides for non-equity incentive plan awards of plan-basedannual 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 $544,500 per year averaged over the term.
(3) Threshold and target compensation under these incentive plan awards in fiscal year 2017 for Mr. Linville.are not determinable and actual compensation will be based on company earnings, cattle deliveries and grid premiums over the term of the contract.
Discussion of Summary Compensation Table and Grants of Plan-Based Awards
Performance Based Annual Cash Bonuses
Our executive officers earn bonus awards made pursuant to various annual cash bonus plans. The awards utilize formulas set by the Compensation Committee. The bonuses earned pursuant to the plans appear in the Non-Equity Incentive Plan Compensation in the Summary Compensation Table. Annual incentive bonuses awarded to executives, excluding Mr. Linville, also appear in the Grants of Plan Based Awards table.table. The formulas used to calculate the annual performance-based bonus awards to the Named Executive Officers were as follows:
| Name | Bonus Formula | |
Stanley D. Linville | For fiscal year | |
| Scott J. Miller and Danielle D. Imel | For fiscal year |
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Other Bonuses
We also pay discretionary
Discretionary cash bonuses may also be paid to executive officers from time to time to reward elements of performance that are not reflected in the criteria for performance based cash bonuses. No such bonuses were paid to executive officers in fiscal year 2017, 2016,2021, 2020, and 2015.2019. The discretionary bonuses, if paid, are disclosed in the Bonus column in the Summary Compensation Table.
Outstanding EquityPhantom Plan Awards at Fiscal Year End 20172021
Option Awards | ||||||||
Number of Securities | ||||||||
| Underlying | Option Exercise Price | |||||||
Name and Principal Position | Unexercised Options | ($) | 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) | $0.00 | (3) | None | |||
| Phantom Plan Awards | |||||||||
| Name and Principal Position | Number of Securities Underlying Unexercised Awards | Strike Price ($) | 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) | $ | 66.04 | None | |||||
| 1,000 Class B Units | (2) | $ | 73.70 | 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) | $ | 66.04 | None | |||||
| 500 Class B Units | (2) | $ | 73.70 | 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 2017, 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 27, 2018, the unexercised phantom units were fully 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 2011 Leucadia Transaction, management employees received 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 satisified and is now $0. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,750 Class A phantom units and 4,750 Class A phantom units remained outstanding at December 31, 2017,
| (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 2021, 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. At the end of fiscal year 2021, the unexercised phantom units were fully vested and therefore fully exercisable. |
| (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 2011 Leucadia Transaction, management employees received 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. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,750 Class A phantom units and 4,750 Class A phantom units remained outstanding at December 25,2021, all of which were fully vested.
Phantom Plan Awards Exercised
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 Potential Payments Upon Termination Mr. Stanley D. Linville
If the
If the
Where the
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
Pay Ratio Disclosure Rule Pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the principal executive officer, Stanley D. Linville. The purpose of the disclosure is to provide a measure of the equitability of pay within the organization. The Company believes its compensation policy yields an equitable result.
In determining the median employee total annual compensation, a listing was prepared of all employees, other than the CEO, as of December Compensation Committee Interlocks and Insider Participation None of the members of our Compensation Committee is, or was, an officer or employee of
Equity Compensation Plan Information The table below sets forth information with respect to securities available for issuance under our equity compensation plan.
Security Ownership of Certain Beneficial Owners The following table sets forth certain information as of February
Name and Address of Beneficial Owner Title of Class Number of Units Beneficially Owned Percent of Class
SecurityOwnership of Management The following table furnishes information, as of February
Related Party Transactions USPB’s 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 transaction is on an arms-length basis which is fair to the Company. 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, and Sternberger. Certain Arrangements with Holders of NBP’s Membership Interests
All of the holders of NBP’s membership interests have 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
NBP also purchased additional cattle from certain USPB
Audit Fees Audit fees relate to the audits of our 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.
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.
PART IV
* Management contract or compensatory plan or arrangement.
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.
Date: March * * * * 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.
U.S. PREMIUM BEEF, LLC INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Members U.S. Premium Beef, Opinion on the We have audited the accompanying balance Basis for These financial statements are the responsibility of the We conducted our Our
Critical audit matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ We have served as the Company’s auditor since 2018. Kansas City, Missouri March 00248
U.S. PREMIUM BEEF, LLC Balance Sheets (thousands of dollars, except unit information)
See accompanying notes to financial statements.
U.S. PREMIUM BEEF, LLC Statements of Operations (thousands of dollars, except unit and per unit data)
See accompanying notes to financial statements.
U.S. PREMIUM BEEF, LLC Statements of Members' Capital (thousands of dollars)
See accompanying notes to financial statements.
U.S. PREMIUM BEEF, LLC Statements of Cash Flows (thousands of dollars)
See accompanying notes to financial statements.
U.S. Notes to 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. 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. 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 potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions. On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the conversion of the cooperative into a Delaware LLC. On December 5, 2011, USPB
On November 29, 2019, Jefferies Financial Group, Inc. (formerly Leucadia National Corporation) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, Ownership As USPB is structured as a Limited Liability Company, its members are not personally liable for liabilities of USPB. USPB’s members are taxed on their proportionate share of USPB’s taxable income. Class A Units. There are 735,385 Class A units outstanding. Class A unitholders are allocated 10% 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.There are 755,385 Class B units outstanding. Class B unitholders are allocated 90% of the Company’s profits and losses. Holders of USPB Class B units have no cattle delivery commitment. NOTE 2. Basis of Presentation and Accounting Basis of Presentation 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.
U.S. PREMIUM BEEF, LLC Notes to Financial Statements Fiscal Year The Company’s fiscal year ends on the last Saturday in December. The Company files annual reports for each 52 week or 53 week period ended on the last Saturday in December.
Use of Estimates The 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 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 The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of December 25, 2021 and December 26, 2020, the Company’s balance sheet reflected Cash and cash equivalents of $130.4 million and $76.8 million, respectively. The cash is invested in CoBank’s overnight investment account. Investments are not deposits and are not insured by the Federal Deposit Insurance Corporation or the Farm Credit System Insurance Corporation. Investment in National Beef Packing Company, LLC USPB’s The table below summarizes the changes to USPB’s investment in NBP.
For fiscal years
U.S. PREMIUM BEEF, LLC Notes to Financial Statements On June 10, 2019, the members of NBP acquired 100% of the ownership interests in Iowa Premium, LLC (Iowa Premium) from Sysco Holdings, LLC for $153.2 million in cash after customary working capital adjustments. The cash utilized by NBP’s members for the acquisition was distributed from NBP and immediately upon closing of the acquisition, each of the members of NBP contributed all its Iowa Premium ownership interests to NBP. The distribution, acquisition and contribution transactions were governed by several related agreements that resulted in NBP, in substance, acquiring 100% of the Iowa Premium ownership interests. On November 29, 2019, Jefferies Financial Group, Inc. sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%. In conjunction with the sale, NBP’s members, including USPB, received proportionate special distributions and tax distributions from NBP. 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:
A summary of cost and accumulated depreciation for property, plant, and equipment as of December
Depreciation expense was
U.S. PREMIUM BEEF, LLC Notes to
Distributions Payable USPB utilizes a controlled disbursement account to fund cash distribution checks presented for payment by the holder. Checks that have been issued Income Taxes Effective August 29, 2004, the Company converted to an LLC, and under this structure, taxes are not Although income taxes are assessed to the individual members, USPB is required to withhold state income taxes from the cash distributions it makes to it members. As of December 25, 2021 and December 26, 2020, Other accrued expenses and liabilities on the Company’s balance sheet reflected state taxes payable of $1.0 million and $0.5 million, respectively. 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. During fiscal years The current CEO’s employment agreement provides for him to receive noncompetition payments for a As of December
U.S. Notes to Financial Statements Business Segments USPB is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, USPB has one reportable segment. 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 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 to the extent that any outstanding dilutive Class A or Class B units were exercised. There are no potentially dilutive Class A or Class B units outstanding.
U.S. PREMIUM BEEF, LLC Notes to Financial Statements
NOTE 3. Long-Term Debt and Loan Agreements
(a)Credit Agreement USPB’s Amended and Restated Revolving Term Supplement’s matured on June 30, 2020. On June 24, 2020, CoBank unilaterally extended the Term Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to and including August 31, 2020. On July 13, 2020, USPB, and CoBank, ACB (“CoBank”), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (“Promissory Note”), and an Affirmation of Pledge Agreement (“2020 Loan Agreements”). The 2020 Loan Agreements replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement,
The 2020 Loan Agreements provide for a $1.0 million Revolving Term Commitment, carries a term of five years and matures on June 30, 2025. The Promissory Note defines Interest as equal to the One-Month LIBOR Index Rate or if LIBOR quotes are no longer available, CoBank will replace the LIBOR Index Rate with a replacement benchmark rate. The other terms and conditions of the Credit Agreement and the Revolving Term Loan Supplement
As of December
(b)
USPB’s two office leases are accounted for under ASC 842. The Kansas City, MO office lease has a remaining term of approximately 3.2 years. The Dodge City, KS office renewed its office NOTE 4. Employee Options and Benefit Plans 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 Class A phantom units and Class B phantom units were awarded to management employees, with a strike price of
U.S. PREMIUM BEEF, LLC Notes to Financial Statements On November 16, 2012, USPB’s Board of Directors approved the issuance of an additional Class A phantom units, with a strike price of As of December 25, 2021 and December 26, 2020, the Company had accrued $7.9 million and $5.3 million, respectively, for the management phantom plans. The accrued amounts are included in Accrued compensation and benefits and Other liabilities on the balance sheet. USPB provides its employees the opportunity to earn cash incentives and bonuses. The cash incentive and bonus plans were designed to provide the financial incentive to the employees to influence USPB unitholder benefits and are only paid after certain levels of benefits have been achieved. As of December 25, 2021 and December 26, 2020, the Company had accrued $1.4 million and $1.4 million, respectively, for the cash incentive and bonus plans. The accrued amounts are included in Accrued compensation and benefits on the balance sheet. 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
NOTE 5. Other Income Other non-operating income, net was 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 NOTE 7. Related Party Transactions All of the Company’s directors hold Class A 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.
U.S. PREMIUM BEEF, LLC Notes to Financial Statements On
NBP also purchased additional cattle from certain USPB members and associates outside of the
On June 10, 2019, the On November 29, 2019, Jefferies Financial Group, Inc. (Jefferies) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB’s Board of Directors elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%. In conjunction with its At December At December
U.S. PREMIUM BEEF, LLC Notes to Financial Statements NOTE 8. Legal Proceedings As of December 25, 2021, USPB is not currently involved in any litigation. However, because its ownership interest in NBP is USPB’s largest asset and because of the cattle procurement and distribution relationship between USPB and NBP, litigation involving NBP may impact USPB. NPB is a defendant in four class action lawsuits, one single-plaintiff lawsuit in the United States District Court, Minnesota District, one single-plaintiff lawsuit in the United States District Court, Southern District of Florida and one single-plaintiff lawsuit in the United States District Court, Connecticut, all of which allege that the Company violated the Sherman Antitrust Act and some of which allege that the Company violated the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws (the “Antitrust Cases”). The class-action Antitrust Cases are entitled In re Cattle Antitrust Litigation, which was filed originally on April 23, 2019, Peterson et al. v. JBS USA Food Company Holdings, et al., which was filed originally on April 26, 2019; In re DPP Beef Litigation, which was filed originally on April 26, 2019; and Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020. The single-plaintiff Antitrust Cases are entitled Winn-Dixie Stores, Inc. and Bi-Lo Holding, LLC v. Cargill, Inc., et al., which was filed on August 2, 2021; Cheney Brothers, Inc. v. Cargill, Inc., et al,, which was filed on January 31, 2022, and Subway v. Cargil, Inc. et al., which was filed on February 22, 2022.The plaintiffs in the Antitrust Cases seek treble damages and other relief under the Sherman Antitrust Act, the Packers & Stockyards Act, and/or the Commodities Exchange Act and attorneys’ fees. NBP is also a defendant in two class action lawsuits filed on January 7, 2020, alleging that it misrepresented the origin of its products in violation of the New Mexico Unfair Practices Act (the “Labelling Cases”). The Labelling Cases are entitled Thornton v. Tyson Foods, Inc., et al., filed in the New Mexico Second Judicial District Court, Bernalillo County, and Lucero v. Tyson Foods, et al., filed in the New Mexico Thirteenth Judicial District Court, Sandoval County. The Labelling Cases were subsequently removed to the United States District Court, New Mexico District. The plaintiffs in the Labelling Cases seek treble damages and other relief and attorneys’ fees. NBP believes it has meritorious defenses to the claims in the Antitrust Cases and the Labelling Cases and intends to defend these cases vigorously, although there can be no assurance as to the outcome of these cases or the impact on NBP’s consolidated financial position, results of operations and cash flows. In addition to the antitrust litigation, NBP is subject to investigations by the United States Department of Justice and approximately 30 NBP is a party to
USPB is not able to
NOTE On USPB has evaluated subsequent events through the date the financial statements were issued and determined there were no such events to report.
NATIONAL BEEF PACKING COMPANY, LLC INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Board of Managers National Beef Packing Company, We have audited the In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 25, 2021 and December 26, 2020, and the results of its operations and its cash flows for each of the Basis for opinion We conducted our audits of the consolidated financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of management for the 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
Auditor’s responsibilities for the audit of Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
We are required to communicate with those charged with governance regarding, among other matters, the
/s/ Kansas City, Missouri
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Consolidated Balance Sheets (in thousands)
See accompanying notes to
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Consolidated Statements of Operations (in thousands)
See accompanying notes to consolidated financial statements.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (in thousands)
See accompanying notes to consolidated financial statements.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands)
(a)Financial See accompanying notes to consolidated financial statements.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Consolidated Statements of Members’ Capital (in thousands)
(a) Financial See accompanying notes to consolidated financial statements.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS National Beef Packing Company, LLC
The Company operates beef slaughter and fabrication facilities in Liberal and Dodge City, Kansas and Tama, Iowa, consumer-ready
NOTE 2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES Basis of Presentation and Consolidation The consolidated financial statements include the accounts of Recent Accounting Standards In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The provisions of the new guidance were effective as of the beginning of our 2020 fiscal year. The adoption of this guidance did not have a material impact on our consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, new accounting guidance to improve the effectiveness of disclosures related to fair value measurements. The new guidance removes certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy along with the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Additions to the disclosure requirements include more quantitative information related to significant unobservable inputs used in Level 3 fair value measurements and gains and losses included in other comprehensive income. The provisions of the new guidance were effective as of the beginning of our 2020 fiscal year. The adoption of this guidance did not have a material impact on our consolidated financial statements.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective prospectively for all entities as of March 12, 2020 through December 31, 2022. The Company’s credit facility bears a variable interest rate that can be indexed off LIBOR rates, for which publication is expected to be discontinued in 2023. The Company’s credit facility includes a provision to provide an alternative benchmark rate in place of LIBOR rates once it is discontinued. The Company has not yet adopted this guidance and is currently evaluating the potential impact the adoption of this standard will have on its consolidated financial statements and related disclosures. Fiscal Year The
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
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company’s cash deposits are held at multiple financial institutions. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents. Allowance for Returns and The allowance for returns and
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table represents the rollforward of the allowance for returns and
Inventories Inventories consist primarily of beef, Inventories at December
Property, plant and equipment Property, plant and equipment
Depreciation expense was 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 as incurred.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company 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
The Company 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 indicate that the carrying amount of our property plant, and equipment may not be recoverable during
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.
ASC 360,Impairment and Disposal of Long-Lived Assets, provides that
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amounts of other intangible assets are as follows (in thousands):
For the fiscal years ended December
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Overdraft Balances The majority of
Self-insurance
The Company is self-insured for certain losses relating to workers’ compensation, automobile liability, general liability and employee medical and dental benefits. Distribution Payable Distribution payables represent cash distributions to our members that have been declared but not paid as of the end of the period. The distribution is a current liability as they are expected to be paid to the members in the following period. 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. Foreign Currency Translation
The Company has representative offices located in Tokyo, Japan; Seoul, South Korea; and Hong Kong. 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.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes The provision for income taxes is computed on a separate legal entity basis. Accordingly, as Fair Value of Financial Instruments The carrying amounts of
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 Advertising expenses are charged to operations in the period incurred and were Comprehensive Income Comprehensive income consists of net income and foreign currency translation adjustments.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company 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, 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
NOTE 3.
The Company generates revenue primarily from customers in the Revenue is measured by the transaction price, which is defined as the amount of consideration we expect to receive in exchange for
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Disaggregated Revenue The following table further disaggregates our sales by major revenue stream for the fiscal years ended (in thousands):
Contract Balances Nearly all of the Company’s contracts with its customers are short-term, defined as less than one year. The Company receives payment from customers based on terms established with the customer. Payments are typically due within seven days of delivery. There are rarely contract assets related to costs incurred to perform in advance of scheduled billings. The Company, which ships internationally, requires certain customers to pay in advance to avoid collection risk. Revenue contract liabilities relate to payments received in advance of satisfying the performance under the customer contract and are included in Other accrued expenses and liabilities in the consolidated balance sheets. Changes in the contract liability balances during 2021 are as follows (in thousands):
Changes in the contract liability balances during 2020 are as follows (in thousands):
Substantially all of the contract liability as of December 26, 2020 was recognized in revenue during 2021. The Company expects to recognize substantially all of the current year liability in 2022.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. LEASES The Company reviews all agreements entered into in order to determine if the contract contains a lease which will be accounted under ASC 842. Our portfolio of leases primarily consists of machinery, equipment and railcars for our slaughter and fabrication facilities and tractors and trailers for our wholly owned trucking subsidiary, National Carriers. In addition, we lease our corporate headquarters facility and various regional offices. Many of our tractor and trailer leases include a terminal rental adjustments clause (“TRAC”). Under these arrangements, at the end of the lease term and upon the lessor’s sale or disposition of the assets, if the amount received by the lessor is less than an amount predetermined and agreed upon in the lease arrangement, or the TRAC value, the Company is liable to the Lessor and shall immediately pay to the Lessor the amount of the deficiency as additional rental payments. The additional amount is typically limited to the TRAC value less a percentage of the original fair value of the leased assets. The Company considers these potential incremental lease payments as residual value guarantees and only includes the probable portion as lease payments upon lease commencement. The majority of our leases include fixed Upon adoption of ASC 842, we elected the
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During our fiscal years ended December 25, 2021, and December 26, 2020, we recognized rent expense associated with our leases as follows (in thousands):
Amounts recognized as right-of-use assets related to finance leases are included in Property, plant and equipment, at cost in the accompanying consolidated balance sheet, while amounts related to finance lease liabilities are included in Current installments of
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the fiscal years ended December 25, 2021 and December 26, 2020, we had the following cash and non-cash activities associated with our leases (in thousands):
The
As of December 25, 2021, the weighted-average remaining lease term for As of December 25, 2021, the weighted-average discount rate associated with operating leases is 3.4%, while the weighted-average discount rate associated with finance leases is 4.2%. As of December 26, 2020, the weighted-average discount rate associated with operating leases is 3.6%, while the weighted-average discount rate associated with finance leases is 4.2%.
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. ACQUISITIONS On February 28, 2019, we acquired 100% of the ownership interests in Ohio Beef USA, LLC (Ohio Beef) from NBM US Holdings, Inc., a subsidiary of Marfrig, for $60.0 million in cash. Ohio Beef is a fresh and As a result of the Ohio Beef transaction, the prior period consolidated financial
On June 10, 2019, the
NOTE
The Company has entered into various debt agreements
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Senior Credit At December Borrowings under the reducing revolver loan and the revolving credit facility are available for (b)Industrial Development Revenue Bonds
The cities of Liberal and Dodge City, Kansas issued an aggregate of
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Effective April 3, 2020, the Company entered a transaction with the City of Liberal, Kansas, designed to provide property tax savings. Under the transaction, the City intends to purchase certain assets of the Company’s Liberal, Kansas facility (the facility) by issuing federally taxable industrial revenue bonds in an amount not to exceed $65.0 million with a stated maturity of December 31, 2032. The City then leased the assets to the Company under a capital lease with a basic term expiring when any and all principal, redemption premium, and interest on said bonds are redeemed and paid in full. The Company purchased the City’s bonds with proceeds of its loans under the Debt Agreement. Because the City has assigned the lease to the bond trustee for the benefit of the Company as the sole bondholder, the Company, effectively controls enforcement of the lease against itself. As a result of the capital lease treatment, the facility remains a component of property, plant and equipment in the Company’s consolidated balance sheets. As a result of the legal right of offset, the capital lease obligation and the corresponding bond investments have been eliminated in consolidation. The facility remains subject to a prior mortgage and security interest in favor of the lenders under the Debt Agreement. The total amount of revenue bonds authorized for issuance is $65.0 million. (c)Debt issuance Amortization of
The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years and thereafter following December
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Commitments Utilities Commitment- Effective December 30, 2004, NOTE
The Company maintains tax-qualified employee savings and retirement plans, or the 401(k) Plans, covering certain of
During 2017, NOTE Income tax expense includes the following current and deferred provisions (in thousands):
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
NOTE
The Company entered into various transactions with various Marfrig affiliates, and a company affiliated with NBPCo Holdings, which holds an ownership interest in the Company, in the ordinary course of business. During fiscal years
In January 2007,
We are party to a long-term cattle supply agreement with U.S. Premium Beef, LLC (US Premium Beef), a minority owner of the Company. Under this agreement we have agreed to purchase from the members of US Premium Beef,
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE As part of
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 purchased in the normal course of business and are treated as normal purchases and sales and not recorded at fair value.
The Company enters into certain commodity derivatives, primarily with a diversified group of 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 The following table presents the fair values
NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the unrealized and realized gains (losses) on derivative contracts as reflected in the
NOTE
The Company is a defendant in four class action lawsuits, one single-plaintiff lawsuit in the
In addition to the antitrust litigation, the Company is subject to an investigation by the United States Department of Justice and approximately 30 state attorneys general regarding industry cattle procurement practices. The Company is cooperating with these investigations and is working with the Department of Justice and the relevant states to provide information requested in connection with the investigations. The Company believes it has meritorious defenses to any potential claims that might arise out of these government investigations, although there can be no assurance as to the outcome of these investigations or the impact on the Company’s consolidated financial position, results of operations and cash flows. The Company is a party to
NOTE
The Company evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through
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