Attached files

file filename
EX-32 - U. S. Premium Beef, LLCe32-1.htm
EX-32 - U. S. Premium Beef, LLCe32-2.htm
EX-31 - U. S. Premium Beef, LLCe31-2.htm
EX-31 - U. S. Premium Beef, LLCe31-1.htm

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

Form 10-K

(Mark one)

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

For the fiscal year ended December 26, 2015

or

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

For the transition period from                         to               .

Commission file number 333-115164

U.S. PREMIUM BEEF, LLC
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of incorporation or organization)

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

 

 

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

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

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

None

LOCATION OF EXHIBIT INDEX

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

 

 


 

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

14 

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

16 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.  22 
Item 8.  Financial Statements and Supplementary Data.  22 
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 

23 

Item 9A.  Controls and Procedures.  23 
Item 9B.  Other Information.  24 
     
  PART III.   
Item 10.  Directors, Executive Officers and Corporate Governance.  24 
Item 11.  Executive Compensation.  27 
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters. 

37 

Item 13.  Certain Relationships and Related Transactions, and Director Independence.  39 
Item 14.  Principal Accountant Fees and Services.  40 
     
  PART IV.   
Item 15.  Exhibits, Financial Statement Schedules.  42 
  Signatures  45 

 

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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, competitive practices and consolidation in the cattle production and processing industries, actions of domestic or foreign governments, hedging risk, changes in interest rates and foreign currency exchange rates, consumer demand and preferences, the cost of compliance with environmental and health laws, loss of key customers, loss of key employees, labor relations, and consolidation among our customers.

          In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this report will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Please review Item 1A, Risk Factors, included in this report, for other important factors that could cause actual results to differ materially from those in any such forward-looking statements.

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

 

 

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PART I

ITEM 1.     BUSINESS

BUSINESS OF U.S. PREMIUM BEEF, LLC

Overview

          U.S. Premium Beef, LLC (USPB) was organized in July 1996 as a Kansas cooperative by a steering committee of cattle producers. USPB’s goal is to provide market access and improve the marketing and processing of beef products requiring higher quality cattle for wholesale and retail customers and consumers while providing higher returns to cattle producers. USPB operates an integrated cattle processing and beef marketing enterprise where consumer and processor demands and requirements are implemented through changes in genetics, feeding, and management. USPB’s unitholders benefit from its supplier alliance with National Beef Packing Company, LLC (NBP) through (i) premiums received in excess of cash market prices for higher quality cattle, (ii) allocations of profits and losses and potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions.

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

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

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

          Due to the sale to Leucadia, beginning on December 31, 2011, USPB’s investment in NBP will be accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. Since USPB no longer has financial or operational control, NBP’s financial information will no longer be consolidated with USPB’s. NBP’s financial statements and footnotes will instead be attached as an exhibit to USPB’s 10-K.

Products and Production

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

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

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 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. That arrangement continues following the Conversion. Under that arrangement, USPB has delivered more than 12.4 million head of cattle to NBP for processing since it commenced deliveries.

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

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

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

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

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

Employees

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          USPB has seven employees as of December 26, 2015. 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 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 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.

Intellectual Property

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

Research and Development

          USPB does not conduct any research and development activities.

CATTLE DELIVERY ARRANGEMENTS

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

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

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

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

BUSINESS OF NATIONAL BEEF PACKING COMPANY, LLC

General

          NBP is one of the largest beef processing companies in the U.S., accounting for approximately 12.5% of the market. NBP processes and markets fresh boxed beef, consumer-ready beef, beef by-products and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had about 8,400 employees at December 26, 2015 and generated total revenues of $7.4 billion in 2015.

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

Beef Processing Services

          NBP’s profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products coupled with its overall volume and capacity utilization. NBP operates in a large and liquid commodity and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. NBP’s profitability typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability.

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

          Revenues in 2015 decreased about 5% in comparison to 2014, due to lower sales volume, as fewer cattle were processed, and lower average prices for beef and beef by-products. Additionally, during 2015 decreases to revenues of $52.9 million were recorded as a result of NBP's use of derivatives in its hedging activity associated with its forward sales of boxed beef and driven by a significant drop in live cattle futures prices amidst unusually high price volatility in the second half of the year. Revenues in 2014 increased about 5% in comparison to 2013, due primarily to higher selling prices despite lower sales volume, as fewer cattle were processed. For 2015, cost of sales declined as compared to 2014, due to fewer cattle processed, and a small decrease in the price of cattle. Cost of sales increased markedly during 2014 as compared to 2013 as industry slaughter declined approximately 5% from 2013 and cattle prices increased approximately 22% on average.

          The combined effects of both lower volumes and tighter margins due to the relative price of cattle compared to the selling price of beef and beef by-products impacted margins leading to reduced profitability in 2015 compared to 2014. Selling, general and other expenses in 2013 included a $63.3 million impairment charge in connection with NBP’s decision to close its Brawley, California beef processing plant. An additional impairment charge related to the Brawley plant of $4.7 million was included in Selling, general and other expenses in 2015. Also in connection with closing the Brawley facility, NBP recognized $6.9 million of costs including employee separation and retention, systems decommissioning and various other expenses in 2014. Of these amounts, $4.6 million related to employee separation, which is included in compensation and benefits, and the various other costs are included in selling, general and other expenses.

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Sales and Marketing

          NBP markets its products to national and regional retailers, including supermarket chains, independent grocers, club stores, wholesalers and distributors, food service providers, further processors and the U.S. military. In addition, NBP sells beef by-products to the variety meat, feed processing, fertilizer and pet food industries. NBP exports products to more than 20 countries; in 2015 export sales represented approximately 10.5% of revenues. The demand for beef is generally strongest in the spring and summer months and generally decreases during the winter months.

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

Raw Materials and Procurement

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

          On December 30, 2011, NBP entered into a new Cattle Purchase and Sale Agreement with USPB. Per the terms and conditions of the Agreement, NBP is required to purchase through USPB from its owners and associates, and USPB is required to sell and deliver from its owners and associates to NBP, a base amount of 735,385 (subject to adjustment) head of cattle per year. In fiscal years 2013 and 2012, USPB and NBP agreed to increase the number of cattle that USPB’s owners and associates could deliver during USPB’s delivery year by up to 10%. During fiscal years 2015, 2014 and 2013, USPB’s owners and associates provided approximately 28%, 23% and 21%, respectively, of NBP’s total cattle requirements. The purchase price for the cattle is determined by pricing grids, which, at all times, are required to be no less favorable than any other pricing grid being utilized by NBP and the pricing grid shall be competitive with NBP’s major competitors for the purchase of cattle. NBP believes the pricing grids are based on terms that could be obtained from an unaffiliated party. The cattle supply agreement extends through December 31, 2017, with automatic, but optional one year extensions on each December 30, unless either party provides a notice not to extend sixty days prior to the annual anniversary date. NBP also purchased additional cattle from certain USPB unitholders and associates outside of the cattle supply agreement.

Processing Facilities

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

Competition

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

Regulation and Environmental

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

          NBP is subject to the Packers and Stockyards Act of 1921 (PSA). Among other things, this statute generally requires NBP to make full payment for livestock purchases not later than the close of business the day after the purchase and transfer of possession or determination of the purchase price. Under the PSA, NBP must hold in trust for the benefit of unpaid livestock suppliers all livestock purchased until the sellers have received full payment. At December 31, 2015, NBP has obtained from an insurance company a surety bond in the amount of $50.4 million to satisfy these requirements.

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

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

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

Employees

          Of NBP’s 8,400 employees, about 5,500 are represented by collective bargaining agreements. About 2,700 employees at the Liberal plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2017, 2,500 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 2016, and another 220 employees at the St. Joseph plant are represented by the United Cereal Workers (R.W.D.S.U./U.F.C.W) under a collective bargaining agreement scheduled to expire in June 2019.

ITEM 1A.     RISK FACTORS

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

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

Risk Factors Associated With Operations of NBP

The prices and availability of key raw materials affects the profitability of NBP’s 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. A decline in the supply of fed cattle available for NBP’s Brawley facility was a key factor in the 2013 decision to close the plant. The cost of raw materials used by NBP’s manufacturing businesses has increased as a result of a variety of factors. Although NBP’s manufacturing subsidiaries are not currently experiencing any shortage of raw materials, if the subsidiaries experience shortages, revenues and profitability could decline.

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

          NBP is subject to risks relating to animal health and disease control. An outbreak of disease affecting livestock (such as foot-and-mouth disease or bovine spongiform encephalopathy (BSE), commonly referred to as mad cow disease) could result in restrictions on sales of products, restrictions on purchases of livestock from suppliers or widespread destruction of cattle. The discovery of BSE in the past caused certain countries to restrict or prohibit the importation of beef products. Outbreaks of diseases, or the perception by the public that an outbreak has occurred, or other concerns regarding diseases, can lead to inadequate supply, cancellation of orders by customers and create adverse publicity, any of which can have a significant negative impact on consumer demand and, as a result, on NBP’s 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 as E. coli) could be present in NBP’s products and result in illness or death if they are not eliminated through further processing or cooking. Contamination of NBP’s or its competitors’ products may create adverse publicity or cause consumers to lose confidence in the safety and quality of beef products. Allegations of product contamination may also be harmful even if they are untrue or result from third-party tampering. Any of these events may increase costs or decrease demand for beef products, any of which could have a significant adverse effect on NBP’s consolidated financial condition, cash flows and results of operations.

10


 

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

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

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

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

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

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

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

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

11


 

 

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

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

Risk Factors Associated with USPB

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

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

USPB’s investment in NBP could become impaired.

          USPB’s investment in NBP is carried under the equity method of accounting. Operating losses, economic and industry events, and a variety of other factors may result in a decrease in the value of the investment, which is other than temporary. Such potential decreases in value will cause the Company to record an impairment charge, which may have an impact on the trading values of USPB’s Class A and Class B units.

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

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

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

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

12


 

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

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

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

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

ITEM 1B.     UNRESOLVED STAFF COMMENTS

          Not applicable.

ITEM 2.     PROPERTIES

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

ITEM 3.     LEGAL PROCEEDINGS

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

ITEM 4.     NOT USED.

13


 

PART II 

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

          There is no established public trading market for any class of common equity of U.S. Premium Beef, LLC. As of February 27, 2016, there were 485 record holders of Class A units and 484 record holders of Class B units. The per unit sales prices for the fiscal years 2015 and 2014 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 2015                                               
Quarter ending:                                               

     March 28, 2015 

$

120.00 

  128.00    $

120.00 

  120.00    $

110.00 

  110.00    $

 

     June 27, 2015 

$

 

  $

    $

100.00 

  100.00    $

75.00 

  81.00 

     September 26, 2015 

$

100.00 

 

125.00    $

75.00 

  75.00    $

100.00 

  100.00    $

 

     December 26, 2015 

$

16.00 

 

16.00    $

141.00 

  141.00    $

    $

 
Subsequent to December 26, 2015  $

100.00 

 

100.00    $

87.50 

  75.00    $

    $

 
 
Fiscal Year 2014                                               
Quarter ending:                                               

     March 29, 2014 

$

1.00 

 

165.00    $

1.00 

  170.00    $

150.00 

  165.00    $

129.00 

  129.00 

     June 28, 2014 

$

62.40 

 

162.73    $

67.60 

  173.34    $

140.00 

  145.00    $

120.00 

  145.00 

     September 27, 2014 

$

 

  $

135.00 

  135.00    $

128.00 

  140.00    $

 

     December 27, 2014 

$

128.00 

 

170.00    $

135.00 

  135.00    $

120.00 

  120.00    $

85.00 

  86.00 
Subsequent to December 27, 2014  $

128.00 

 

163.50    $

120.00 

  120.00    $

    $

 

 

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

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

 

Class A 

 

Class B 

Fiscal Year 2015           

None 

  $0.00      $0.00 
 
Fiscal Year 2014           

February 24, 2014 

  $0.28      $2.48 

 

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

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

ITEM 6.     SELECTED FINANCIAL DATA

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

 

 

14


 

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

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

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

Statement of Operations Data: 

                                               

Net sales 

  -  

  -  

  -  

  -    

2,466.3  

  6,849.5  

Costs and expenses: 

                                               

Cost of sales 

    -       -       -       -       2,412.1       6,473.3  

Selling, general, and administrative 

    2.4       3.1       5.4       5.7       31.9       60.7  

Depreciation and amortization 

    -       -       -       -       15.4       54.6  

Operating (loss) income 

    (2.4     (3.1     (5.4     (5.7     6.8       260.9  

Other income (expense): 

                                               

Interest income 

    -       -       0.0       0.1       -       -  

Interest expense 

    -       -       (0.0     (0.3     (3.3     (11.7

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

    (18.9     (6.1     (6.5     8.6                  

Gain on deconsolidation and sale of majority of ownership 

                                               

interest in National Beef Packing Company, LLC 

    -       -       -       -       777.7       -  

Other, net 

    -       0.2       0.7       0.1       1.5       0.3  

Total other (expense) income 

    (18.9     (5.9     (5.8     8.5       775.9       (11.4

Income tax expense 

    -       -       -       (0.1     (0.7     (2.6

Net (loss) income 

    (21.3     (9.0     (11.2     2.7       782.0       246.9  

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

                                               

Kansas City Steak Company, LLC 

    -       -       -       -       (0.5     (0.6

National Beef Packing Company, LLC 

    -       -       -       -       (5.4     (78.7

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

  (21.3

  (9.0

  (11.2

  2.7    

776.1  

  167.6  
 

Selected Balance Sheet Data: 

                                               

Cash and cash equivalents 

  85.2  

  92.3  

  59.8  

  62.7    

642.7  

  78.6  

Total assets 

  218.2  

  240.5  

  254.9  

  267.4    

848.1  

  1,082.2  

Long-term debt, less current maturities 

  -  

  -  

  -  

  -    

-  

  321.9  

Non-controlling interest in National Beef Packing 

                                               

Company, LLC and Kansas City Steak Company, LLC 

  -  

  -  

  -  

  -    

-  

  354.2  

Capital shares and equities 

  211.8     233.1     244.2     254.5     275.3     85.1  
 

Units outstanding 

                                               

Class A units 

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

Class B units 

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

Per Unit Data: 

                                               

(Loss) Earnings Per Unit 

                                               

Basic 

                                               

Class A Units 

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

Class B Units 

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

 

  $190.98  

Diluted 

                                               

Class A Units 

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

Class B Units 

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

 

  $190.98  
 
Outstanding weighted-average units                                                 

Basic 

                                               

Class A Units 

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

Class B Units 

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

Diluted 

                                               

Class A Units 

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

Class B Units 

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

 

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

15


 

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

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

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.

          On December 1, 1997, the cooperative became operational by acquiring 25.4966% of FNB, a partnership owned by the cooperative and Farmland Industries, Inc. (Farmland). The cooperative acquired an additional 3.29% partnership interest in February 1998, bringing its ownership to 28.7866% of FNB. Farmland then owned the remaining 71.2134%.

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

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

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

          On June 12, 2003, the cooperative entered into an agreement with Farmland to acquire all of the partnership interests in FNB held by Farmland, which approximated 71.2%. As a result of this acquisition, the cooperative gained voting control of FNB and converted it to a limited liability company, National Beef Packing Company, LLC, under Delaware law. These transactions closed on August 6, 2003. NBP assumed both the Uniform Delivery and Marketing Agreements and the cattle purchase agreement.

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

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

16


 

 

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

          Due to the sale to Leucadia, beginning on December 31, 2011, USPB’s investment in NBP will be accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. Since USPB no longer has financial or operational control, NBP’s financial information will no longer be consolidated with USPB’s. NBP’s financial statements and footnotes will instead be attached as an exhibit to USPB’s 10-K.

          NBP is one of the largest beef processing companies in the U.S., accounting for approximately 12.5% of the market. NBP processes and markets fresh boxed beef, case-ready beef, beef by-products and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had about 8,400 employees at December 26, 2015 and generated total revenues of $7.4 billion in 2015.

          The largest share of NBP’s revenue, about 91%, is generated from the sale of fresh and chilled boxed beef products. NBP also generates revenues through value-added production with its case-ready products. In addition, NBP operates one of the largest wet blue tanning facilities in the world (wet blue tanning refers to the first step in processing raw and brine-cured hides into tanned leather), selling processed hides to tanners that produce finished leather for the automotive, luxury goods, apparel and furniture industries. Other streams of revenue include sales through its subsidiary, Kansas City Steak Company, LLC, which sells portioned beef and other products to customers in the food service and retail channels, as well as direct to consumers through internet and direct mail, and service revenues generated by National Carriers, Inc., a wholly owned truck fleet that is one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for NBP and a variety of other customers. USPB believes that its relationship with NBP is a competitive advantage within the industry and provides NBP with a consistent and dependable supply of high-quality cattle, including for processing in value-added and other programs.

Financial Statement Accounts

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

Critical Accounting Policies and Estimates

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

          Accounting for Investment in NBP. On December 30, 2011, USPB sold the majority of its ownership interest in NBP to Leucadia. On that date, USPB’s investment in NBP was measured at fair value and has since been carried under the equity method of accounting. Operating losses, economic and industry events, and a variety of other factors may result in a decrease in the value of the investment, which is other than temporary. Such potential decreases in value will cause the Company to record an impairment charge, which may have an impact on the trading values of USPB’s Class A and Class B units.

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

The cyclical nature of the beef and beef processing industry and the resulting impact on NBP’s financial results. NBP operating income typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability. The wide spread drought in cattle producing areas during the last couple of years caused farmers and ranchers to liquidate a large number of production age cows from their herds. As a result, the supply of fed cattle available for slaughter decreased significantly, which caused the purchase price paid by NBP for fed cattle to increase substantially. NBP was not able to increase the sales price of boxed beef by a like amount, which caused margins to be tighter than they have been historically.
   
  Increased precipitation in cattle producing areas has caused farmers and ranchers to hold back heifers to rebuild their herds. USPB, as well as others that follow the beef industry, believes the increase in the supply of fed cattle available for slaughter will begin sometime in 2016. As NBP’s margins are higher during times of ample cattle availability, an increase in the supply of fed cattle available for slaughter will enable NBP to start returning to realizing normal operating income.
   

The intent and ability of USPB to retain its investment. USPB made the original investment in NBP to provide USPB’s members with a guaranteed market for their fed cattle and to enable them to be paid for the market value of their cattle, instead of accepting the going cash price. Without the investment in NBP, USPB’s members will not be able to receive those benefits.
   
  NBP is required to make distributions to its members, to the extent it has taxable income. However, USPB is not dependent upon NBP’s distributions to meet its cash flow requirements. USPB has a strong balance sheet, which is evidenced by the cash that was available on December 26, 2015. USPB also has a credit facility to utilize, if necessary

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

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

Results of Operations

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

 

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

(millions of dollars)

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

Operating Activities

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

          Net cash used in operating activities was $4.9 million in fiscal year 2014 as compared to $6.0 million in fiscal year 2013. The $1.1 million decrease was primarily due to lower expenses, which was partially offset by higher compensation related payments, which were up primarily due to the appreciation right payment on the former CEO’s Class A phantom units.

Investing Activities

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

          Net cash provided by investing activities was $38.9 million in fiscal year 2014 as compared to $3.0 million in fiscal year 2013. The $35.9 million change was due to the receipt of escrow monies related to the 2011 transaction with Leucadia.

Financing Activities

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

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

CoBank Debt

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

          All of the $5 million revolving credit commitment was available as of December 26, 2015. Borrowings under the revolving credit commitment bear interest at the base rate or LIBOR rate plus applicable margin.

          On December 30, 2011, in connection with the closing of the transaction with Leucadia, the Company and CoBank entered into the Consent and First Amendment to Pledge Agreement and Security Agreement, by which CoBank agreed to (i) consent to the Membership Interest Sale and the PA Distribution, (ii) release its security interest in, and liens on, the Membership Interests being sold pursuant to the Membership Interest Sale, (iii) consent to the NBP Pledge and (iv) consent to the amendments and restatements of the NBP Operating Agreement and the PA Newco Operating Agreement. The NBP Pledge grants NBP a perfected security interest in and to USPB’s membership interests in, and distributions from, NBP, subject only to the prior first priority security interest held by CoBank.

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Cash Payment Obligations

          The following table describes the cash payment obligations as of December 26, 2015 (thousands of dollars):

      Fiscal Year   Fiscal Year     Fiscal Year     Fiscal Year     Fiscal Year      
  Total  2016 (Year 1)    2017 (Year 2)      2018 (Year 3)      2019 (Year 4)      2020 (Year 5)      After Year 5 
Term loan facility  -   -   -   -   -  
Revolving credit facility  -   -   -   -   -  
Interest on long-term debt  -   -   -   -   -  
Non-competition payments (1)  5,475  853   854   856   857   859   1,197 
Operating leases  324  54   54   54   54   54   54 

     Total 

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

          As of December 26, 2015, we did not have any significant 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 2015 and 2014. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse effect on our business, financial condition and results of operations.

Seasonality and Fluctuations in Operating Results

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

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     None

ITEM 9A.     CONTROLS AND PROCEDURES

          We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the consolidated financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in alerting them, in a timely manner, to material information required to be included in our periodic Securities and Exchange Commission filings. There have been no changes in our internal control over financial reporting during the thirteen weeks ended December 26, 2015 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 consolidated financial statements.

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

          Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 26, 2015. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework).

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

 

 

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          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 Loan Agreement.

PART III

ITEM 10.      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors

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

Directors, Director Nominee and Executive Officers   
            Term Expires 
Name 

 

Age    Positions and Offices with Registrant    After FY 
Mark R. Gardiner 

 

55    Chairman of the Board    2016 
Duane K. Ramsey 

 

79    Vice Chairman of the Board    2015 
Joe M. Morgan 

 

64    Secretary    2016 
Jerry L. Bohn 

 

66    Director    2015 
John M. Freund 

 

48    Director    2016 
RexW. McCloy 

 

61    Director    2017 
Jeff H. Sternberger 

 

55    Director    2017 
Stanley D. Linville 

 

57    Chief Executive Officer    — 
Scott J. Miller 

 

51    Chief Financial Officer    — 
Danielle D. Imel 

 

40    Treasurer    — 

 

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

 

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

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

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

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

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

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

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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-Kansas City. He has passed the Certified Public Accounting exam and the Certified Cash Managers exam.

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

Board of Directors

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

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

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

Compensation of Directors

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

Audit Committee

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

 

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Code of Ethics

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

ITEM 11.     EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Overview of Compensation Program

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

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

Compensation Philosophy and Objectives

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

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

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

Annual Cash Incentive/Bonuses

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

          Under the terms of the CEO’s First 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 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 First Employment Agreement.

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

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

          Long-term Incentive

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

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

          Discretionary Cash Bonuses

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

         Retirement Plans

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

         Limited Personal Benefits

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

Equity Compensation

          In September 2010, USPB’s Board of Directors approved a management phantom unit plan. The phantom unit plan provides for the award of unit appreciation rights to certain management employees of USPB. USPB’s CEO administers the phantom unit plan and awards “Phantom Units” (Class A and Class B Units) to employees in amounts determined by the CEO, subject to the total Phantom Unit amount approved by the Board of Directors of USPB. During fiscal year 2011, a total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to management employees. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,883 Class A phantom units and 4,883 Class B phantom units remained outstanding at December 26, 2015, all of which were fully vested.

          In November 2012, USPB’s Board of Directors approved the issuance of an additional 1,500 Class A phantom units and 1,500 Class B phantom units to certain members of management, to be effective on January 28, 2013. These phantom units will vest over a five year period and were approximately 60% vested on January 28, 2016.

Employment Agreements

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

CEO Employment Agreement

          On November 23, 2012, USPB entered into the First Employment Agreement with Mr. Linville, which became effective on January 28, 2013. Pursuant to the First Employment Agreement, Mr. Linville now serves as USPB’s Chief Executive Officer for a term that started on January 28, 2013 and expires on December 31, 2015, subject to earlier termination as provided in the First Employment 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 First 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 First Employment Agreement, he shall be paid an Annual Incentive. If he is employed by USPB on December 31, 2015, he is to be paid Long-Term Incentive compensation. The First Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for annual and long-term incentive amounts. As of the effective date of the First Employment Agreement, Mr. Linville was granted an additional 1,000 Class A and 1,000 Class B phantom units under USPB’s existing management phantom units plan. Mr. Linville currently holds a total of 2,300 Class A and 2,300 Class B phantom units.

          The First 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 First Employment Agreement for good reason, Mr. Linville shall be entitled to salary and benefits through employment year 2015; payment of certain fringe benefits through employment year 2015; the annual incentive bonus for the year in which the termination occurs and each subsequent year through employment year 2015; the long-term incentive bonus that would have accrued had Mr. Linville been employed through employment year 2015; and the payment of the noncompetition compensation.

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

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

 

 

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Impact of Tax and Accounting Treatments

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

Unit Ownership Guidelines

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

Compensation Committee Report

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

Compensation Committee

Mark Gardiner – Chairman
Duane Ramsey
Joe Morgan

 

 

 

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Summary Compensation Table

          The table below sets forth information regarding compensation for our named executive officers for fiscal year 2015, 2014, and 2013. Non-Equity Incentive Plan Compensation amounts reflected in this table are performance based awards and include amounts earned under our annual and long term cash bonus plans.

                    Non-Equity           
                    Incentive Plan           
Name and Principal                Option    Compensation    All Other       
Position    Period    Salary ($)    Bonus ($)    Awards ($)    ($)    Compensation ($)      Total ($) 
 
Stanley D. Linville    FY 2015    308,154        32,810  (3) 13,410 (1)    354,374 
Chief Executive Officer    FY 2014    305,855        17,802  (3) 12,927 (1)    336,584 
    FY 2013    299,331        77,305  (3) 12,808  (1)   389,445 
 
Scott J. Miller    FY 2015    183,891        11,741  (2) 11,386 (1)   207,018 
Chief Financial Officer    FY 2014    183,873        32,440  (2) 14,703  (1)   231,016 
    FY 2013    181,016        53,240  (2) (1)   234,256 
 
Danielle D. Imel    FY 2015    128,681        8,451  (2) (1)   137,132 
Treasurer    FY 2014    128,668        23,349  (2) 12,336  (1)   164,353 
    FY 2013    126,317        38,333  (2) (1)   164,650 

 

 

(1) Mr. Linville  Amounts for Mr. Linville include Company match under our 401(k) plan and non dilution payments resulting from excess tax distributions,  $10,523 and $2,887, respectively in fiscal year 2015; $10,398 and $2,529, respectively in fiscal year 2014; and $10,153 and $2,655, respectively in fiscal year 2013.

Mr. Miller  Amounts for Mr. Miller include Company match under our 401(k) plan and non dilution payments resulting from excess tax distributions, $8,758 and $2,628, respectively in fiscal year 2015 and $12,407 and $2,296, respectively in fiscal year 2014. None of the benefits paid to Mr. Miller in fiscal year 2013 exceeded $10,000.

Ms. Imel Amounts for Ms. Imel include Company match under our 401(k) plan and non dilution payments resulting from excess tax distributions, $10,460 and $1,876, respectively in fiscal year 2014. None of the benefits paid to Ms. Imel in fiscal years 2015 and 2013 exceeded $10,000. 

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

(3) The amount of non 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 represents annual cash bonus of $0, $17,802  and $77,305  for fiscal years 2015, 2014 and 2013, respectively, and $32,810, $0 and $0 of long term cash bonus for fiscal years 2015, 2014 and 2013, respectively. The Linville Employment Agreement provided for a cumulative annual cap of $450,000  for payments to Mr. Linville for annual and long term incentive amounts.

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Grants of Plan-Based Awards in the Fiscal Year 2015

          The table below sets forth information regarding grants of a non-equity incentive plan-based award made to our named executive officers during fiscal year 2015.

      Estimated Future Payouts under Non-Equity Incentive 
     

Plan Awards 

 

Name and Principal Position 

 

Grant Date  Threshold($)

Target ($) 

 

Maximum ($) 

Stanley D. Linville (2) 

 

12/21/2015 

- (3     (3

1,350,000 

Chief Executive Officer 

 

                     
 

Scott J. Miller 

 

10/22/2015 

  -  

11,741  (1

271,950 

Chief Financial Officer 

 

                     
 

Danielle D. Imel 

 

10/22/2015    -   8,451  (1 195,750 
Treasurer                         

 

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

(2) On December 21, 2015, USPB entered into an employnment agreement, effective January 1, 2016 through December 29, 2018, with Mr. Linville that provides for non-equity incentive plan awards of annual cash bonuses and long-term cash bonuses. The compensation provided to Mr. Linville in the form of annual cash and long-term cash bonuses shall be subject to a cumulative annual cap pro-rated over the term of his contract not to exceed $450,000 per year averaged over the term.

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

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

Performance Based Annual Cash Bonuses

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

Name Bonus Formula

Stanley D. Linville

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

 

Scott J. Miller and
Danielle D. Imel

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

 

Other Bonuses

 

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

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

Option Exercise Price 

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

 

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

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

(3) During fiscal year 2011, a total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to certain management employees, with a strike price of $118 and $157, respectively. However, as a result of the Leucadia transaction, which occurred in December 2011, employees with phantom plan awards were paid $687 per combined Class A and Class B phantom units less the combined strike price of $275 ($118 + $157). Subsequent to this payment, the new strike prices for Class A phantom units and Class B phantom units are now $0.00 and $0.00, respectively. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,883 Class A phantom units and 4,883 Class B phantom units remained outstanding at December 26, 2015, all of which were fully vested.

 

 

Options Exercised 
 
  Option Awards 
  Number of options      Value realized on 
Name and Principal Position 

acquired on exercise 

    exercise ($) 
Stanley D. Linville   
Chief Executive Officer         
 
Scott J. Miller   
Chief Financial Officer         
 
Danielle D. Imel   
Treasurer         

 

Retirement Plans

          We do not maintain a qualified or non-qualified defined benefit pension plan covering any of our employees. Our named executive officers are eligible to participate in our tax-qualified Profit Sharing and Savings Plan on the same basis as other employees under the plan. The Company makes a matching contribution to this plan equal to 100% of each participant’s own elective contributions up to 4% of his or her qualifying compensation. The Company also has the discretion to make annual profit sharing contributions that are allocated among all eligible participants in proportion to their respective compensation. The Company did not make a profit sharing contribution to the plan in fiscal year 2015. The Summary Compensation Table above reflects the contributions to our Profit Sharing and Savings Plan for those employees whose All Other Compensation exceeds $10,000.

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Potential Payments Upon Termination

Mr. Stanley D. Linville

First Employment Agreement

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

  • Salary to the date of the termination plus continued monthly payment of salary through the earlier of the first anniversary of the termination or the contract expiration date (Deemed Termination Date). If Mr. Linville were terminated upon death or disability in fiscal year 2015, his payment would be $300,000;
  • If termination is due to permanent disability, provision of certain fringe benefits through the Deemed Termination Date, but excluding vacation pay, personal and sick days, vehicle, telecommunications, and 401(k) contributions, (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination shall be paid to CEO in equal monthly payments), through the Deemed Termination Date;
  • Annual Incentive through the employment year in which the Deemed Termination Date occurs pro- rated for the last employment year based upon the period through the Deemed Termination Date;
  • Long-term Incentive that would have accrued if Mr. Linville had remained employed under the First Employment Agreement through the Deemed Termination Date; and
  • The First Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

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

  • Salary earned to the date of the termination; and
  • Payment of noncompetition compensation, unless Mr. Linville is terminated for being convicted of a felony or other serious crime or engaging in fraud, embezzlement or other illegal conduct to the detriment of USPB, in which case noncompetition compensation will not be paid.

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

  • Salary and benefits through December 31, 2015;
  • Payment of certain fringe benefits, but excluding vacation pay, personal and sick days, vehicle, telecommunications, and 401(k) contributions (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination shall be paid to CEO in equal monthly payments) through December 31,2015;
  • Annual Incentive for the year in which the termination occurs and each subsequent year through employment year 2015;
  • Long-Term Incentive that would have accrued had Mr. Linville had remained employed through employment year 2015; and
  • The payment of the noncompetition compensation.
  • The First Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

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

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Second Employment Agreement

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

  • Salary to the date of the termination plus continued monthly payment of salary through the earlier of the first anniversary of the termination or the contract expiration date (Deemed Termination Date). If Mr. Linville were terminated upon death or disability in fiscal year 2016, his payment would be $300,000;
  • If termination is due to permanent disability, provision of certain fringe benefits through the Deemed Termination Date, but excluding vacation pay, personal and sick days, vehicle, telecommunications, and 401(k) contributions, (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination shall be paid to CEO in equal monthly payments), through the Deemed Termination Date;
  • Annual Incentive through the employment year in which the Deemed Termination Date occurs pro- rated for the last employment year based upon the period through the Deemed Termination Date;
  • Long-term Incentive that would have accrued if Mr. Linville had remained employed under the Second Employment Agreement through the Deemed Termination Date; and
  • The Second Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

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

  • Salary earned to the date of the termination; and
  • Payment of noncompetition compensation, unless Mr. Linville is terminated for being convicted of a felony or other serious crime or engaging in fraud, embezzlement or other illegal conduct to the detriment of USPB, in which case noncompetition compensation will not be paid.

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

  • Salary and benefits through December 29, 2018;
  • Payment of certain fringe benefits, but excluding vacation pay, personal and sick days, vehicle, telecommunications, and 401(k) contributions (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination shall be paid to CEO in equal monthly payments) through December 29, 2018;
  • Annual Incentive for the year in which the termination occurs and each subsequent year through employment year 2018;
  • Long-Term Incentive that would have accrued had Mr. Linville had remained employed through employment year 2018; and

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  • The payment of the noncompetition compensation.
  • The Second Employment Agreement provides for a cumulative annual cap of $450,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

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

Director Compensation Table

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

          The table below reflects compensation paid to each director during the fiscal year 2015.

  Fees Earned or 
Name  Paid in Cash ($) 
Mark R. Gardiner  2,500 
Duane K. Ramsey  2,500 
Joe M. Morgan  2,500 
Jerry L. Bohn  2,000 
John M. Freund  1,250 
RexW. McCloy  1,750 
Jeff H. Sternberger  2,000 

 

Compensation Committee Interlocks and Insider Participation

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

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

Equity Compensation Plan Information

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

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Equity Compensation Plan Information 

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

Plan Category 

 

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

 

Security Ownership of Certain Beneficial Owners

          The following table sets forth certain information as of February 27, 2016 regarding the only persons known by the Company to own directly or indirectly, more than 5% of its Class A and Class B units.

       

Number of Units 

     
        Beneficially       
Name and Address of Beneficial Owner   Title of Class    Owned   

Percent of Class

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

   Scott City, KS 67871

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

   PO Box 186

  Class B    41,125    5.4

   Scott City, KS 67871

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

 

(1)

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

(2)

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

(3)

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

(4)

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

Security Ownership of Management

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

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    Beneficial Ownership of 
   

Class A Units

 

Class B Units

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

Percentage (2)

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

 

(1) Represents the percentage of Class A units and the percentage of Class B units beneficially held by the named party.
(2) Includes i) 38,770 Class A and Class B units held by Midwest Feeders Inc., of which Mr. Sternberger is an owner and the General Manager, and ii) 2,000 Class A and Class B units held by CRI Feeders of Guymon, LLC of which Mr. Sternberger is a director. 37,770 of the Class A and Class B units are pledged as security.
(3) Includes i) 35,867 Class A and 31,617 Class B units held by Pratt Feeders, LLC, of which Mr. Bohn is the general manager. All of the units are pledged as security.
(4) Includes 17,865 Class A and Class B units held by Mr. Morgan and 15,263 Class A units held by Poky Feeders, of which Mr. Morgan is the manager.
(5) Includes 16,085 Class A units and 13,085 Class B units held by Rex McCloy Farms, Inc., of which Mr. McCloy is an owner.
(6) Includes i) 8,800 Class A and Class B units held by the Duane K. Ramsey Trust, over which Mr. Ramsey has sole voting and investment power.
(7) Includes i) 3,000 Class A and Class B units held by the Mark Gardiner Revocable Trust and ii) 100 Class A and Class B units held by Gardiner Angus Ranch, Inc., over which Mr. Gardiner has sole voting and investment power.
(8) Includes 2,225 Class A and Class B units held by the John Freund, over which Mr. Freund has sole voting and investment power.
(9) Reflects unit ownership by all seven directors, the nominees to the board, and the named executive officers of USPB.

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

Related Party Transactions

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

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

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

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

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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, Freund, Gardiner, McCloy, Morgan, Ramsey, and Sternberger.

Certain Arrangements with Holders of NBP’s Membership Interests

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

Transactions with NBP

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

ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

          PricewaterhouseCoopers, LLP, an independent registered public accounting firm, served as our auditors for fiscal years 2015 and 2014 (thousands of dollars).

    Fiscal Year Ended      Fiscal Year Ended 
    December 26, 2015      December 27, 2014 
 
Audit Fees  113    111 
Audit Related Fees       
Tax Fees    231      219 
All Other Fees       

     Total 

348    330 

 

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Audit Fees

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

Audit-Related Fees

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

Tax Fees

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

All Other Fees

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

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

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
(a) Financial Statements and Financial Statement Schedules
 
(1) The consolidated financial statements filed as part of this report at Item 8 are listed in the Index to the Consolidated Financial Statements on page F-1 contained herein.
 
(b) The following documents are filed or incorporated by reference as exhibits to this report:
 
2.1 Agreement and Plan of Merger between U. S. Premium Beef, Ltd. and U. S. Premium Beef, Inc.(incorporated herein by reference to Appendix A to voting materials-prospectus contained in U. S.Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).
 
2.2 Plan of Conversion adopted by U. S. Premium Beef, Inc. (incorporated herein by reference to Appendix B to the voting materials prospectus contained in U. S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).
 
3.1 Certificate of Formation of U.S. Premium Beef, LLC (incorporated herein by reference to Appendix C to the voting materials prospectus contained in U. S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5,2004).
 
3.2(a) Limited Liability Agreement of U. S. Premium Beef, LLC (incorporated herein by reference to Appendix D to the voting materials prospectus contained in U. S. Premium Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).
 
3.2(b) Amended and Restated Limited Liability Company Agreement of U. S. Premium Beef, LLC, dated as of March 2, 2011 (incorporated herein by reference to Exhibit 3.1 to Form 8-K (File No. 333-115164) filed with the SEC on March 7, 2011).
 
3.2(c) Amended and Restated Limited Liability Company Agreement of U. S. Premium Beef, LLC, dated as of January 17, 2012 (incorporated herein by reference to Exhibit 3 to Form 8-K (File No. 333- 115164) filed with the SEC on January 18, 2012).
 
10.2 Cattle Purchase and Sale Agreement dated December 30, 2011 between the Company and National Beef Packing Company, LLC (incorporated herein by reference to Exhibit 10.2 to Company's Current Report on Form 8-K (File No. 333-115164) filed with the SEC on December 30, 2011).
 
10.3(b) Form of Uniform Cattle Delivery and Marketing Agreement Odd Slots (incorporated by reference to Exhibit 10.3(b) to Form 10-K (File No. 333-115164) filed with the Commission on November 14, 2007).
 
10.4(b)* U. S. Premium Beef, LLC Phantom Unit Bonus Compensation Policy adopted September 28, 2010 (incorporated herein by reference to Exhibit 10.02 to Form 8-K (File No. 333-115164) filed with the SEC on October 4, 2010).

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

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

 

_____________

* Management contract or compensatory plan or arrangement.

** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

44


 

SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

U.S. Premium Beef, LLC

By: /s/ Stanley D. Linville


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

Date: March 10, 2016

* * * *

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

Signature 

Title 

Date 
 
/s/ Stanley D. Linville     
Stanley D. Linville  Chief Executive Officer   
  (Principal Executive Officer)  March 10, 2016 
 
/s/ Scott J. Miller     
Scott J. Miller  Chief Financial Officer   
  (Principal Financial and Accounting Officer)  March 10, 2016 
 
/s/ Mark R. Gardiner     
Mark R. Gardiner  Chairman of the Board   
    March 10, 2016 
 
/s/ Duane K. Ramsey     
Duane K. Ramsey  Vice Chairman of the Board   
    March 10, 2016 
 
/s/ Jerry L. Bohn     
Jerry L. Bohn  Director   
    March 10, 2016 
 
/s/ John M. Freund     
John M. Freund  Director   
    March 10, 2016 
 
/s/ Rex W. McCloy     
Rex W. McCloy  Director   
    March 10, 2016 
 
/s/ Jeff H Sternberger     
Jeff H. Sternberger  Director   
    March 10, 2016 

 

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U.S. PREMIUM BEEF, LLC

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Page 

Audited Consolidated Financial Statements:     
     

Report of Independent Registered Public Accounting Firm – PricewaterhouseCoopers, LLP 

F-2 

 

   

Consolidated Balance Sheets at December 26, 2015 and December 27, 2014 

F-3

 

   

Consolidated Statements of Operations for the years ended December 26, 2015, December 27, 

   

2014, and December 28, 2013 

F-4 

 

   

Consolidated Statements of Comprehensive Loss for the years ended December 26, 2015, 

   

December 27, 2014, and December 28, 2013 

F-5 

 

   

Consolidated Statements of Capital Shares and Equities for the years ended December 26, 

   

2015, December 27, 2014, and December 28, 2013 

F-5 

 

   

Consolidated Statements of Cash Flows for the years ended December 26, 2015, December 27, 

   

2014, and December 28, 2013 

F-6 

 

   

Notes to Consolidated Financial Statements 

F-7 

 

   

National Beef Packing Company, LLC Consolidated Balance Sheets at December 26, 2015 and December 27, 2014 and Consolidated Statements of Operations, Comprehensive (Loss) Income, Cash Flows and Members’ Capital for years ended December 26, 2015, December 27, 2014, and December 28, 2013 and Notes to Consolidated Financial Statements 

F-17 

 

F-1


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

 

 

 

 

F-2


 

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

December 26, 2015 

 

December 27, 2014 

Current assets:           

     Cash and cash equivalents 

85,220    92,344 

     Due from affiliates 

  137      82 

     Other current assets 

     

        Total current assets 

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

     Less accumulated depreciation 

  175      214 

        Net property, plant, and equipment 

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

        Total assets 

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

     Accounts payable - trade 

14    34 

     Due to affiliates 

      17 

     Accrued compensation and benefits 

  1,066      1,169 

     Other accrued expenses and liabilities 

  179      120 

     Patronage notices payable 

  90      90 

     Distributions payable 

     

        Total current liabilities 

  1,349      1,432 
Long-term liabilities:           

     Other liabilities 

  5,118      5,983 

        Total long-term liabilities 

  5,118      5,983 

        Total liabilities 

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

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

         

        issued and outstanding 

  211,770      233,086 

        Total capital shares and equities 

  211,770      233,086 

        Total liabilities and capital shares and equities 

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

 

F-3


 

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

   Cost of sales 

  -       -       -  

   Selling, general, and administrative expenses 

  2,397       3,116       5,364  

   Depreciation and amortization 

  7       2       6  

     Total costs and expenses 

  2,404       3,118       5,370  

        Operating loss 

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

   Interest income 

  47       47       40  

   Interest expense 

  (13     (30     (70

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

  (18,949     (6,140     (6,464

   Other, net 

  4       204       671  

     Total other expense 

  (18,911     (5,919     (5,823

        Loss before taxes 

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

        Net loss 

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

   Basic 

                     

     Class A units 

$ (2.90   $ (1.23   $ (1.52

     Class B units 

$ (25.40   $ (10.77   $ (13.34

   Diluted 

                     

     Class A units 

$ (2.90   $ (1.23   $ (1.52

     Class B units 

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

   Basic 

                     

     Class A units 

  735,385       735,385       735,385  

     Class B units 

  755,385       755,385       755,385  

   Diluted 

                     

     Class A units 

  735,385       735,385       735,385  

     Class B units 

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

 

F-4


 

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

December 26, 2015

   

December 27, 2014

    December 28, 2013
Net loss 

(21,316  

(9,039  

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

     Comprehensive loss 

(21,316  

(9,039  

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

 

 

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

 

 
 
 
  Members'  
 

capital

 
Balance at December 29, 2012  254,546  
Allocation of net loss for the year ended December 28, 2013    (11,196
Tax year 2012 over distribution    862  
Balance at December 28, 2013  244,212  
Allocation of net loss for the year ended December 27, 2014    (9,039
Tax year 2013 distribution    (2,087
Balance at December 27, 2014  233,086  
Allocation of net loss for the year ended December 26, 2015    (21,316
Balance at December 26, 2015  211,770  
 
See accompanying notes to consolidated financial statements.       

 

F-5


 

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

52 weeks ended

 

December 26, 2015

    December 27, 2014     December 28, 2013
Cash flows from operating activities:                       

   Net loss 

(21,316   (9,039   (11,196

   Adjustments to reconcile net loss to net cash provided by operating 

                     

     activities: 

                     

        Depreciation and amortization 

  7       2       6  

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

  18,949       6,140       6,464  

        Changes in assets and liabilities (net of acquisition): 

                     

          Due from affiliates 

  (55     588       (13

          Other receivables 

  -       3       75  

          Other assets 

  57       447       955  

          Accounts payable 

  (20     9       (17

          Due to affiliates 

  (17     9       (438

          Accrued compensation and benefits 

  (968     (3,073     (1,695

          Other accrued expenses and liabilities 

  60       14       (92

            Net cash used in operating activities 

  (3,303     (4,900     (5,951

Cash flows from investing activities: 

                     

   Capital expenditures, including interest capitalized 

  (51     -       -  

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

  -       36,943       -  

   Distributions from National Beef Packing Company, LLC 

  -       1,979       4,517  

   Additional minority interest acquired in National Beef Packing Company, LLC 

  (3,768     -       (1,507

            Net cash (used in) provided by investing activities 

  (3,819     38,922       3,010  

Cash flows from financing activities: 

                     

   Change in overdraft balances 

  (2     (221     26  

   Prior year excess distribution 

  -       818       44  

   Partnership distributions and redemptions 

  -       (2,087     -  

            Net cash (used in) provided by financing activities 

  (2     (1,490     70  

            Net (decrease) increase in cash 

  (7,124     32,532       (2,871

Cash and cash equivalents at beginning of period 

  92,344       59,812       62,683  

Cash and cash equivalents at end of period 

85,220     92,344     59,812  

Supplemental cash disclosures: 

                     

   Cash paid during the period for interest 

40     40     69  

   Cash paid during the period for taxes, net 

1     2     3  
 
See accompanying notes to consolidated financial statements. 

 

F-6


 

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

NOTE 1.      Description of Business

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

          On December 1, 1997, USPB became operational by acquiring 25.4966% of Farmland National Beef Packing Co., L.P. (FNB), a partnership owned by USPB and Farmland Industries, Inc. (Farmland). USPB acquired an additional 3.29% partnership interest in February 1998, bringing its ownership to 28.7866% of FNB. Farmland owned the remaining 71.2134%.

          On May 31, 2002, Farmland and four of its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the United States Bankruptcy Code. In the fourth quarter of fiscal year 2003, USPB acquired a controlling interest in the former FNB, now National Beef Packing Company, LLC (NBP).

          On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the merger of the cooperative into a wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation. The merger was effective on August 29, 2004. The Delaware corporation then, in a statutory conversion authorized under Delaware law, converted into a Delaware limited liability company (see Note 9). Following the effective date of the merger and the statutory conversion, the busi