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EX-32.2 - U. S. Premium Beef, LLCexhibit32-2.htm
EX-32.1 - U. S. Premium Beef, LLCexhibit32-1.htm
EX-31.2 - U. S. Premium Beef, LLCexhibit31-2.htm
EX-31.1 - U. S. Premium Beef, LLCexhibit31-1.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, 2020
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 20-1576986
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

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

Large Accelerated Filer Accelerated Filer    Non-Accelerated Filer      Smaller Reporting Company ☐  Emerging Growth Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 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, 2021, there were 735,385 Class A units and 755,385 Class B units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None


TABLE OF CONTENTS
PART I.
    Page
   
No.
Item 1. Business 4
 
Item 1A. Risk Factors 8
 
Item 1B. Unresolved Staff Comments 12
 
Item 2. Properties 12
 
Item 3. Legal Proceedings 12
 
Item 4. Not Used 12
 
PART II.
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities 12
 
Item 6. Selected Financial Data 13
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19
 
Item 8. Financial Statements and Supplementary Data 19
 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19
 
Item 9A. Controls and Procedures 19
 
Item 9B. Other Information 20
     
PART III.
 
Item 10. Directors, Executive Officers and Corporate Governance 20
 
Item 11. Executive Compensation 23
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters 30
 
Item 13. Certain Relationships and Related Transactions, and Director Independence 32
 
Item 14. Principal Accountant Fees and Services 33
 
PART IV.
 
Item 15. Exhibits, Financial Statement Schedules 35
 
  Signatures 38
 

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

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

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

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PART I

ITEM 1.           BUSINESS

BUSINESS OF U.S. PREMIUM BEEF, LLC Overview

     U.S. Premium Beef, LLC’s (USPB or the Company) mission is to increase the quality of beef and long-term profitability of cattle producers by creating a fully integrated producer-owned beef processing system that is a global supplier of high quality, value-added beef products responsive to consumer desires. USPB operates an integrated cattle processing and beef marketing enterprise where consumer and processor demands and requirements are implemented through changes in genetics, feeding, and management. USPB’s unitholders benefit from its supplier alliance with National Beef Packing Company, LLC (NBP) through (i) premiums received in excess of cash market prices for higher quality cattle, (ii) allocations of profits and potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions.

Products and Production

     Ownership in USPB provides unitholders access to an integrated cattle production, processing and marketing system. As the basis of that system, USPB’s Class A unitholders have a guaranteed right plus an obligation (on a one head per Class A unit per delivery year basis) to deliver cattle to 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.

     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 known 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. Under that arrangement, USPB has delivered more than 16.6 million head of cattle to NBP for processing since it commenced deliveries.

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

     On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the conversion of the cooperative into a Delaware LLC.

     On December 5, 2011, USPB entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Leucadia). The Purchase Agreement provided for Leucadia to purchase 56.2415% of the membership interests in NBP (National Interests) from the Company for approximately $646.8 million. The Leucadia Transaction closed on December 30, 2011. Following the close, USPB owned 15.0729% of NBP’s membership interests.

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     On November 29, 2019, Jefferies Financial Group, Inc. (“Jefferies” or “Leucadia”) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%.

Employees

     USPB has seven employees as of December 26, 2020. 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.

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

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

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BUSINESS OF NATIONAL BEEF PACKING COMPANY, LLC

General

     NBP is one of the largest beef processing companies in the U.S., accounting for approximately 14% of fed cattle slaughter in the U.S. NBP processes and markets fresh and chilled boxed beef, ground beef, beef byproducts, consumer-ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had approximately 9,800 employees on December 26, 2020 and generated total revenues of $9.4 billion in 2020.

     The largest share of NBP’s revenue is generated from the sale of boxed beef and beef by-products. NBP also generates revenues through value-added production with its consumer-ready products. In addition, NBP operates one of the largest hide tanning facilities in the world, selling wet blue leather to tanners that produce finished leather for the automotive, luxury goods, apparel and furniture industries. Other streams of revenue include sales through its subsidiary, Kansas City Steak Company, LLC, which sells portioned beef and other products directly to consumers through internet, direct mail and direct response television, and service revenues generated by National Carriers, Inc., a wholly owned transportation and logistics company that is one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for NBP and a variety of other customers. NBP’s profitability typically fluctuates seasonally as well as cyclically, based on the availability of fed cattle.

Beef Processing

     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. NBP operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. NBP’s profitability typically fluctuates seasonally and cyclically with relatively higher margins in the spring and summer months and during times of ample cattle availability.

     Revenues in 2020 increased approximately 11% in comparison to 2019, primarily due to an increase in the average selling price of beef products, cattle weights and number of cattle processed. Increased volume of consumer ready product sales and a full year of operations of NBP’s beef patty processing facility also contributed to the increase in revenue. Cost of sales increased by approximately 5% in 2020 as compared to 2019. The increase is due primarily to higher volumes, increased cattle weights and costs associated with NBP’s response to the coronavirus pandemic, offset, in part, by a decrease in the average price of fed cattle. The combined effects of increased margin per head and an increase in volume led to higher profitability in 2020 as compared to 2019.

     Revenues in 2019 increased 12% in comparison to 2018, primarily due to an increase in the number of cattle processed, the addition of a beef patty processing facility and an increased volume of consumer ready product sales. Cost of sales increased by 10% in 2019 as compared to 2018. The increase is due to higher volumes, offset, in part, by a decrease in the price of fed cattle. The combined effects of increased margin per head and an increase in volume led to higher profitability in 2019 as compared to 2018.

Sales and Marketing

     NBP markets its products to national and regional retailers, including supermarket chains, independent grocers, club stores, wholesalers and distributors, food service providers and further processors. In addition, NBP sells beef by-products to the medical, feed processing, fertilizer and pet food industries. NBP exported products to more than 30 countries; in 2020, export sales represented approximately 11.3% 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 its 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, it licenses the use of Certified Angus Beef®, a registered trademark of Certified Angus Beef LLC, and Certified Hereford Beef®, a registered trademark of Certified Hereford Beef LLC.

Raw Materials and Procurement

     The primary raw material for the beef processing plants is live cattle. Live cattle prices change daily based on supply and demand for beef and other proteins, cattle inventory levels relative to packer demand for cattle, weather and other factors. NBP has two beef processing facilities located in southwest Kansas and a third beef processing plant in central Iowa. The primary market area for the purchase of cattle for those facilities includes Kansas, Texas, Nebraska, Iowa and Oklahoma. A significant portion of USPB’s unitholders and associates are located in this area. The close proximity of NBP’s facilities to large supplies of cattle gives its buyers the ability to visit feedlots on a regular basis, which enables NBP to develop strong working relationships with its suppliers, reduce its reliance on any one cattle supplier and lower in-bound transportation costs.

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     On June 10, 2019, USPB entered into the First Amended and Restated Cattle Purchase and Sale Agreement with NBP (Amended Agreement). Per the terms and conditions of the Amended Agreement, NBP is required to purchase from USPB Class A unitholders, and USPB is required to cause to be sold and delivered from its Class A unitholders to NBP, a base amount of 735,385 (subject to adjustment) head of cattle per year. In fiscal years 2020, 2019, and 2018, USPB elected to increase the number of cattle that its Class A unitholders could deliver during USPB’s delivery year by up to 10%. During fiscal years 2020, 2019, and 2018, USPB’s Class A unitholders and associates provided approximately 23%, 23%, and 25%, 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. The terms and conditions of the Amended Agreement are substantially the same as the previous agreement except in the following material ways:

  • Under the Amended Agreement, if NBP acquires or develops new processing (slaughter) facilities, then USPB has a first right to provide 25% of the cattle to the new NBP facility.

  • The purchase price of cattle delivered by USPB Class A unitholders to the Tama, Iowa processing facility shall be no less favorable than any other pricing grid that NBP offers to any other seller of cattle delivering to the Tama, Iowa processing facility or to non-grid cattle with comparable performance.

  • On each anniversary of the Amended Agreement, the term of the Amended Agreement shall be extended be five years from the date of such anniversary, unless either party elects to not extend the term. The Amended Agreement currently extends through June 10, 2025.

     NBP also purchased additional cattle from certain USPB members and associates outside of the Amended 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 and a third beef processing facility in Tama, Iowa which can process approximately 1,150 head per day. NBP’s three consumer-ready facilities are in Hummels Wharf, Pennsylvania, Moultrie, Georgia and Kansas City, Kansas. Its ground beef patty facility is in North Baltimore, Ohio, and its tannery is in St. Joseph, Missouri.

Competition

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

Regulation and Environmental

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

     NBP is subject to the Packers and Stockyards Act of 1921 (PSA). Among other things, this statute generally requires NBP to make full payment for livestock purchases not later than the close of business the day after the purchase and transfer of possession or determination of the purchase price. Under the PSA, NBP must hold in trust for the benefit of unpaid cash livestock suppliers all receivables, inventory and proceeds derived from NBP's sale of such cattle until the sellers have received full payment. In addition, pursuant to PSA rules, as of December 26, 2020, NBP has obtained from an insurance company a surety bond in the amount of $50.4 million as a measure of protection for livestock sellers.

     The Dodge City and Liberal facilities are subject to Title V permitting pursuant to the Federal Clean Air Act and the Kansas Air Quality Act. The St. Joseph and Tama facilities are subject to, and operating under, secondary permits. The Dodge City, Liberal, Tama, Hummels Wharf and Moultrie facilities are subject to Clean Air Act Risk Management Plan requirements relating to the use of ammonia as a refrigerant.

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     All of NBP’s plants, other than Tama, are indirect dischargers of wastewater to publicly owned treatment works and are subject to requirements under the federal Clean Water Act, state and municipal laws, as well as agreements or permits with municipal or county authorities. NBP’s plant in Tama operates a wastewater treatment plant and is a direct discharger to the Iowa River under a National Pollutant Discharge Elimination System permit issued by the Iowa Department of Natural Resources. Upon renewal of these agreements and permits, NBP is from time to time required to make capital expenditures to upgrade or expand wastewater treatment facilities to address new and more stringent discharge requirements imposed at the time of renewal. Storm water discharges from NBP’s plants are also regulated by state and local authorities.

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

Employees

     Of NBP’s 9,800 employees, approximately 5,560 are represented by collective bargaining agreements. Approximately 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 2026, approximately 2,500 employees at the Dodge City plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2026. approximately 200 employees at the North Baltimore plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2025 and another approximately 160 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 2024.

ITEM 1A.         RISK FACTORS

     As described throughout this document, USPB’s business involves the operation of an integrated cattle processing and beef marketing enterprise in which USPB’s Class A unitholders and associates supply cattle that are processed at the facilities owned and operated by NBP. NBP markets and distributes the beef and beef products produced from both cattle supplied by USPB’s unitholders and associates and other cattle purchased by NBP from other sources. The financial results of NBP’s operations therefore are the single largest influence on USPB’s financial performance. Consequently, those factors and risks that impact the performance of NBP’s business have a direct and immediate influence on USPB’s performance. However, there are also some risks that are unique to USPB. 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.

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

Risk Factors Associated With Operations of NBP

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

     The supply and market price of cattle purchased by NBP are dependent upon a variety of factors over which NBP has no control, including fluctuations in the size of herds maintained by producers, the relative cost of feed and energy, weather and livestock diseases. The cost of raw materials used by our manufacturing businesses have fluctuated over time as a result of a variety of factors. Although our manufacturing businesses are not currently experiencing any shortage of raw materials, if such shortages occur, revenues and profitability could decline.

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

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

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

     NBP may be subject to significant liability in excess of insurance policy limits if its products or products made by others using its products cause injury, illness or death. In addition, NBP could recall or be required to recall products that are, or are alleged to be, contaminated, spoiled or inappropriately labeled. Organisms producing food borne illnesses (such 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 our consolidated financial condition, cash flows and results of operations.

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

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

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

     Approximately 11.3% of NBP’s 2020 sales were export sales, primarily to Japan, Mexico, South Korea, Hong Kong, China, Taiwan, Italy and Canada, and on average these sales have a higher margin than domestic sales of similar products. A reduction in international sales could adversely affect revenues and margins. Risks associated with international activities include inflation or deflation and changes in foreign currency exchange rates, including changes in currency exchange rates of other countries that may export beef products in competition with NBP; the closing of borders by foreign countries to product imports due to disease or other perceived health or food safety issues; exchange controls; changes in tariffs; changes in political or economic conditions; trade restrictions and changes in regulatory requirements. The occurrence of any of these events could increase costs, lower demand for products or limit operations, which could have a significant adverse effect on cash flows, results of operations and future prospects.

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

     NBP’s operations are subject to extensive and stringent environmental regulations administered by the EPA and state, local and other authorities with regards to water usage, wastewater and storm water discharge, air emissions and odor, and waste management and disposal. Failure to comply with these laws and regulations could have serious consequences, including criminal, civil and administrative penalties and negative publicity. In addition, NBP incurs and will continue to incur significant capital and operating expenditures to comply with existing and new or more stringent regulations and requirements. All of NBP’s processing facilities procure wastewater treatment services from municipal or other regional governmental agencies that are in turn subject to environmental laws and permit limits regarding their water discharges. As permit limits are becoming more stringent, upgrades and capital improvements to these municipal treatment facilities are likely. In locations where NBP is a significant volume discharger, it could be asked to contribute toward the costs of such upgrades or to pay significantly increased water or sewer charges to recoup such upgrade costs. NBP may also be required to undertake upgrades and make capital improvements to its own wastewater pretreatment facilities, the cost of which could be significant. Compliance with environmental regulations has had and will continue to have a significant impact on NBP’s cash flows and profitability. In addition, under most environmental laws, most notably the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) 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.

9


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.

     In addition to the environmental laws and regulations noted above, NBP is subject to extensive and evolving regulation and oversight, including regulation by the USDA (and its FSIS, APHIS and GIPSA agencies), the FDA, the DOL, the EEOC, the DHS and other federal, state, local and foreign authorities. This regulation and oversight pertains to all aspects of NBP’s operations, including (i) the procurement of cattle, (ii) the processing, packaging, storage, safety, distribution and sale, advertising and labeling of its products, and (iii) the recruitment, employment, retention and safety of its employees. Accordingly, the failure or alleged failure to comply with existing or new laws and regulations could expose NBP to legal claims and enforcement actions and could result in administrative penalties and injunctive relief, civil remedies, fines, interruption of operations, recalls of products or seizures of properties, potential criminal sanctions and personal injury or other damage claims. These remedies, changes in the applicable laws and regulations or discovery of currently unknown conditions could increase costs, limit business operations and reduce profitability.

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 our financial condition, cash flows and results of operations.

NBP faces industry-wide legal actions in connection with its business activities, and current or future legal actions may result in material liabilities and losses.

     NBP has been named, and from time to time may be named, in various industry-wide legal actions, including arbitrations, class or representative actions, actions or inquiries by state attorneys general and other regulators, and other litigation arising in connection with its business activities. Adverse outcomes related to legal actions could result in substantial damages and could cause NBP’s earnings to decline.

     NBP is a defendant in four class action lawsuits in the United States District Court, Minnesota District alleging that it violated the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws (the “Antitrust Cases”). NBP is also a defendant in two class action lawsuits filed on January 7, 2020, alleging that it misrepresented the origin of its products in violation of the New Mexico Unfair Practices Act (the “Labelling Cases”). NBP believes it has meritorious defenses to the claims in the Antitrust Cases and the Labelling Cases and intends to defend these cases, and any other cases, vigorously. There can be no assurances, however, as to the outcome of these matters or the impact on the NBP’s consolidated financial position, results of operations and cash flows. USPB has no way of predicting what, if any, impact the litigation will have on the earnings distributed by NBP to USPB.

Risk Factors Associated with USPB

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

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

10


USPB’s investment in NBP could become impaired.

     USPB’s investment in NBP is carried under the equity method of accounting. Although NBP’s results from operations are currently highly profitable, pandemic events such as COVID-19, industry trends, and other economic factors could have a negative impact on NBP’s operations and cash flows. As a result, the fair market value of USPB’s investment in NBP could decrease to a level that is less than the carrying value. If such situation is deemed to not be temporary, USPB would record an impairment charge, which may have an impact on the trading values of USPB’s Class A and Class B units.

If the COVID-19 pandemic adversely affects NBP’s ability to keep the cattle slaughter at normal levels, the ability of USPB members to deliver cattle for processing based on their ownership of Class A units may be impacted.

     COVID-19 temporarily caused NBP to reduce fed cattle slaughter at several of its beef processing plants. If NBP is unable to maintain the slaughter at normal levels for an extended period, USPB members may be delayed in delivering their cattle or may be required to deliver to a different NBP processing plant. As the right and obligation to deliver cattle is associated with ownership of USPB’s Class A units, such a result may impact the value or liquidity of Class A units.

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

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

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

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

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

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

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

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

11


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 Ambassador Building, LLC, with offices at 433 S. Spring Street, Suite 700, Los Angeles, CA 90013.

ITEM 3.          LEGAL PROCEEDINGS

     For information regarding legal proceedings, see Note 8. Legal Proceedings.

ITEM 4.          NOT USED

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, 2021, there were 480 record holders of Class A units and 490 record holders of Class B units. The per unit transfer prices for the fiscal years 2020 and 2019 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 2020

                             

                             

Quarter ending:

                                             

   March 28, 2020

$

10.00

 

$

160.00

 

$

90.00

 

$

355.00

 

$

-

 

$

-

 

$

640.00

 

$

640.00

   June 27, 2020

$

155.00

 

$

175.00

 

$

260.00

 

$

300.00

 

$

175.00

 

$

263.00

 

$

575.00

 

$

750.00

   September 26, 2020

$

125.00

 

$

131.00

 

$

209.00

 

$

701.00

 

$

291.00

 

$

291.00

 

$

700.00

 

$

775.00

   December 26, 2020

$

-

 

$

-

 

$

700.00

 

$

725.00

 

$

-

 

$

-

 

$

650.00

 

$

725.00

Subsequent to December 26, 2020

$

91.44

 

$

302.00

 

$

91.44

 

$

300.00

 

$

270.00

 

$

302.00

 

$

700.00

 

$

700.00

 

 

 

 

 

 

 

                                               

Fiscal Year 2019

                                             

 

 

 

 

 

 

 

Quarter ending:

                                             

   March 30, 2019

$

-

 

$

-

 

$

180.00

 

$

180.00

 

$

155.00

 

$

158.00

 

$

260.00

 

$

262.00

   June 29, 2019

$

147.50

 

$

147.50

 

$

187.00

 

$

187.00

 

$

180.00

 

$

180.00

 

$

-

 

$

-

   September 28, 2019

$

130.00

 

$

170.00

 

$

161.00

 

$

204.00

 

$

-

 

$

-

 

$

-

 

$

-

   December 28, 2019

$

125.00

 

$

167.50

 

$

125.00

 

$

261.00

 

$

170.00

 

$

170.00

 

$

-

 

$

-

Subsequent to December 28, 2019

$

10.00

 

$

160.00

 

$

90.00

 

$

240.00

 

$

-

 

$

-

 

$

-

 

$

-

     The affiliated sales represent transfers that were not at arms-length and, therefore, the transfer 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 2020 and 2019, USPB’s Board of Directors approved the following per unit cash distributions to be made to its Class A and Class B unitholders:

12


 

Class A

 

Class B

Fiscal Year 2020      
   April 6, 2020

$2.05

 

$17.99

   April 14, 2020

$0.38

 

$3.30

   May 26, 2020

$1.02

 

$8.98

   June 5, 2020

$3.36

 

$29.40

   August 17, 2020

$7.48

 

$65.53

   September 8, 2020

$1.12

 

$9.81

   December 10, 2020

$2.96

 

$25.90

   December 24, 2020

$8.19

 

$71.75

 

Fiscal Year 2019      
   March 19, 2019

$0.51

 

$4.46

   March 29, 2019

$4.08

 

$35.74

   April 10, 2019

$0.41

 

$3.58

   June 14, 2019

$0.90

 

$7.86

   September 13, 2019

$1.01

 

$8.85

   December 17, 2019

$11.44

 

$100.26

     The payment of cash distributions is made only from assets legally available for that purpose and depends 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 with notice to USPB’s senior lenders.

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

ITEM 6.          SELECTED FINANCIAL DATA

     USPB’s investment in NBP is accounted for using the equity method of accounting as USPB has the ability to exercise significant influence but does not have financial or operational control.

     The following table sets forth selected statement of operations and balance sheet data for fiscal years ended December 26, 2020, December 28, 2019, December 29, 2018, December 30, 2017, and December 31, 2016. The selected financial data has been derived from our audited financial statements included elsewhere in this filing or from audited financial statements from prior years’ filings.

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

13


  Fiscal Year Ended (1)
  December 26,   December 28,   December 29,   December 30,   December 31,  
  2020   2019   2018   2017   2016  
 

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

Statement of Operations Data:                                        
Net sales

$

 

-

 

$

 

-

 

$

 

-

 

$

 

-

 

$

 

-

 
Costs and expenses:                                        
      Cost of sales    

-

     

-

     

-

     

-

     

-

 
      Selling, general, and administrative    

7.9

     

5.1

     

4.5

     

4.0

     

3.6

 
      Depreciation and amortization    

-

     

-

     

-

     

-

     

-

 
Operating loss    

(7.9)

     

(5.1)

     

(4.5)

     

(4.0)

     

(3.6)

 
Other income:                                        
      Interest income    

0.2

     

1.2

     

1.1

     

0.3

     

-

 
      Equity in income of National Beef Packing Company, LLC    

199.7

     

121.5

     

89.6

     

61.1

     

49.3

 
      Other, net    

0.7

     

0.4

     

0.4

     

0.1

     

0.7

 
         Total other income    

200.6

     

123.1

     

91.1

     

61.5

     

50.0

 
Net income

$

 

192.7

 

$

 

118.0

 

$

 

86.6

 

$

 

57.5

 

$

 

46.4

 
                                         
Selected Balance Sheet Data:                                        
      Cash and cash equivalents

$

 

76.8

 

$

 

77.9

 

$

 

88.4

 

$

119.1

 

$

 

85.2

 
      Total assets

$

 

208.9

 

$

 

210.1

 

$

 

231.9

 

$

259.4

 

$

 

228.9

 
      Total members' capital

$

 

200.2

 

$

 

202.8

 

$

 

219.8

 

$

224.1

 

$

 

221.2

 

 

 

 

 

 
      Units outstanding:                                        
         Class A units  

735,385

   

735,385

   

735,385

   

735,385

   

735,385

 
         Class B units  

755,385

   

755,385

   

755,385

   

755,385

   

755,385

 
                                         
Per Unit Data:                                        
Income per unit:                                        
      Basic and diluted:                                        
         Class A Units

$

 

26.20

   

$

16.05

   

$

11.77

   

$

7.82

   

$

6.31

 
         Class B Units

$

 

229.57

   

$

140.59

   

$

103.16

   

$

68.49

   

$

55.24

 
                                         
Outstanding weighted-average units:                                        
      Basic and diluted:                                        
         Class A Units  

735,385

   

735,385

   

735,385

   

735,385

   

735,385

 
         Class B Units  

755,385

   

755,385

   

755,385

   

755,385

   

755,385

 

 

 

 

 

 
                                         
   1) Fiscal years 2020, 2019, 2018 and 2017 consisted of a 52 week year and fiscal year 2016 consisted of a 53 week year.

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

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

Overview

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

14


     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 30, 2011, USPB sold the majority of its membership interests in NBP to Leucadia National Corporation. Following the sale, USPB owned 15.0729% of NBP’s membership interests.

     On November 29, 2019, Jefferies (formerly Leucadia National Corporation) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%.

     USPB’s investment in NBP is accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. NBP’s financial statements and footnotes are attached to USPB’s 10-K.

Products and Production

     USPB provides an integrated cattle production, processing and marketing system for the benefit of its unitholders and associates. As the basis of that system, USPB’s Class A unitholders have a guaranteed right plus an obligation (on a one head per Class A unit per delivery year basis) to deliver cattle to USPB, pursuant to the Uniform Cattle Delivery and Marketing Agreement (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.

     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 known source, allowing NBP to target higher margin value-added markets. Consumers have historically demonstrated their willingness and desire to buy branded products that offer better value in other consumer product markets, with the Certified Angus Beef® product line being an example in the beef industry.

     NBP is one of the largest beef processing companies in the U.S., accounting for approximately 14% of fed cattle slaughter in the U.S. NBP processes and markets fresh and chilled boxed beef, ground beef, beef byproducts, consumer-ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had approximately 9,800 employees on December 26, 2020 and generated total revenues of $9.4 billion in 2020.

     The largest share of NBP’s revenue is generated from the sale of boxed beef and beef by-products. NBP also generates revenues through value-added production with its consumer-ready products. In addition, NBP operates one of the largest hide tanning facilities in the world, selling wet blue leather to tanners that produce finished leather for the automotive, luxury goods, apparel and furniture industries. Other streams of revenue include sales through its subsidiary, Kansas City Steak Company, LLC, which sells portioned beef and other products directly to consumers through internet, direct mail and direct response television, and service revenues generated by National Carriers, Inc., a wholly owned transportation and logistics company that is one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for NBP and a variety of other customers. NBP’s profitability typically fluctuates seasonally as well as cyclically, based on the availability of fed cattle.

Critical Accounting Policies and Estimates

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

15


     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.

Results of Operations

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

  52 weeks ended   52 weeks ended   52 weeks ended
  December 26, 2020   December 28, 2019   December 29, 2018
 

(millions of dollars)

Net sales

$

-

 

$

-

 

$

-

                 
Costs and expenses:                
      Cost of sales  

-

   

-

   

-

      Selling, general, and administrative  

7.9

   

5.1

   

4.5

         Operating loss  

(7.9)

   

(5.1)

   

(4.5)

                 
   Other income:                
      Interest income  

0.2

   

1.2

   

1.1

      Equity in income of National Beef Packing Company, LLC  

199.7

   

121.5

   

89.6

      Other, net  

0.7

   

0.4

   

0.4

         Total other income, net  

200.6

   

123.1

   

91.1

Net income

$

192.7

 

$

118.0

 

$

86.6

 

 

Fiscal Year Ended December 26, 2020 compared to December 28, 2019

     Net Sales. There were no sales during the fifty-two week periods ended December 26, 2020 and December 28, 2019.

     Cost of Sales. There were no cost of sales during the fifty-two week periods ended December 26, 2020 and December 28, 2019.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $7.9 million for the fifty-two weeks ended December 26, 2020, compared to approximately $5.1 million for the fifty-two weeks ended December 28, 2019, an increase of approximately $2.8 million. The increase is primarily due to higher phantom unit plan expense, which increased as a result of higher unit transfer prices, and higher accounting expense.

     Operating Loss. Operating loss was approximately $7.9 million for the fifty-two weeks ended December 26, 2020 compared to approximately $5.1 million for the fifty-two weeks ended December 28, 2019, an increase of approximately $2.8 million.

     Interest Income. Interest income was $0.2 million during the fifty-two weeks ended December 26, 2020 and $1.2 million in the fifty-two weeks ended December 28, 2019, a decrease of $1.0 million due to lower interest rates.

     Equity in Income of National Beef Packing Company, LLC. Equity in NBP income was $199.7 million for the fifty-two weeks ended December 26, 2020 compared to $121.5 million for the fifty-two weeks ended December 28, 2019, an increase of approximately $78.2 million. The combined effects of increased margin per head and an increase in volume led to higher profitability in 2020 as compared to 2019. USPB carries its 15.0729% investment in NBP under the equity method of accounting.

     Other, net. Other income was $0.7 million for the fifty-two weeks ended December 26, 2020 compared to $0.4 million for the fifty-two weeks ended December 28, 2019. The increase is primarily due to higher delivery right lease income on company owned delivery rights.

16


     Income Tax Expense. USPB is structured as an LLC and is therefore not subject to income taxes at the company level. See USPB’s Notes to Financial Statements (Note 2) for further information.

     Net Income. Net income for the fifty-two weeks ended December 26, 2020 was approximately $192.7 million compared to approximately $118.0 million for the fifty-two weeks ended December 28, 2019, an improvement of approximately $74.7 million. The improvement was due to substantially higher net income at NBP.

Fiscal Year Ended December 28, 2019 compared to December 29, 2018

     Net Sales. There were no sales during the fifty-two week periods ended December 28, 2019 and December 29, 2018.

     Cost of Sales. There were no cost of sales during the fifty-two week periods ended December 28, 2019 and December 29, 2018.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $5.1 million for the fifty-two weeks ended December 28, 2019, compared to approximately $4.5 million for the fifty-two weeks ended December 29, 2018, an increase of approximately $0.6 million. The increase is primarily due to higher phantom unit plan expense, and higher salary and bonus expense as a result of the CEO’s new employment agreement.

     Operating Loss. Operating loss was approximately $5.1 million for the fifty-two weeks ended December 28, 2019 compared to approximately $4.5 million for the fifty-two weeks ended December 29, 2018, an increase of approximately $0.6 million.

     Interest Income. Interest income was $1.2 million during the fifty-two weeks ended December 28, 2019 and $1.1 million in the fifty-two weeks ended December 29, 2018.

     Equity in Income of National Beef Packing Company, LLC. Equity in NBP income was $121.5 million for the fifty-two weeks ended December 28, 2019 compared to $89.6 million for the fifty-two weeks ended December 29, 2018, an increase of approximately $31.9 million. The increase in fiscal year 2019 is primarily due to higher gross margins at NBP and the acquisitions of the Ohio Beef patty manufacturing facility in the first quarter of 2019 and Iowa Premium in the second quarter of 2019. USPB carries its 15.0729% investment in NBP under the equity method of accounting.

     Other, net. Other income was $0.4 million for the fifty-two weeks ended December 28, 2019 compared to $0.4 million for the fifty-two weeks ended December 29, 2018.

     Income Tax Expense. USPB is structured as an LLC and is therefore not subject to income taxes at the company level. See USPB’s Notes to Financial Statements (Note 2) for further information.

     Net Income. Net income for the fifty-two weeks ended December 28, 2019 was approximately $118.0 million compared to approximately $86.6 million for the fifty-two weeks ended December 29, 2018, an improvement of approximately $31.4 million. The improvement was due to higher net income at NBP.

Liquidity and Capital Resources

     As of December 26, 2020, we had net working capital (the excess of current assets over current liabilities) of approximately $74.3 million, which included cash and cash equivalents of $76.8 million. As of December 28, 2019, we had net working capital (the excess of current assets over current liabilities) of approximately $74.3 million, which included cash and cash equivalents of $77.9 million. Our primary sources of liquidity for fiscal years 2020 and 2019 were cash, cash flows from operating activities, and available borrowings under the Credit Agreement and Master Loan Agreement with CoBank.

CoBank Debt

     USPB’s Amended and Restated Revolving Term Supplement’s matured on June 30, 2020. On June 24, 2020, CoBank unilaterally extended the Term Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to and including August 31, 2020. On July 13, 2020, USPB, and CoBank, ACB (“CoBank”), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (“Promissory Note”), and an Affirmation of Pledge Agreement (“New Loan Agreements”). The New Loan Agreements replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, Pledge Agreement, and Security Agreement dated July 26, 2011, as amended.

17


     The New Loan Agreements provide for a $1 million Revolving Term Commitment, carries a term of five years and matures on June 30, 2025. The Promissory Note defines Interest as equal to the One-Month LIBOR Index Rate or if LIBOR quotes are no longer available, CoBank will replace the LIBOR Index Rate with a replacement benchmark rate. The other terms and conditions of the Credit Agreement and the Revolving Term Loan Supplement continue the terms and conditions of the Prior Agreements without material modifications. The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, National Beef Packing Company, LLC.

     As of December 26, 2020, USPB had no long-term debt outstanding. We had a $1.0 million Revolving Term Commitment with CoBank, all of which was available. USPB was in compliance with the financial covenant under its Credit Agreement as of December 26, 2020 and Master Loan Agreement as of December 28, 2019.

Operating Activities

     Net cash provided by operating activities was $194.2 million in fiscal year 2020 as compared to $130.1 million in fiscal year 2019. The $64.1 million increase was primarily due to the higher distributions received from NBP that were classified as a distribution from Operating Activities.

     Net cash provided by operating activities was $130.1 million in fiscal year 2019 as compared to $64.7 million in fiscal year 2018. The $65.4 million increase was primarily due to the higher distributions received from NBP that were classified as a distribution from Operating Activities.

Investing Activities

     Net cash used in investing activities was less than $0.1 million in fiscal years 2020 and 2019.

     Net cash used in investing activities was less than $0.1 million in fiscal year 2019 as compared to net cash provided by investing activities of $18.2 million in fiscal year 2018. The $18.3 million decrease was due to lower distributions received from NBP that were classified as a distribution from Investing Activities.

Financing Activities

     Net cash used in financing activities was $195.3 million in fiscal year 2020 as compared to $140.6 million in fiscal year 2019. The $54.7 million increase was due to higher distributions to members in fiscal year 2020, as a result of an increase in earnings, compared to fiscal year 2019.

     Net cash used in financing activities was $140.6 million in fiscal year 2019 as compared to $113.6 million in fiscal year 2018. The $27.0 million change was due to higher distributions to members in fiscal year 2019 compared to fiscal year 2018, which increased as a result of higher earnings.

     USPB believes cash, cash flows from operating activities, and available borrowings under the Credit Agreement 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.

Cash Payment Obligations

     The following table describes the cash payment obligations as of December 26, 2020 (thousands of dollars):

      Fiscal Year   Fiscal Year   Fiscal Year   Fiscal Year   Fiscal Year    
  Total   2021 (Year 1)   2022 (Year 2)   2023 (Year 3)   2024 (Year 4)   2025 (Year 5)  

After Year 5

                 
                                         
Non-competition payments(1)

$

1,203

 

$

849

 

$

-

 

$

-

 

$

-

 

$

354

 

$

 -

Operating leases

$

238

 

$

59

 

$

60

 

$

61

 

$

50

 

$

8

 

$

 -

   Total

$

1,441

 

$

908

 

$

60

 

$

61

 

$

50

 

$

362

 

$

 -

 

 

 

 

 

   

(1) Reflects payments to be made to current and former Chief Executive Officer's pursuant to their employment agreements.

Off-Balance Sheet Arrangements

     As of December 26, 2020 and December 28, 2019, we did not have any material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Inflation

     We believe our results of operations are not materially affected by moderate changes in the inflation rate. Inflation and changing prices did not have a material effect on our operations in fiscal years 2020 and 2019. 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.

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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, 2020, the Company did not have any outstanding debt.

ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

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 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 fifty-two weeks ended December 26, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events.

Management’s Report on Internal Control over Financial Reporting

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

  • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
  • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and managers of the Company; and
  • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

     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.

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     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, 2020. 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, 2020, the Company’s internal control over financial reporting was operating effectively.

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

ITEM 9B.         OTHER INFORMATION

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

   Name

 

Age

 

Positions and Offices with Registrant

 

March of FY

Mark R. Gardiner  

60

  Chairman of the Board  

2023

Joe M. Morgan  

69

  Vice Chairman of the Board  

2023

Jerry L. Bohn  

71

  Secretary  

2022

Wayne L. Carpenter  

59

  Director  

2022

John M. Freund  

53

  Director  

2023

Rex W. McCloy  

66

  Director  

2021

Jeff H. Sternberger  

60

  Director  

2021

Stanley D. Linville  

62

  Chief Executive Officer  

Scott J. Miller  

56

  Chief Financial Officer  

Danielle D. Imel  

45

  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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     Joe M. Morgan. Mr. Morgan has been managing commercial feed yards since 1983. He is now CEO of Poky Feeders 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 90,000 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 is a board member and owner of Pratt Feeders. Mr. Bohn also owns and manages a 2,000 to 3,000 head cattle operation which includes grazing and finishing cattle. Throughout Mr. Bohn has over 40 years of agricultural business management experience, he has worked with complex banking and financial data and is required to make decisions involving several hundred thousand dollars, on a daily basis. Mr. Bohn previously was employed as Director of Market Analysis for Cattle-Fax, an industry market analysis firm. Mr. Bohn has served as president of the Kansas Livestock Association. He has been a Board member of the Kansas Beef Council, the National Cattlemen’s Beef Association (NCBA) and Feeders Advantage, a private animal health product distribution company. Mr. Bohn is NCBA’s President Elect in 2020, served as NCBA’s Vice President in 2019, served on the NCBA’s Executive Committee, chairman of NCBA’s Live Cattle Marketing, and NCBA’s Policy Committee, serving as Chair in 2018 and Vice-Chair in 2017. Mr. Bohn served on USPB’s Board from 2004 through 2007 and was reelected in 2009. He was elected Secretary of USPB’s Board in 2006. He holds a Bachelor’s degree in Animal Sciences and Industry from Kansas State University. As a member of USPB’s board of directors, Mr. Bohn and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

     Wayne L. Carpenter. Mr. Carpenter is the President and owner of Carpenter Cattle Company Inc. which was established in 1980. His operation today consists of a 15,000 head feed yard which markets 10,000-11,000 head through USPB annually. Mr. Carpenter runs 1,100 mother cows and also yearlings on ranches in Kansas and Montana. His farming operation consists of dryland and irrigated acres, which markets most of its crop production through the feed yard. Mr. Carpenter is a member of Kansas Livestock Association and National Cattlemen’s Beef Association. Carpenter Cattle Company Inc. has been a member of USPB since USPB’s inception. Mr. Carpenter has served as a member of the Company’s board since 2016. As a member of USPB’s board of directors, Mr. Carpenter and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

     John M. Freund. Mr. Freund has been actively involved in his family’s cattle feeding operation in Southwest Iowa since 1985 and has been president since 2005. In addition to the feeding operation, the business also includes feed grain production and has ownership in stockers, feedlot production and a ranch in other Midwest states. He has been a member of USPB since its inception and was a member of the company’s Nominating Committee 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 40 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 General Manager and part owner of Midwest Feeders, Inc. Mr. Sternberger has served Midwest Feeders, Inc. in this capacity since 1992 and has overseen large growth in his company and directed the acquisition of other businesses to add to their holdings. Mr. Sternberger has been the direct contact during that time frame for all banking and accounting relationships. He also owns and operates a farming and cattle operation in Oklahoma and Kansas as well as a personal cattle feeding operation. He serves as a director of Midwest Feeders, Inc., CRI Feeders of Guymon LLC, Brookover Cattle Co. of Scott City LLC, Lloyd Waller Feedyard LLC and Plains State Bank. Mr. Sternberger holds a Bachelor of Science Degree in Agricultural Economics from Oklahoma State University. As a member of USPB’s board of directors, Mr. Sternberger and the entities he is associated with that deliver cattle to USPB are considered affiliates of USPB.

21


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

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

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

Board of Directors

     Under USPB’s limited liability company agreement, the number of directors is set by the 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, Bohn, and McCloy. Subject to the qualifications in the section headed “Directors who are unitholders” in Item 13 below, all members of the Audit Committee are considered independent within the meaning of the listing standards of the NASDAQ. Mr. Gardiner is Chairman of the Audit Committee. The Board has identified Mr. Bohn 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.

22


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.

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 2020 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.

23


Elements of Our Compensation Program

Base Salary

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

     On December 14, 2018, USPB entered into an amended employment agreement with Mr. Linville (2019 Employment Agreement), which became effective on December 30, 2018. The 2019 Employment Agreement provides for Mr. Linville to serve as USPB’s CEO for a term that started on December 30, 2018 and expires on December 25, 2021. The 2019 Employment Agreement provides for Mr. Linville to receive an annual base salary of $330,000.

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 2019 Employment Agreement, if Mr. Linville is employed by USPB on the last day of any fiscal year, he shall be paid an annual incentive compensation equal to seventy-five one-hundredths of a percent (0.75%) of the sum of the total financial benefits to USPB (USPB Total Benefits) that exceed $25,000,000 (Annual Incentive). The USPB Total Benefits are: (1) audited fiscal year-end USPB earnings before tax; and (2) the fiscal year USPB grid premiums, which is the net sum of all USPB unitholder and associate grid premiums and discounts calculated through all USPB grids at all plants as outlined in the 2019 Employment Agreement.

     For fiscal year 2020, named executive officers and certain professional staff who were employed on the last day of the fiscal year will be paid his or her proportionate share of the Management Bonus Pool. The Management Bonus Pool is: (1) the audited fiscal year 2020 USPB earnings before tax plus USPB grid premiums during the fiscal year, less (2) $25,000,000, multiplied by (3) management bonus factor. The bonus plan payments are vested over a two-year period. The maximum Management Bonus Pool for a given bonus plan year is equal to 150% of the sum of the qualifying participants’ salaries in effect at the end of such year.

Long-term Incentive

     Mr. Linville is eligible for a long-term incentive compensation under the 2019 Employment Agreement. If he is employed by USPB on December 25, 2021, 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 December 30, 2018 to December 25, 2021 exceed $75,000,000 (Long-Term Incentive). The 2019 Employment Agreement provides for a cumulative annual cap of $495,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive cash bonuses.

Discretionary Cash Bonuses

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

Retirement Plans

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

Limited Personal Benefits

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

24


Equity Compensation

     In September 2010, USPB’s Board of Directors approved a management phantom unit plan. The phantom unit plan provides for the award of unit appreciation rights to certain management employees of USPB. USPB’s CEO administers the phantom unit plan and awards “Phantom Units” (Class A and Class B Units) to employees in amounts determined by the CEO, subject to the total Phantom Unit amount approved by the Board of Directors of USPB. During fiscal year 2011, a total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to management employees. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,750 Class A phantom units and 4,750 Class B phantom units remained outstanding, all of which were fully vested.

     In November 2012, USPB’s Board of Directors approved the issuance of an additional 1,500 Class A phantom units and 1,500 Class B phantom units to certain members of management, to be effective on January 28, 2013. These phantom units were fully vested and remain outstanding at December 26, 2020.

Employment Agreements

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

CEO Employment Agreement

     On December 14, 2018, USPB entered into the 2019 Employment Agreement with Mr. Linville, which became effective on December 30, 2018 and expires on December 25, 2021, subject to earlier termination as provided in the agreement. The 2019 Employment Agreement provides for a $330,000 salary and annual and long-term cash bonuses. The 2019 Employment Agreement provides for a cumulative average annual cap of $495,000 for payments to Mr. Linville for annual and long-term cash bonuses.

     The 2019 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 2019 Employment Agreement for good reason, Mr. Linville shall be entitled to salary and benefits through employment year 2021; payment of certain fringe benefits through employment year 2021; the annual incentive bonus for the year in which the termination occurs and each subsequent year through employment year 2021; the long-term incentive bonus that would have accrued had Mr. Linville been employed through employment year 2021; and the payment of the noncompetition compensation.

Impact of Tax and Accounting Treatments

     We believe the compensation paid to our named executive officers is fully deductible under the Internal Revenue Code at the time it is paid.

Unit Ownership Guidelines

     USPB does not allow its named executive officers to own USPB’s Class A units. As of December 26, 2020, 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.

25


Compensation Committee
Mark Gardiner – Chairman
Joe Morgan
Jerry Bohn

Summary Compensation Table

     The table below sets forth information regarding compensation for our named executive officers for fiscal years 2020, 2019, and 2018. 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   All Other    
   Name and Principal               Option   Compensation   Compensation    
      Position   Period   Salary ($)   Bonus ($)   Awards ($)   ($)   ($)   Total ($)
                             
Stanley D. Linville  

FY 2020

 

339,995

 

-

 

-

 

495,000 (3)

 

388,853 (1)

 

1,223,848

Chief Executive Officer  

FY 2019

 

340,154

 

-

 

-

 

495,000 (3)

 

351,766 (1)

 

1,186,920

   

FY 2018

 

308,477

 

-

 

-

 

452,372 (3)

 

225,011 (1)

 

985,860

                             
Scott J. Miller  

FY 2020

 

188,273

 

-

 

-

 

271,950 (2)

 

290,387 (1)

 

750,610

Chief Financial Officer  

FY 2019

 

188,273

 

-

 

-

 

271,950 (2)

 

262,922 (1)

 

723,145

   

FY 2018

 

188,246

 

-

 

-

 

271,950 (2)

 

166,532 (1)

 

626,728

                             
Danielle D. Imel  

FY 2020

 

134,515

 

-

 

-

 

195,750 (2)

 

175,510 (1)

 

505,775

Treasurer  

FY 2019

 

132,006

 

-

 

-

 

195,750 (2)

 

159,272 (1)

 

487,028

   

FY 2018

 

133,125

 

-

 

-

 

195,750 (2)

 

99,230 (1)

 

428,105

(1) Mr. Linville - Amounts for Mr. Linville include Company match under our 401(k) plan and non-dilution payments made as a result of the management phantom unit plan, $11,400 and $377,453, respectively in fiscal year 2020; $11,200 and $340,566, respectively in fiscal year 2019; and $11,000 and $214,011, respectively in fiscal year 2018.
Mr. Miller - Amounts for Mr. Miller include Company match under our 401(k) plan and non-dilution payments made as a result of the management phantom unit plan, $11,400 and $278,987, respectively in fiscal year 2020; $11,200 and $251,722, respectively in fiscal year 2019; and $11,000 and $155,532, respectively in fiscal year 2018.
Ms. Imel
- Amounts for Ms. Imel include Company match under our 401(k) plan and non-dilution payments made as a result of the management phantom unit plan, $11,400 and $164,110, respectively in fiscal year 2020; $11,200 and $148,072, respectively in fiscal year 2019; and $11,000 and $88,230, respectively in fiscal year 2018.

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

(3) The amount of non-equity incentive plan compensation, which is to include the annual cash bonus and amounts earned pursuant to the long-term cash bonus plan pursuant to Mr. Linville's employment agreement. The amounts represent annual cash bonus of $495,000, $495,000, and $450,000 for fiscal years 2020, 2019, and 2018, respectively, and $0, $0, and $2,372 of long-term cash bonus for fiscal years 2020, 2019, and 2018, respectively. The Linville Employment Agreement provides for a cumulative annual cap for payments to Mr. Linville for annual and long-term incentive amounts. The cumulative annual cap is $495,000 for fiscal years 2020 and 2019 and $450,000 for fiscal year 2018.

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Grants of Plan-Based Awards in the Fiscal Year 2020

     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 2020.

        Estimated Future Payouts under Non-Equity Incentive
       
Plan Awards
               
   Name and Principal Position   Grant Date   Threshold ($) Target ($)   Maximum ($)
Stanley D. Linville (2)  

n/a

               
Chief Executive Officer                    
                     
Scott J. Miller  

10/29/2020

 

$

-

$

161,873

(1)

$

271,950

Chief Financial Officer                    
 

 

                     
Danielle D. Imel  

10/29/2020

 

$

-

$

116,517

(1)

$

195,750

Treasurer                    
                     
(1) The target amount is based on estimated benefits for fiscal year 2021. Amounts to be paid, which could be more or less, will be based on actual input amounts for fiscal year 2021 and will be paid out over a two-year period.
   
(2) There were no grants of plan-based awards in fiscal year 2020 for Mr. Linville.

Discussion of Summary Compensation Table and Grants of Plan-Based Awards Performance Based Annual Cash Bonuses

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

Name      

Bonus Formula

Stanley D. Linville   For fiscal year 2021: 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 2019 Employment Agreement.
 
 
Scott J. Miller and
Danielle D. Imel
  For fiscal year 2021: The executive’s proportionate share of the Management Bonus Pool, which is (1) the audited fiscal year 2021 USPB earnings before tax plus USPB grid premiums during fiscal year 2021, less (2) $50,000,000, 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

     Discretionary cash bonuses may also be paid to executive officers from time to time to reward elements of performance that are not reflected in the criteria for performance based cash bonuses. No such bonuses were paid to executive officers in fiscal year 2020, 2019, and 2018. The discretionary bonuses, if paid, are disclosed in the Bonus column in the Summary Compensation Table.

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Outstanding Phantom Plan Awards at Fiscal Year End 2020

   
Phantom Plan Awards
    Number of Securities            
    Underlying            
               Name and Principal Position   Unexercised Awards     Strike Price($)     Expiration Date
Stanley D. Linville  

1,300 Class A Units

(1)

 

$

0.00

(3)

 

None

Chief Executive Officer  

1,300 Class B Units

(1)

 

$

0.00

(3)

 

None

   

1,000 Class A Units

(2)

 

$

66.04

   

None

   

1,000 Class B Units

(2)

 

$

73.70

   

None

                   
Scott J. Miller  

1,200 Class A Units

(1)

 

$

0.00

(3)

 

None

Chief Financial Officer  

1,200 Class B Units

(1)

 

$

0.00

(3)

 

None

   

500 Class A Units

(2)

 

$

66.04

   

None

   

500 Class B Units

(2)

 

$

73.70

   

None

 

 

 

Danielle D. Imel  

1,000 Class A Units

(1)

 

$

0.00

(3)

 

None

Treasurer  

1,000 Class B Units

(1)

 

$

0.00

(3)

 

None

   

 
                   
                   

(1) The phantom plan awards, which provide for the award of appreciation rights only, for Mr. Miller, Mr. Linville and Ms. Imel vested over a 5 year period. At the end of fiscal year 2020, the unexercised phantom units were fully vested, and therefore exercisable.

(2) The phantom plan awards, which provide for the award of appreciation rights only, for Mr. Miller and Mr. Linville vest over a 5 year period. At the end of fiscal year 2020, the unexercised phantom units were fully vested and therefore fully exercisable.

(3) During fiscal year 2011, a total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to certain management employees, with a strike price of $118 and $157, respectively. However, as a result of the 2011 Leucadia Transaction, management employees received a payment under the management phantom unit plan. As a result of that payment, the strike price for both the Class A phantom units and Class B phantom units was satisified and is now $0. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,750 Class A phantom units and 4,750 Class A phantom units remained outstanding at December 26, 2020, all of which were fully vested.

 

Phantom Plan Awards Exercised

   
Phantom Plan Awards
      Number of exercised     Value realized on
   Name and Principal Position     awards   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 2020. 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.

Potential Payments Upon Termination

Mr. Stanley D. Linville

     If the 2019 Employment Agreement is terminated upon death or permanent disability, Mr. Linville is entitled to:

28


  • 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 2020, his payment would be $330,000;
  • 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 prorated 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 2019 Employment Agreement through the Deemed Termination Date; and
  • The 2019 Employment Agreement provides for a cumulative annual cap of $495,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

     If the 2019 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 2019 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 25, 2021;
  • 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 25, 2021;
  • Annual Incentive for the year in which the termination occurs and each subsequent year through employment year 2021;
  • Long-Term Incentive that would have accrued had Mr. Linville had remained employed through employment year 2021; and
  • The payment of the noncompetition compensation.
  • The 2021 Employment Agreement provides for a cumulative annual cap of $495,000 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

     Where the 2019 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 2019 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 2019 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.

29


     The table below reflects compensation paid to each director during the fiscal year 2020.

    Fees Earned or
   Name   Paid in Cash ($)
 
Mark R. Gardiner  

3,750

Joe M. Morgan  

3,750

Jerry L. Bohn  

3,750

Wayne L. Carpenter  

3,500

John M. Freund  

3,500

Rex W. McCloy  

3,500

Jeff H. Sternberger  

3,500

Pay Ratio Disclosure Rule

     Pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the principal executive officer, Stanley D. Linville. The purpose of the disclosure is to provide a measure of the equitability of pay within the organization. The Company believes its compensation policy yields an equitable result.

  • Median employee total annual compensation for 2020                            $   373,282
  • Stanley D. Linville total annual compensation for 2020                          $1,223,848
  • Ratio of Stanley D. Linville to Median employee compensation                      3 : 1

     In determining the median employee total annual compensation, a listing was prepared of all employees, other than the CEO, as of December 26, 2020. The median of the total annual compensation amounts for all the employees is the amount disclosed above.

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.

   
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 (a))
        (a)   (b)   (c)
Equity compensation plans approved                
by security holders      

-

 

N/A

 

-

Equity compensation plans not        

 

 

 

 
approved by security holders      

-

 

N/A

 

-

   Total        

 

 

 

 

Security Ownership of Certain Beneficial Owners

     The following table sets forth certain information as of February 27, 2021 regarding the only persons known by the Company to own directly or indirectly, more than 5% of its Class A and Class B units.

30


          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            
Jerald Bohn (4)

Class A

 

40,901

 

5.6%

  PO Box 945  

Class B

 

33,351

 

4.4%

  Pratt, KS 67124            
Jeff Sternberger (5)

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.      
(2) Includes i) 54,288 Class A and 30,000 Class B unit s held by JBT Land & Cattle, LLC., of which Mr. Fairleigh is part owner and ii) 24,288 Class B units held by Fairleigh Corporation dba 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 40,901 Class A and 33,101 Class B units held by Pratt Feeders, LLC of which Mr. Bohn is a part owner and 250 Class B units held by the Jerald L. Bohn Revocable T rust.
(5) 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, 2021, 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 27, and (iii) all current directors and executive officers as a group.

31


    Beneficial Ownership of
    Class A Units   Class B Units
Name   Number(1)   Percentage(1)   Number(1)   Percentage(1)
Jerry L. Bohn (2)  

40,901

 

5.6%

 

33,351

 

4.4%

Jeff H. Sternberger(3)  

40,770

 

5.5%

 

40,770

 

5.4%

Joe M. Morgan(4)  

33,128

 

4.5%

 

17,865

 

2.4%

Rex W. McCloy(5)  

13,085

 

1.8%

 

12,635

 

1.7%

Wayne L. Carpenter (6)  

6,000

 

0.8%

 

6,000

 

0.8%

Mark R. Gardiner(7)  

3,100

 

0.4%

 

3,100

 

0.4%

John M. Freund(8)  

2,225

 

0.3%

 

2,225

 

0.3%

Stanley D. Linville  

-

 

0.0%

 

-

 

0.0%

Scott J. Miller  

-

 

0.0%

 

-

 

0.0%

Danielle D. Imel  

-

 

0.0%

 

-

 

0.0%

  Directors and Executive Officers as a group (10 persons)(9)  

139,209

 

18.9%

 

115,946

 

15.4%

 

 

 

 

                         
(1) Represents the percentage of Class A units and the percentage of Class B units beneficially held or managed by the named party.
(2) Includes 40,901 Class A and 33,101 Class B units held by Pratt Feeders, LLC of which Mr. Bohn is a part owner and 250 Class B units held by the Jerald L. Bohn Revocable T rust.
(3) 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.
(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 13,085 Class A units and 12,635 Class B units held by Rex McCloy Farms, Inc., of which Mr. McCloy is an owner.
(6) Includes i) 6,000 Class A and Class B units held by the Carpenter Cattle Co. Inc., of which Mr. Carpenter is the owner.
(7) Includes i) 3,000 Class A and Class B units held by the Mark Gardiner Revocable Trust, and ii) 100 Class A and Class B units held by Gardiner Angus Ranch, Inc., all of which Mr. Gardiner has sole voting power.
(8) Includes 2,225 Class A and Class B units held by the John Freund, over which Mr. Freund has sole voting power.
(9) Reflects unit ownership by all seven directors 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 transaction is on an arms-length basis which is fair to the Company.

Directors who are Unitholders

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

32


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

Certain Arrangements with Holders of NBP’s Membership Interests

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

Transactions with NBP

     On June 10, 2019, USPB entered into the First Amended and Restated Cattle Purchase and Sale Agreement with NBP. Per the terms and conditions of the Amended Agreement, NBP is required to purchase from USPB Class A unitholders, and USPB is required to cause to be sold and delivered from its Class A unitholders to NBP, a base amount of 735,385 (subject to adjustment) head of cattle per year. In fiscal years 2020, 2019, and 2018, USPB elected to increase the number of cattle that its Class A unitholders could deliver during USPB’s delivery year by up to 10%. During fiscal years 2020, 2019, and 2018, USPB’s Class A unitholders and associates provided approximately 23%, 23%, and 25%, 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. The terms and conditions of the Amended Agreement are substantially the same as the previous agreement except in the following material ways:

  • Under the Amended Agreement, if NBP acquires or develops new processing (slaughter) facilities, then USPB has a first right to provide 25% of the cattle to the new NBP facility.
  • The purchase price of cattle delivered by USPB Class A unitholders to the Tama, Iowa processing facility shall be no less favorable than any other pricing grid that NBP offers to any other seller of cattle delivering to the Tama, Iowa processing facility or to non-grid cattle with comparable performance.
  • On each anniversary of the Amended Agreement, the term of the Amended Agreement shall be extended be five years from the date of such anniversary, unless either party elects to not extend the term. The Amended Agreement currently extends through June 10, 2025.

     NBP also purchased additional cattle from certain USPB members and associates outside of the Amended Agreement.

ITEM 14.           PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Grant Thornton LLP an independent registered public accounting firm, was engaged in June 2018 and served as our auditors for the review of the quarterly report on Form 10-Q for the periods ended June 30, 2018 and September 29, 2018, and as our auditor for the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018 (thousands of dollars).

  December 26, 2020    December 28, 2019    December 29, 2018
           
Audit Fees

$

127

 

$

121

 

$

115

Audit Related Fees  

-

   

-

   

28

Tax Fees  

-

   

-

   

-

   Total

$

127

 

$

121

 

$

143

Audit Fees

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

33


Audit-Related Fees

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

Tax Fees

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34


PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
   
(a)   Financial Statements and Financial Statement Schedules
   
(1) The financial statements filed as part of this report at Item 8 are listed in the Index to the 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).
   
3.3 Limited Liability Company Agreement of National Beef Packing Company, LLC, dated as of February 28, 2019 (incorporated herein by reference to Exhibit 3.3 to Form 10-K (File No. 333-115164) filed with the SEC on March 13, 2019.
   
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).
   

10.2(a)

First Amended and Restated Cattle Purchase and Sale Agreement Between the Company and National Beef Packing Company, LLC dated June 10, 2019 (incorporated herein by reference to Exhibit 10-2a to Form 10-K (File No. 333-115164) filed with the SEC on March 6, 2020).

   
10.3(a) Form of Uniform Cattle Delivery and Marketing Agreement – Even Slots (incorporated by reference to Exhibit 10.2(b) to Form 10-K (File No. 333-115164) filed with the Commission on November 14, 2007).
   
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(a)* U.S. Premium Beef, LLC Phantom Unit Bonus Compensation Policy adopted September 28, 2010 (incorporated herein by reference to Exhibit 10.01 to Form 8-K (File No. 333-115164) filed with the SEC on October 4, 2010).
   

10.4(b)*

Amended and Restated USPB Phantom Unit Bonus Compensation Policy dated January 14, 2020 (incorporated herein by reference to Exhibit 10-4b to Form 10-K (File No. 333-115164) filed with the SEC on March 6, 2020).

 
 

 

35


 

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 10.2 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 10.4 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 June 3, 2014).
   
10.5(g) Amended and Restated Revolving Term Supplement between U.S. Premium Beef, LLC and CoBank, ACB, executed June 13, 2017 incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on June 15, 2017).
   
10.5(h) Revolving Term Loan Supplement between U.S. Premium Beef, LLC and CoBank, ACB, executed August 16, 2019 incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on August 20, 2019).
   
10.5(i) Credit Agreement between U.S. Premium Beef, LLC and CoBank, ACB, executed July 13, 2020 (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on July 16, 2020).
   
10.5(j) Amended and Restated Revolving Term Promissory Note between U.S. Premium Beef, LLC and CoBank, ACB executed July 13, 2020 (incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 333-115164) filed with the SEC on July 16, 2020).
   
10.5(k) Affirmation of Pledge Agreement between U.S. Premium Beef, LLC and CoBank, ACB executed July 13, 2020 (incorporated by reference to Exhibit 10.3 to Form 8-K (File No. 333-115164) filed with the SEC on July 16, 2020).
   
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).
   
10.6(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).
   
10.6(g)* Amended CEO Employment Agreement between U.S. Premium Beef, LLC and Stanley D. Linville, executed on December 14, 2018 and effective as of December 30, 2018 (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 14, 2018).
   
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).
 
   
   
 

36


 

   
   
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).
   
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.

37


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

Date: March 5, 2021

* * * *

     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    
  Chief Executive Officer  
Stanley D. Linville (Principal Executive Officer) March 5, 2021
/s/ Scott J. Miller    
  Chief Financial Officer  
Scott J. Miller (Principal Financial and Accounting Officer) March 5, 2021
/s/ Mark R. Gardiner    
  Chairman of the Board  
Mark R. Gardiner   March 5, 2021
/s/ Joe M. Morgan    
  Vice Chairman of the Board  
Joe M. Morgan   March 5, 2021
/s/ Jerry L. Bohn    
  Secretary  
Jerry L. Bohn   March 5, 2021
/s/ Wayne L. Carpenter    
  Director  
Wayne L. Carpenter   March 5, 2021
/s/ John M. Freund    
  Director  
John M. Freund   March 5, 2021
/s/ Rex W. McCloy    
  Director  
Rex W. McCloy   March 5, 2021
/s/ Jeff H. Sternberger    
  Director  
Jeff H. Sternberger   March 5, 2021

38


U.S. PREMIUM BEEF, LLC

INDEX TO FINANCIAL STATEMENTS

  Page

Audited Financial Statements:  
   

Report of Independent Registered Public Accounting Firm - Grant Thornton LLP

F-2

 

Balance Sheets at December 26, 2020 and December 28, 2019

F-3

 

Statement of Operations for the years ended December 26, 2020, December 28, 2019, and December 29, 2018

F-4

   

Statement of Members' Capital for the years ended December 26, 2020, December 28, 2019, and December 29, 2018

F-4

 

Statement of Cash Flows for the years ended December 26, 2020, December 28, 2019, and December 29, 2018

F-5

   

Notes to Financial Statements

F-6

 

   
Audited Financial Statements of Significant Equity Method Investee under Rule 3-09 of Regulation S-X:  
   

National Beef Packing Company, LLC Consolidated Balance Sheet at December 26, 2020, December 28, 2019 and December 29, 2018 and Consolidated Statement of Operations, Comprehensive Income, Cash Flows and Members’ Capital for years ended December 26, 2020, December 28, 2019, and December 29, 2018 and Notes to Consolidated Financial Statements

F-15

 

 

 

 

 

 

 

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Members

U.S. Premium Beef, LLC

Opinion on the financial statements

We have audited the accompanying balance sheets of U.S. Premium Beef, LLC (a Delaware limited liability company) (the “Company”) as of December 26, 2020 and December 28, 2019, and the related statements of operations, members’ capital, and cash flows for each of the three fiscal years in the period ended December 26, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 26, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2018.

Kansas City, Missouri

March 5, 2021

F-2


U.S. PREMIUM BEEF, LLC

Balance Sheets

(thousands of dollars, except unit information)

  

 

Assets

 

December 26, 2020

     

December 28, 2019

Current assets:          
   Cash and cash equivalents

$

76,769

 

$

77,909

   Accounts receivable  

317

   

-

   Due from affiliates  

55

   

41

   Other current assets  

29

   

29

      Total current assets  

77,170

   

77,979

Property, plant, and equipment, at cost  

243

   

238

   Less accumulated depreciation  

210

   

195

      Net property, plant, and equipment  

33

   

43

Right of use assets, net  

219

   

232

Investment in National Beef Packing Company, LLC

131,494

   

131,786

Other assets  

12

   

43

      Total assets

$

208,928

 

$

210,083

Liabilities and Members' Capital

       
Current liabilities:          
   Accounts payable - trade

$

17

 

$

28

   Due to affiliates  

5

   

29

   Accrued compensation and benefits  

2,243

   

2,260

   Lease obligations  

51

   

49

   Other accrued expenses and liabilities  

579

   

1,307

   Distributions payable  

2

   

50

      Total current liabilities  

2,897

   

3,723

Long-term liabilities:          
   Lease obligations  

168

   

183

   Other liabilities  

5,621

   

3,340

      Total long-term liabilities  

5,789

   

3,523

      Total liabilities  

8,686

   

7,246

           
Commitments and contingencies  

-

   

-

 

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

200,242

   

202,837

      Total members' capital  

200,242

   

202,837

      Total liabilities and members' capital

$

208,928

 

$

210,083

 

See accompanying notes to financial statements.

F-3


U.S. PREMIUM BEEF, LLC

Statements of Operations

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

 
                   
 

52 weeks ended

 

52 weeks ended

 

52 weeks ended

 

December 26, 2020

 

December 28, 2019

 

December 29, 2018

Net sales

$

-

 

$

-

 

$

-

Costs and expenses:                
   Cost of sales  

-

   

-

   

-

   Selling, general, and administrative expenses  

7,866

   

5,079

   

4,476

   Depreciation and amortization  

16

   

17

   

12

      Total costs and expenses  

7,882

   

5,096

   

4,488

         Operating loss  

(7,882)

   

(5,096)

   

(4,488)

Other income:                
   Interest income  

165

   

1,167

   

1,073

   Interest expense  

(2)

   

(15)

   

(15)

   Equity in income of National Beef Packing Company, LLC  

199,703

   

121,464

   

89,610

   Other, net  

697

   

481

   

408

      Total other income  

200,563

   

123,097

   

91,076

         Net income

$

192,681

 

$

118,001

 

$

86,588

                 
Income per unit:                
   Basic and diluted                
      Class A units

$

26.20

 

$

16.05

 

$

11.77

      Class B units

$

229.57

 

$

140.59

 

$

103.16

 

 

Outstanding weighted-average Class A and Class B units:                
   Basic and diluted                
      Class A units  

735,385

   

735,385

   

735,385

      Class B units  

755,385

   

755,385

   

755,385

 

 

See accompanying notes to financial statements.

 

 

         U.S. PREMIUM BEEF, LLC

      Statements of Members' Capital

            (thousands of dollars)

     
  Members'
 
capital
Balance at December 30, 2017

$

224,147

   Net income for the year ended December 29, 2018  

86,588

   Member distributions  

(90,979)

Balance at December 29, 2018

$

219,756

   Net income for the year ended December 28, 2019  

118,001

   Member distributions  

(134,920)

Balance at December 28, 2019

$

202,837

   Net income for the year ended December 26, 2020  

192,681

   Member distributions  

(195,276)

Balance at December 26, 2020

$

200,242

     
See accompanying notes to financial statements.

F-4


U.S. PREMIUM BEEF, LLC

Statements of Cash Flows

(thousands of dollars)

                 
 

52 weeks ended

 

52 weeks ended

  

52 weeks ended

 

December 26, 2020

  

December 28, 2019

 

December 29, 2018

     
Cash flows from operating activities:                
   Net income

$

192,681  

$

118,001  

$

86,588
   Adjustments to reconcile net income to net cash provided by operating              
      activities:                
         Depreciation and amortization   16     17     12
         Equity in net income of National Beef Packing Company, LLC (199,703)     (121,464)     (89,610)
         Distributions from National Beef Packing Company, LLC 199,995     133,039     68,023
         Changes in assets and liabilities:                
            Accounts Receivable   (317)     -     -
            Due from affiliates   (14)     (20)     116
            Other assets   31     24     42
            Accounts payable   (11)     16     (46)
            Due to affiliates   (24)     (15)     (344)
            Accrued compensation and benefits   2,264     (292)     (304)
            Other accrued expenses and liabilities   (728)     792     231
               Net cash provided by operating activities   194,190     130,098     64,708
Cash flows from investing activities:                
   Capital expenditures, including interest capitalized   (6)     (43)     (7)
   Distributions from National Beef Packing Company, LLC   -     -     18,256
               Net cash (used in) provided by investing activities (6)     (43)     18,249
Cash flows from financing activities:                
   Member distributions   (195,324)     (140,557)     (113,620)
               Net cash used in financing activities   (195,324)     (140,557)     (113,620)
               Net decrease in cash   (1,140)     (10,502)     (30,663)
Cash and cash equivalents at beginning of period   77,909     88,411     119,074
Cash and cash equivalents at end of period

$

76,769  

$

77,909  

$

88,411
Supplemental cash disclosures:                
   Cash paid during the period for interest

$

-  

$

18  

$

13
Supplemental noncash disclosures of operating activities:                
   Right of use assets and lease obligations

$

36  

$

232  

$

-
Supplemental noncash disclosures of investing activities:                
   Required contribution of purchased ownership interest to                
      National Beef Packing Company, LLC

$

-  

$

23,692  

$

-
Supplemental noncash disclosures of financing activities:                
   Distributions payable

$

-  

$

-  

$

5,867
   
See accompanying notes to financial statements.

F-5


U.S. Premium Beef, LLC
Notes to Financial Statements

NOTE 1.    Description of Business

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

     On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the conversion of the cooperative into a Delaware LLC.

     On December 5, 2011, USPB sold the majority of its membership interests in NBP to Leucadia National Corporation. Following the sale, USPB owned 15.0729% of NBP’s membership interests.

     On November 29, 2019, Jefferies Financial Group, Inc. (formerly Leucadia National Corporation) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%.

Ownership Structure

     As USPB is structured as a Limited Liability Company, its members are not personally liable for liabilities of USPB. USPB’s members are taxed on their proportionate share of USPB’s taxable income.

     Class A Units. There are 735,385 Class A units outstanding. Class A unitholders are allocated 10% of the Company’s profits and losses. Holders of USPB Class A units, committed under Uniform Cattle Delivery and Marketing Agreements, have the right and obligation to deliver one head of cattle to USPB annually for each unit held.

     Class B Units. There are 755,385 Class B units outstanding. Class B unitholders are allocated 90% of the Company’s profits and losses. Holders of USPB Class B units have no cattle delivery commitment.

NOTE 2.    Basis of Presentation and Accounting Policies

Basis of Presentation

     USPB’s investment in NBP is accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control.

Fiscal Year

     The Company’s fiscal year ends on the last Saturday in December. The Company files annual reports for each 52 week or 53 week period ended on the last Saturday in December.

Use of Estimates

     The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, using management’s best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments.

F-6


U.S. Premium Beef, LLC
Notes to Financial Statements

Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of December 26, 2020 and December 28, 2019, the Company’s balance sheet reflected Cash and cash equivalents of $76.8 million and $77.9 million, respectively. The cash is invested in CoBank’s overnight investment account. Investments are not deposits and are not insured by the Federal Deposit Insurance Corporation or the Farm Credit System Insurance Corporation.

Investment in National Beef Packing Company, LLC

     USPB’s 15.0729% investment in NBP accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control.

     The table below summarizes the changes to USPB’s investment in NBP.

   

December 26, 2020

    

December 28, 2019

 

(thousands of dollars)

Beginning Investment Balance $

 131,786

 

$

 143,361

   Purchase of ownership interest  

 -

 

 

23,692

   Equity in net income  

199,703

 

 

121,464

   Distributions  

(199,995)

 

 

(156,731)

Ending Investment Balance $

 131,494

 

$

 131,786

     For fiscal years 2020 and 2019, USPB conducted an evaluation to determine if its investment in NBP was impaired as of the end of the fiscal year in accordance with Auditing Standards Codification (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 a market based approach and resulted in a fair value that exceeded the carrying value. As a result of the analysis, USPB concluded that the carrying value of its investment in NBP was not impaired as of December 26, 2020 and December 28, 2019.

     On June 10, 2019, the members of NBP acquired 100% of the ownership interests in Iowa Premium, LLC (Iowa Premium) from Sysco Holdings, LLC for $153.2 million in cash after customary working capital adjustments. The cash utilized by NBP’s members for the acquisition was distributed from NBP and immediately upon closing of the acquisition, each of the members of NBP contributed all its Iowa Premium ownership interests to NBP. The distribution, acquisition and contribution transactions were governed by several related agreements that resulted in NBP, in substance, acquiring 100% of the Iowa Premium ownership interests.

     On November 29, 2019, Jefferies Financial Group, Inc. sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%. In conjunction with the sale, NBP’s members, including USPB, received proportionate special distributions and tax distributions from NBP.

Property, Plant, and Equipment

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

Machinery and equipment

2 to 15 years

Furniture and fixtures

3 to 5 years

Trailers and automotive equipment

2 to 5 years

     Normal repairs and maintenance costs are charged to Selling, general and administrative expenses, as incurred.

F-7


U.S. Premium Beef, LLC
Notes to Financial Statements

     A summary of cost and accumulated depreciation for property, plant, and equipment as of December 26, 2020 and December 28, 2019 follows (thousands of dollars):

  December 26, 2020    December 28, 2019
Machinery and equipment $

24

  $

19

Furniture and fixtures  

147

   

147

Trailers and automotive equipment  

72

   

72

   Total property, plant, and equipment, at cost  

243

   

238

Accumulated depreciation  

210

   

195

   Property, plant, and equipment, net $

33

  $

43

     Depreciation expense was less than $0.1 million for fiscal years ended December 26, 2020, December 28, 2019, and December 29, 2018.

Distributions Payable

     USPB utilizes a controlled disbursement account to fund cash distribution checks presented for payment by the holder. Checks that have been issued but have not cleared are reflected on the balance sheet as a reduction in cash. Amounts for checks that have not yet been issued are included in distributions payable and the change in the related balances are reflected in financing activities on the statement of cash flows. Distributions payable were less than $0.1 million as of December 26, 2020 and December 28, 2019.

Income Taxes

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

     Although income taxes are assessed to the individual members, USPB is required to withhold state income taxes from the cash distributions it makes to it members. As of December 26, 2020 and December 28, 2019, Other accrued expenses and liabilities on the Company’s balance sheet reflected state taxes payable of $0.5 million and $1.2 million, respectively.

Selling, General, and Administrative

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

Noncompetition Payments

     The former CEO’s employment agreement provided for him to receive noncompetition payments in connection with the Leucadia Transaction. During fiscal years 2020 and 2019, the former CEO was paid $0.8 million and $0.8 million, respectively, in noncompetition payments. He will continue to receive noncompetition payments of approximately $0.8 million per year during calendar year 2021.

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

     As of December 26, 2020 and December 28, 2019, the Company had accrued $1.2 million and $1.9 million, respectively, for the noncompetition agreements. The current and long-term portion of the accrued amounts are included in Accrued compensation and benefits and Other liabilities, respectively, on the balance sheet. The table below summarizes the current and long-term portions of the accrued non-compete amounts:

  December 26, 2020    December 28, 2019
 

(thousands of dollars)

Current non-compete $

849

  $

848

Long-term non-compete  

308

   

1,089

  $

1,157

  $

1,937

 

 

F-8


U.S. Premium Beef, LLC
Notes to Financial Statements

Business Segments

     USPB is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, USPB has one reportable segment.

Earnings Per Unit

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

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

     Diluted EPU reflects the potential dilution that could occur to the extent that any outstanding dilutive Class A or Class B units were exercised. There are no potentially dilutive Class A or Class B units outstanding.

Income Per Unit Calculation 52 weeks ended

  

52 weeks ended

  

52 weeks ended
(thousands of dollars, except unit and per unit data)

December 26, 2020

 

December 28, 2019

 

December 29, 2018

                 
Basic and diluted earnings per unit:                
Income attributable to USPB available to                
   unitholders (numerator)                
      Class A $

19,268

  $

11,800

  $

8,659

      Class B $

173,413

  $

106,201

  $

77,929

                 
Weighted average outstanding units (denominator)                
   Class A  

735,385

   

735,385

   

735,385

   Class B  

755,385

   

755,385

   

755,385

                 
Per unit amount                
   Class A $

26.20

  $

16.05

  $

11.77

   Class B $

229.57

  $

140.59

  $

103.16

NOTE 3.    Long-Term Debt and Loan Agreements

     (a)      Credit Agreement

     USPB’s Amended and Restated Revolving Term Supplement’s matured on June 30, 2020. On June 24, 2020, CoBank unilaterally extended the Term Expiration Date under USPB’s Amended and Restated Revolving Term Supplement from June 30, 2020 up to and including August 31, 2020. On July 13, 2020, USPB, and CoBank, ACB (“CoBank”), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (“Promissory Note”), and an Affirmation of Pledge Agreement (“New Loan Agreements”). The New Loan Agreements replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, Pledge Agreement, and Security Agreement dated July 26, 2011, as amended.

     The New Loan Agreements provide for a $1 million Revolving Term Commitment, carries a term of five years and matures on June 30, 2025. The Promissory Note defines Interest as equal to the One-Month LIBOR Index Rate or if LIBOR quotes are no longer available, CoBank will replace the LIBOR Index Rate with a replacement benchmark rate. The other terms and conditions of the Credit Agreement and the Revolving Term Loan Supplement continue the terms and conditions of the Prior Agreements without material modifications. The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, National Beef Packing Company, LLC.

F-9


U.S. Premium Beef, LLC
Notes to Financial Statements

     As of December 26, 2020, USPB had no long-term debt outstanding. We had a $1.0 million Revolving Term Commitment with CoBank all of which was available. USPB was in compliance with the financial covenant under its Credit Agreement as of December 26, 2020 and Master Loan Agreement as of December 28, 2019.

     (b)      Operating Leases

     In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02, Leases. The new standard requires the recognition of all leases that are longer than one year on the balance sheet, which will result in the recognition of a right of use asset and a corresponding lease liability. The new standard was effective for annual and interim periods beginning after December 15, 2018; USPB implemented the new standard effective December 30, 2018.

     Upon review of its lease arrangements, USPB determined that its two office leases were subject to the new leasing standard. The Kansas City, MO office lease has a remaining term of approximately 4.2 years (assuming the final 3-year renewal is exercised). The Dodge City, KS office renewed its office lease in 2020 and has a remaining term of approximately 3.0 years. Neither lease agreement provides for renewals beyond the remaining terms. The monthly lease payment for the Kansas City office is $3,884, subject to annual Consumer Price Index adjustments, which are capped at 3% per year. The monthly lease payment for the Dodge City office is $1,025, which is not subject to adjustment. Both offices are used for general office use only. As of December 26, 2020, the present value of the remaining operating lease payments for the offices equaled $0.2 million and USPB’s balance sheet reflected Right of Use Assets and Lease Obligations equal to that amount. The discount rate used to compute the present value was USPB’s incremental borrowing rate adjusted for lease term.

     USPB elected the package of practical expedients permitted under the transition guidance, which allows us to accept: 1) the original determination of whether a contract contained a lease, 2) a subsequent review of existing contracts is not necessary, and 3) USPB does not have to reassess the initial direct costs assigned to leases under previous leasing guidance. The new guidance did not have a material impact on our financial statements.

NOTE 4.    Employee Options and Benefit Plans

     In September 2010, USPB’s Board of Directors approved a management phantom unit plan. The phantom unit plan provides for the award of unit appreciation rights to management employees of USPB. USPB’s CEO administers the phantom unit plan and awards “Phantom Units” (Class A and Class B Units) to employees in amounts determined by the CEO, subject to the total Phantom Unit amount approved by the Board of Directors of USPB. A total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to management employees, with a strike price of $118 and $157, respectively. The closing of the Leucadia Transaction resulted in management employees receiving a payment under the management phantom unit plan. As a result of that payment, the strike price for both the Class A phantom units and Class B phantom units was satisfied and was reduced to $0. As a result of the retirement of one of USPB’s employees on December 31, 2014, 50 Class A phantom units and 50 Class B phantom units were forfeited as they were not vested. One third of the retiring employee’s vested phantom units were exercised and the appreciation rights paid in three tranches (retirement, and first and second anniversary of retirement). At the end of fiscal year 2020, 4,750 Class A phantom units and 4,750 Class B phantom units remain outstanding. The phantom units became fully vested in August 2015. For the management phantom unit plan, compensation expense of $3.2 million, $1.0 million, and $0.6 million was recognized in fiscal years 2020, 2019, and 2018, respectively.

     On November 16, 2012, USPB’s Board of Directors approved the issuance of an additional 1,500 Class A phantom units, with a strike price of $66.04 and 1,500 Class B phantom units, with a strike price of $73.70, to certain members of management, to be effective on January 28, 2013. The phantom units became fully vested in January 2018. Compensation expense of $0.9 million, $0.3 million, and $0.2 million was recognized in fiscal years 2020, 2019, and 2018, respectively.

F-10


U.S. Premium Beef, LLC
Notes to Financial Statements

     As of December 26, 2020 and December 28, 2019, the Company had accrued $5.3 million and $2.3 million, respectively, for the management phantom plans. The accrued amounts are included in Other liabilities on the balance sheet.

     USPB provides its employees the opportunity to earn cash incentives and bonuses. The cash incentive and bonus plans were designed to provide the financial incentive to the employees to influence USPB unitholder benefits and are only paid after certain levels of benefits have been achieved. As of December 26, 2020 and December 28, 2019, the Company had accrued $1.4 million and $1.4 million, respectively, for the cash incentive and bonus plans. The accrued amounts are included in Accrued compensation and benefits on the balance sheet.

     The Company maintains a tax-qualified employee savings and retirement plan (401(k) Plan) covering the Company’s non-union employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the lesser of 75% of their annual compensation or the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan provides for additional matching contributions by the Company, based on specific terms contained in the 401(k) Plan. The trustee of the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code. Expenses related to the 401(k) Plan totaled approximately $0.1 million, $0.1 million, and $0.1 million for fiscal years 2020, 2019, and 2018, respectively.

NOTE 5.    Other Income

     Other non-operating income, net was $0.7 million, $0.5 million, and $0.4 million, for fiscal years 2020, 2019, and 2018, respectively. Other non-operating income primarily includes income related to lease income on additional delivery rights made available by the Company.

NOTE 6.    Income Taxes

      USPB is structured as an LLC and is taxed as a partnership for federal income tax purposes. As a result, its taxable income/loss are passed through to the unitholders at the end of each tax year. Certain states assess an entity level tax, which is paid by USPB. Such taxes were less than $0.1 million in tax years 2020, 2019, and 2018.

NOTE 7.    Related Party Transactions

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

     On June 10, 2019, USPB entered into the First Amended and Restated Cattle Purchase and Sale Agreement with NBP (Amended Agreement). Per the terms and conditions of the Amended Agreement, NBP is required to purchase from USPB Class A unitholders, and USPB is required to cause to be sold and delivered from its Class A unitholders to NBP, a base amount of 735,385 (subject to adjustment) head of cattle per year. In fiscal years 2020, 2019, and 2018, USPB elected to increase the number of cattle that its Class A unitholders could deliver during USPB’s delivery year by up to 10%. During fiscal years 2020, 2019, and 2018, USPB’s Class A unitholders and associates provided approximately 23%, 23%, and 25%, 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. The terms and conditions of the Amended Agreement are substantially the same as the previous agreement except in the following material ways:

F-11


U.S. Premium Beef, LLC
Notes to Financial Statements

  • Under the Amended Agreement, if NBP acquires or develops new processing (slaughter) facilities, then USPB has a first right to provide 25% of the cattle to the new NBP facility.
  • The purchase price of cattle delivered by USPB Class A unitholders to the Tama, Iowa processing facility shall be no less favorable than any other pricing grid that NBP offers to any other seller of cattle delivering to the Tama, Iowa processing facility or to non-grid cattle with comparable performance.
  • On each anniversary of the Amended Agreement, the term of the Amended Agreement shall be extended be five years from the date of such anniversary, unless either party elects to not extend the term. The Amended Agreement currently extends through June 10, 2025.

     NBP also purchased additional cattle from certain USPB members and associates outside of the Amended Agreement.

     On June 10, 2019, the members of NBP acquired 100% of the ownership interests in Iowa Premium, LLC (Iowa Premium) from Sysco Holdings, LLC for $153.2 million in cash after customary working capital adjustments. The cash utilized by NBP’s members for the acquisition was distributed from NBP and immediately upon closing of the acquisition, each of the members of NBP contributed all its Iowa Premium ownership interests to NBP. The distribution, acquisition and contribution transactions were governed by several related agreements that resulted in NBP, in substance, acquiring 100% of the Iowa Premium ownership interests.

     On November 29, 2019, Jefferies Financial Group, Inc. (Jefferies) sold its remaining ownership interest in NBP to a combination of NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A.; NBPCo Holdings, LLC; and TMK Holdings, LLC. USPB’s Board of Directors elected to not participate in the acquisition and, as a result, USPB’s ownership interest in National Beef remained at 15.0729%.

     In conjunction with its sale of ownership interests, NBP’s members, including USPB, received proportionate special distributions and tax distributions from NBP.

     At December 26, 2020 and December 28, 2019, the Company had receivables of less than $0.1 million due from unitholders and associates.

     At December 26, 2020 and December 28, 2019, the Company had payables of less than $0.1 million due to unitholders and associates.

NOTE 8.    Legal Proceedings

     As of December 26, 2020, USPB is not currently involved in any litigation. However, because its ownership interest in NBP is USPB’s largest asset and because of the cattle procurement and distribution relationship between USPB and NBP, litigation involving NBP may impact USPB.

     NBP is a defendant in four class action lawsuits in the United States District Court, Minnesota District alleging that it violated the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws (the “Antitrust Cases”). The Antitrust Cases are entitled In re Cattle Antitrust Litigation, which was filed originally on April 23, 2019; Peterson et al. v. JBS USA Food Company Holdings, et al., which was filed originally on April 26, 2019; In re DPP Beef Litigation, which was filed originally on April 26, 2019; and Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020. The plaintiffs in the Antitrust Cases seek treble damages and other relief under the Sherman Antitrust Act, the Packers & Stockyards Act, the Commodities Exchange Act and attorneys’ fees. NBP is also a defendant in two class action lawsuits filed on January 7, 2020, alleging that it misrepresented the origin of its products in violation of the New Mexico Unfair Practices Act (the “Labelling Cases”). The Labelling Cases are entitled Thornton v. Tyson Foods, Inc., et al., filed in the New Mexico Second Judicial District Court, Bernalillo County, and Lucero v. Tyson Foods, et al., filed in the New Mexico Thirteenth Judicial District Court, Sandoval County. The Labelling Cases were subsequently removed to the United States District Court, New Mexico District. The plaintiffs in the Labelling Cases seek treble damages and other relief and attorneys’ fees. NBP believes it has meritorious defenses to the claims in the Antitrust Cases and the Labelling Cases and intends to defend these cases vigorously.

F-12


U.S. Premium Beef, LLC
Notes to Financial Statements

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

     NBP is a party to various other lawsuits and claims arising out of the operation of its business. Management believes the ultimate resolution of such matters should not have a material adverse effect on NPB’s financial condition, results of operations or liquidity.

     USPB is not able to assess what impact, if any, the actions described above will have on NBP or USPB.

NOTE 9.    Quarterly Results (Unaudited)

     Selected quarterly financial data for fiscal years 2020 and 2019 are set forth below (dollars in thousands, except per unit data):

         Operating    Net   
Basic and Diluted Earnings Per
    Net Sales   Loss   Income   Class A Unit    Class B Unit
2020 quarterly results:                              
   March 28, 2020 $

 -

  $  

(1,130)

  $

12,176

  $

1.66

  $

14.51

   June 27, 2020  

-

     

(1,225)

   

101,204

  $

13.76

  $

120.58

   September 26, 2020  

-

     

(4,015)

   

39,347

  $

5.35

  $

46.88

   December 26, 2020  

-

     

(1,512)

   

39,954

  $

5.43

  $

47.60

  $

 -

  $  

(7,882)

  $

192,681

           
   

   

 

           
2019 quarterly results:                              
   March 30, 2019 $

 -

  $  

(1,809)

  $

10,538

  $

1.43

  $

12.56

   June 29, 2019  

-

     

(891)

   

24,748

  $

3.37

  $

29.49

   September 28, 2019  

-

     

(822)

   

41,350

  $

5.62

  $

49.27

   December 28, 2019  

-

     

(1,574)

   

41,365

  $

5.63

  $

49.27

  $

 -

  $  

(5,096)

  $

118,001

           

NOTE 10.    Subsequent Events

     USPB has evaluated subsequent events through the date the financial statements were issued and determined there were no such events to report.

F-13


         NATIONAL BEEF PACKING COMPANY, LLC

 

      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
     
     
     
  Page  
Audited Consolidated Financial Statements:    
     

Report of Independent Certified Public Accountants - Grant Thornton LLP

F-15

 
     

Consolidated Balance Sheets at December 26, 2020 and December 28, 2019

F-16

 
     

Consolidated Statement of Operations for the years ended December 26, 2020, December 28, 2019, and December 29, 2018

F-17

 
     

Consolidated Statement of Comprehensive Income for the years ended December 26, 2020, December 28, 2019, and December 29, 2018

F-18

 

 

Consolidated Statement of Cash Flows for the years ended December 26, 2020, December 28, 2019, and December 29, 2018

F-19

 

 

Consolidated Statement of Members' Capital for the years ended December 26, 2020, December 28,  2019, and December 29, 2018

F-20

 

 

Notes to Consolidated Financial Statements

F-21

 

 

 

 

 

 

F-14


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

 

Board of Managers

National Beef Packing Company, LLC

 

We have audited the accompanying consolidated financial statements of National Beef Packing Company, LLC (a Delaware limited liability company) and subsidiaries, which comprise the consolidated balance sheets as of December 26, 2020 and December 28, 2019, and the related consolidated statements of operations, comprehensive income, members' capital, and cash flows for each of the three fiscal years in the period ended December 26, 2020, and the related notes to the financial statements.

 

Management's responsibility for the financial statements

 

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

 

Auditors' responsibility

 

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

 

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

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Beef Packing Company, LLC and subsidiaries as of December 26, 2020 and December 28, 2019, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 26, 2020 in accordance with accounting principles generally accepted in the United States of America.

 

 

 

 

/s/ Grant Thornton LLP

Kansas City, Missouri

 

March 5, 2021

F-15


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Balance Sheets
(in thousands)

    December 26, 2020    December 28, 2019
Assets      

Current assets:

         

Cash and cash equivalents

$

10,669

  $

12,507

Accounts receivable, less allowance for returns and expected credit losses of $2,627 and

         

$2,540, respectively

 

286,061

   

290,391

Due from affiliates

 

1,259

   

961

Other receivables

 

6,102

   

5,887

Inventories

 

289,941

   

287,795

Other current assets

 

45,279

   

28,819

  Total current assets  

639,311

   

626,360

Property, plant and equipment, at cost:

         

Land and improvements

 

58,398

   

35,453

Buildings and improvements

 

278,291

   

261,280

Machinery and equipment

 

559,912

   

536,763

Trailers and automotive equipment

 

3,460

   

3,410

Furniture and fixtures

 

16,926

   

15,540

Construction in progress

 

140,810

   

88,372

     

1,057,797

   

940,818

Less accumulated depreciation

 

458,577

   

412,921

  Net property, plant and equipment  

599,220

   

527,897

Goodwill

 

30,634

   

30,634

Other intangibles, net of accumulated amortization of $413,330 and $364,196, respectively

 

456,958

   

506,092

Right of use assets, net of accumulated amortization of $43,307 and $21,306, respectively

 

73,422

   

90,907

Other assets

 

39,594

   

29,316

Total Assets $

1,839,139

  $

1,811,206

Liabilities and Members’ Capital          

Current liabilities:

         

Current installments of long-term debt

$

19,888

  $

19,678

Current portion of right of use liabilities

 

25,403

   

25,248

Cattle purchases payable

 

127,536

   

116,280

Accounts payable — trade

 

114,209

   

109,232

Due to affiliates

 

4,439

   

2,762

Accrued compensation and benefits

 

239,641

   

151,920

Accrued insurance

 

22,221

   

21,819

Other accrued expenses and liabilities

 

54,547

   

44,794

  Total current liabilities  

607,884

   

491,733

Long-term debt, excluding current installments

 

342,649

   

410,560

Long-term portion of right of use liabilities

 

49,473

   

67,077

Other liabilities

 

20,758

   

21,603

  Total liabilities  

1,020,764

   

990,973

Commitments and contingencies

         

Members’ capital:

         

Members’ capital

 

818,393

   

820,332

Accumulated other comprehensive loss

 

(18 )

   

(99 )

  Total members’ capital  

818,375

   

820,233

Total Liabilities and Members' capital $

1,839,139

  $

1,811,206

 

 

See accompanying notes to consolidated financial statements.

F-16


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Statements of Operations
(in thousands)

  52 weeks ended   52 weeks ended   52 weeks ended
  December 26, 2020    December 28, 2019    December 29, 2018(a)
Net sales $

9,442,036

  $

8,579,568

  $

7,680,763

Costs and expenses:                
   Cost of sales  

7,911,900

   

7,554,273

   

6,890,424

   Selling, general and administrative  

84,781

   

83,005

   

74,720

   Depreciation and amortization  

108,348

   

121,598

   

105,512

      Total costs and expenses  

8,105,029

   

7,758,876

   

7,070,656

         Operating income  

1,337,007

   

820,692

   

610,107

Other income (expense):                
   Interest income  

414

   

465

   

314

   Interest expense  

(8,751)

   

(11,515)

   

(10,483)

         Income before taxes  

1,328,670

   

809,642

   

599,938

Income tax expense  

3,759

   

3,038

   

2,607

         Net income $

1,324,911

  $

806,604

  $

597,331

 

 

 

(a) Financial information has been recast to include results attributable to Ohio Beef

See accompanying notes to consolidated financial statements.

F-17


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income
(in thousands)

  52 weeks ended     52 weeks ended     52 weeks ended
  December 26, 2020   December 28, 2019   December 29, 2018(a)
Net income $

1,324,911

  $

806,604

  $

597,331

Other comprehensive income:                
   Foreign currency translation adjustments  

81

   

(20)

   

(22)

      Comprehensive income $

1,324,992

  $

806,584

  $

597,309

 

 

 

(a) Financial information has been recast to include results attributable to Ohio Beef

See accompanying notes to consolidated financial statements

F-18


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

 

52 weeks ended

  

52 weeks ended

  

52 weeks ended

 

December 26, 2020

 

December 28, 2019

 

December 29, 2018(a)

     
Cash flows from operating activities:                
         Net income $

1,324,911

  $

806,604

  $

597,331

   Adjustments to reconcile net income to net cash provided by operating              
      activities:                
         Depreciation and amortization  

108,348

   

121,598

   

105,512

         Provision for returns and doubtful accounts  

10,144

   

11,294

   

9,575

         Deferred income tax provision  

858

   

166

   

248

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

1,082

   

(93)

   

(960)

         Amortization of debt issuance costs  

1,034

   

735

   

722

         Changes in assets and liabilities, net of acquisition of businesses:              
            Accounts receivable  

(5,814)

   

(57,561)

   

(41,361)

            Due from affiliates  

(298)

   

(158)

   

(17)

            Other receivables  

(215)

   

(1,169)

   

4,584

            Inventories  

(2,146)

   

(12,980)

   

14,615

            Other assets  

(27,596)

   

(17,480)

   

(9,829)

            Right of use assets and lease liabilities, net  

36

   

1,418

   

-

            Cattle purchases payable  

11,256

   

(11)

   

(7,649)

            Accounts payable  

15,867

   

8,674

   

(1,851)

            Due to affiliates  

1,677

   

2,612

   

(612)

            Accrued compensation and benefits  

87,721

   

40,874

   

28,406

            Accrued insurance  

401

   

(2,696)

   

9,854

            Other accrued expenses and liabilities  

8,911

   

4,633

   

6,611

         Net cash provided by operating activities  

1,536,177

   

906,460

   

715,179

Cash flows from investing activities:                
   Capital expenditures, including interest capitalized  

(142,724)

   

(91,553)

   

(96,530)

   Acquisition of Iowa Premium, LLC, net of cash acquired  

-

   

(145,195)

   

-

   Proceeds from sale of property, plant and equipment  

1,372

   

1,916

   

2,122

      Net cash used in investing activities  

(141,352)

   

(234,832)

   

(94,408)

Cash flows from financing activities:                
   Receipts under revolving credit lines  

537,434

   

167,696

   

255,288

   Payments under revolving credit lines  

(523,696)

   

(200,000)

   

(290,288)

   Receipts under reducing revolving credit lines  

545,000

   

741,250

   

300,000

   Payments under reducing revolving credit lines  

(626,000)

   

(470,250)

   

(285,000)

   Net repayments of other indebtedness/capital leases  

(2,619)

   

(1,429)

   

(105)

   Cash paid for financing costs  

-

   

(450)

   

-

   Cash paid for common control acquisition  

-

   

(60,000)

   

-

   Member distributions  

(1,326,850)

   

(882,637)

   

(572,409)

      Net cash used in financing activities  

(1,396,731)

   

(705,820)

   

(592,514)

Effect of exchange rate changes on cash  

68

   

(47)

   

(27)

Net (decrease) increase in cash  

(1,838)

   

(34,239)

   

28,230

Cash and cash equivalents at beginning of period  

12,507

   

46,746

   

18,516

Cash and cash equivalents at end of period $

10,669

  $

12,507

  $

46,746

Supplemental disclosures:                
   Cash paid during the period for interest $

10,769

  $

11,409

  $

11,333

   Cash paid during the period for taxes $

1,153

  $

1,458

  $

1,906

Supplemental non-cash disclosures of investing and financing activities:              
   Non-cash additions to property, plant and equipment $

661

  $

11,551

  $

3,677

   Assets acquired through capital lease $

1,145

  $

12,849

  $

147

   (a) Financial information has been recast to include results attributable to Ohio Beef            
   

See accompanying notes to consolidated financial statements.

F-19


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Statements of Members’ Capital
(in thousands)

       Accumulated Other     
      Comprehensive    
  Members’ Capital   (Loss) Income   TOTAL
Balance at December 30, 2017 $

929,265

  $

(57 )

  $

929,208

   Net income  

597,331

   

   

597,331

   Equity acquired in common control transaction  

2,178

   

   

2,178

   Distributions  

(572,409)

   

   

(572,409 )

   Foreign currency translation adjustments  

   

(22 )

   

(22 )

Balance at December 29, 2018 (a) $

956,365

  $

(79 )

  $

956,286

   Net income  

806,604

   

   

806,604

   Contributions  

157,181

   

   

157,181

   Common control transaction distribution  

(60,000)

   

   

(60,000 )

   Distributions  

(1,039,818)

   

   

(1,039,818 )

   Foreign currency translation adjustments  

   

(20 )

   

(20 )

Balance at December 28, 2019 $

820,332

  $

(99 )

  $

820,233

   Net income  

1,324,911

   

   

1,324,911

   Distributions  

(1,326,850)

   

   

(1,326,850 )

   Foreign currency translation adjustments  

   

81

   

81

Balance at December 26, 2020 $

818,393

   

(18 )

  $

818,375

   

   

   

(a) Financial information has been recast to include results attributable to Ohio Beef

See accompanying notes to consolidated financial statements.

F-20


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.    DESCRIPTION OF BUSINESS

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

     The Company operates beef slaughter and fabrication facilities in Liberal and Dodge City, Kansas and Tama, Iowa, consumer-ready beef and pork processing facilities in Hummels Wharf, Pennsylvania, Moultrie, Georgia and Kansas City, Kansas and a beef patty manufacturing facility in North Baltimore, Ohio. National Carriers, Inc., or National Carriers, a wholly-owned subsidiary located in Dallas, Texas, provides trucking services to the Company and third parties and National Elite Transportation, LLC, or National Elite, a wholly-owned subsidiary located in Springdale, Arkansas, provides third-party logistics services to the transportation industry. National Beef Leathers, LLC, or NBL, a wholly-owned subsidiary located in St. Joseph, Missouri, provides hide tanning services for the Company. Kansas City Steak Company, LLC, or Kansas City Steak, includes a direct to consumer business and operates a warehouse and fulfilment facility in Kansas City, Kansas. As of December 26, 2020, and December 28, 2019, approximately 57% and 58% respectively, of our employees were represented by collective bargaining agreements. The Company makes certain contributions for the benefit of employees (see Note 7).

     On June 5, 2018, Marfrig Global Foods S.A (Marfrig) acquired a 51% interest in the Company from certain existing members for aggregate net cash consideration of approximately $969.0 million.

     On November 30, 2019, Marfrig and certain existing members acquired an additional approximate 31% interest in the Company from an existing member for aggregate net cash consideration of approximately $860.0 million.

NOTE 2.    BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation and Consolidation

      The consolidated financial statements include the accounts of the Company and its direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All amounts in the accompanying consolidated financial statements and related notes are presented in U.S. dollars.

Accounting Changes

     Except for the changes discussed below, the Company has consistently applied the accounting policies to all periods presented in the consolidated financial statements.

     Effective December 30, 2018, the beginning of our 2019 fiscal year, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, “Leases” (ASC 842). We adopted this standard utilizing the FASB’s transition option which allows the Company to continue to apply the legacy guidance in ASC 840, “Leases” (ASC 840), including its disclosure requirements, in the comparative periods presented in the year of adoption. Accordingly, the relevant lease information in the accompanying financial statements and disclosures is accounted for under ASC 842 for fiscal years 2020 and 2019, and ASC 840 for fiscal years 2018. Adoption of the standard in fiscal 2019 resulted in an operating lease right of use asset of approximately $75.4 million and an operating lease right of use liability of approximately $76.4 million. Additional information regarding leases is included in “Note 4. Leases.” Effective December 31, 2017, the beginning of our 2018 fiscal year, the Company adopted FASB’s ASC Topic 606, "Revenue from Contracts with Customers" (ASC 606). We adopted this standard using the cumulative effect adjustment, often referred to as modified retrospective approach. Under this method, we did not restate the prior financial statements presented. There was no cumulative effect to be recorded as an adjustment to the opening balance of retained earnings. Additional information regarding revenue recognition is included in “Note 3. Revenue Recognition.”

F-21


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The provisions of the new guidance were effective as of the beginning of our 2020 fiscal year. The adoption of this guidance did not have a material impact on our financial statements.

     In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement, new accounting guidance to improve the effectiveness of disclosures related to fair value measurements. The new guidance removes certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy along with the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Additions to the disclosure requirements include more quantitative information related to significant unobservable inputs used in Level 3 fair value measurements and gains and losses included in other comprehensive income. The provisions of the new guidance were effective as of the beginning of our 2020 fiscal year. The adoption of this guidance did not have a material impact on our financial statements.

Fiscal Year

     The Company’s fiscal year consists of 52 or 53 weeks, ending on the last Saturday in December. Fiscal 2020, 2019 and 2018 were each 52-week fiscal years. All references to years in these notes to consolidated financial statements represent fiscal years unless otherwise noted.

Use of Estimates

     The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, using management’s best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments.

Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Allowance for Returns and Expected Credit Losses

      The allowance for returns and expected credit losses is the Company’s best estimate of the amount of probable returns and credit losses in the Company’s existing accounts receivable. The Company closely monitors accounts receivable balances and estimates the allowance for expected credit losses. The estimates are based primarily on historical collection experience, customer conditions and other factors. Management considers factors such as changes in the economy and industry. Specific accounts are reviewed individually for collectability. Historically, the expected credit losses associated with accounts receivable have not been material. The majority of the provision and charge offs noted below were done in relation to product and pricing claims, not credit losses.

     The following table represents the rollforward of the allowance for returns and doubtful accounts for the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018 (in thousands):

Period Ended

    

Beginning Balance

    

Provision

    

Charge Off

    

Ending Balance

December 29, 2018   $

(4,211 )

  $

(9,575 )

  $

11,202

  $

(2,584 )

December 28, 2019   $

(2,584 )

  $

(11,294 )

  $

11,338

  $

(2,540 )

December 26, 2020   $

(2,540 )

  $

(10,144 )

  $

10,057

  $

(2,627 )

F-22


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories

      Inventories consist primarily of beef, beef by-products, and parts and supplies and are stated at the lower of cost or net realizable value, with cost principally determined under the first-in-first-out method for beef products and average cost for supplies.

     Inventories at December 26, 2020 and December 28, 2019 consisted of the following (in thousands):

  December 26, 2020   December 28, 2019
Dressed and boxed beef products $

219,135

  $

212,231

Beef by-products  

29,612

   

38,542

Parts, supplies and other  

41,194

   

37,022

   Total inventory $

289,941

  $

287,795

Property, plant and equipment

     Property, plant and equipment are recorded at cost, other than certain property, plant and equipment that are recorded at fair value as a result of being acquired in connection with various acquisitions.  Property, plant and equipment are depreciated principally on a straight-line basis over the estimated useful life of the individual asset by major asset class as follows:

Buildings and improvements

15 to 25 years

Machinery and equipment

2 to 15 years

Automotive equipment

2 to 4 years

Furniture and fixtures

3 to 5 years

     Depreciation expense was $59.2 million, $74.2 million and $60.3 million for the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018, respectively.

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

     The Company capitalizes the cost of interest on borrowed funds which are used to finance the construction of certain property, plant and equipment. Such capitalized interest costs are charged to the property, plant and equipment accounts and are amortized through depreciation charges over the estimated useful lives of the assets. Interest capitalized was $1.9 million, $1.4 million and $1.9 million for the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018, respectively.

     The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is assessed based on estimated undiscounted future cash flows. Impairment, if any, is recognized based on fair value of the assets. Assets to be disposed of are reported at the lower of cost or fair value less costs to sell and are no longer depreciated. There were no events or circumstances which would indicate that the carrying amount of our property plant, and equipment may not be recoverable during 2020, 2019 or 2018.

Goodwill and Other Intangible Assets

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

F-23


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

  December 26, 2020    December 28, 2019
Beginning balance $

30,634

  $

14,991

   Iowa Premium, LLC acquisition  

   

15,643

Ending balance $

30,634

  $

30,634

     ASC 360, Impairment and Disposal of Long-Lived Assets, provides that we evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management’s estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. As a result of the review performed, no triggering events occurred during 2020, 2019 or 2018 related to the Company’s intangible assets, thus no impairment charge was recorded.

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

 

Weighted
Average
Amortization
Period

  

 

December 26, 2020

   

 

Gross

  

 

 

   

 

Carrying

 

 

Accumulated

   

 

Amount

 

 

Amortization

   Intangible assets subject to amortization:              
      Customer relationships

18

  $

433,300

  $

206,045

      Trade names

20

   

290,148

   

119,439

      Cattle supply relationships

15

   

143,600

   

86,160

      Other

6

   

3,240

   

1,686

Total intangible assets

18

  $

870,288

  $

413,330

 

 

Weighted
Average
Amortization
Period

  

 

December 28, 2019

     

Gross

  

 
     

Carrying

 

Accumulated

     

Amount

 

Amortization

   Intangible assets subject to amortization:              
      Customer relationships

18

  $

433,300

  $

181,675

      Trade names

20

   

290,148

   

104,934

      Cattle supply relationships

15

   

143,600

   

76,587

      Other

6

   

3,240

   

1,000

Total intangible assets

18

  $

870,288

  $

364,196

 

F-24


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018 the Company recognized $49.1 million, $47.4 million and $45.3 million, respectively, of amortization expense on intangible assets. The following table reflects the anticipated amortization expense relative to intangible assets recognized in the Company’s consolidated balance sheet as of December 26, 2020, for each of the next five years and thereafter (in thousands):

Estimated amortization expense for fiscal years ending:    
2021 $

49,134

2022  

49,051

2023  

48,713

2024  

48,445

2025  

48,445

Thereafter  

213,170

   Total $

456,958

Overdraft Balances

      The majority of the Company’s bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are included in the trade accounts payable and cattle purchases payable balances, and the change in the related balances are reflected in operating activities on the Company’s consolidated statement of cash flows.

Self-insurance

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

Environmental Expenditures and Remediation Liabilities

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

Foreign Currency Translation

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

Income Taxes

     The provision for income taxes is computed on a separate legal entity basis. Accordingly, as the Company is a limited liability company, the separate legal entity does not provide for income taxes, as the results of operations are included in the taxable income of the individual members. However, certain states impose privilege taxes on the apportioned taxable income or income related measurements of the Company. To the extent that entities provide for income taxes, deferred tax assets and liabilities are recognized based on the differences between the financial statement and tax basis of assets and liabilities at each balance sheet date using enacted tax rates expected to be in effect in the year the differences are expected to reverse and are thus included in the consolidated financial statements of the Company. Based on federal income tax statute of limitations, National Carriers remains subject to examination of its income taxes for calendar years 2019, 2018, 2017 and 2016.

F-25


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

     The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, short-term trade and other receivables and payables, approximate their fair values due to the short-term nature of the instruments. The carrying value of debt approximates its fair value at December 26, 2020 and December 28, 2019, as substantially all debt carries variable interest rates.

Selling, General and Administrative Costs

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

Shipping Costs

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

Advertising

     Advertising expenses are charged to operations in the period incurred and were $23.6 million, $17.5 million and $16.2 million for the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018.

Comprehensive Income

     Comprehensive income consists of net income and foreign currency translation adjustments.

Derivative Activities

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

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

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

NOTE 3. REVENUE RECOGNITION

     The Company recognizes revenue mainly through retail, foodservice, international, and other distribution channels. Our revenues primarily result from contracts with customers and are generally short term in nature with the delivery of product as the single performance obligation. We recognize revenue for the sale of the product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale. In accordance with Topic 340, an entity may elect a practical expedient that allows the entity to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Our contracts are generally less than one year, therefore we have elected this practical expedient and have recognized costs paid to obtain contracts as expense when incurred. Additionally, items that are not material in the context of the contract are recognized as expense. Any taxes collected on behalf of government authorities are excluded from net revenues.

F-26


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Revenue is measured by the transaction price, which is defined as the amount of consideration we expect to receive in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes consumer incentives, trade promotions, and allowances, such as discounts, rebates, volume-based incentives, cooperative advertising, and other programs. Variable consideration related to these programs is recorded as a reduction to revenue based on amounts we expect to pay. We base these estimates on current performance, historical utilization, and projected redemption rates of each program. We review and update these estimates regularly until the incentives or product returns are realized and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established on a regular basis such that most customer arrangements and related incentives have a duration of less than one year. Amounts billed and due from customers are short term in nature and are classified as receivables since payments are unconditional and only the passage of time is required before payments are due. Additionally, we do not grant payment financing terms greater than one year.

Disaggregated Revenue

     The following table further disaggregates our sales by major revenue stream for the fiscal years ended (in thousands):

  52 weeks ended    52 weeks ended    52 weeks ended
  December 26, 2020   December 28, 2019   December 29, 2018
Beef, pork, & beef by-products $

9,664,604

  $

8,735,243

  $

7,680,763

Other  

272,336

   

229,174

   

229,931

Intercompany  

(494,904)

   

(384,849)

   

(360,549)

   Net Sales $

9,442,036

  $

8,579,568

  $

7,680,763

Contract Balances

     Nearly all of the Company’s contracts with its customers are short-term, defined as less than one year. The Company receives payment from customers based on terms established with the customer. Payments are typically due within seven days of delivery. There are rarely contract assets related to costs incurred to perform in advance of scheduled billings. The Company, which ships internationally, requires certain customers to pay in advance to avoid collection risk. Revenue contract liabilities relate to payments received in advance of satisfying the performance under the customer contract and are included in other accrued expenses and liabilities in the consolidated balance sheets.

     Changes in the contract liability balances during 2020 are as follows (in thousands):

  December 26, 2020    December 28, 2019    Change
Contract liabilities $

24,070

  $

21,079

  $

2,991

   
                 
      Changes in the contract liability balances during 2019 are as follows (in thousands):
                 
 

December 28, 2019

 

December 29, 2018

 

Change

Contract liabilities $

21,079

  $

15,096

  $

5,983

F-27


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Substantially all of the contract liability as of December 28, 2019 was recognized in revenue during 2020. The Company expects to recognize substantially all of the current year liability in 2021.

NOTE 4.    LEASES

     The Company reviews all agreements entered into in order to determine if the contract contains a lease which will be accounted under ASC 842. Our portfolio of leases primarily consists of machinery, equipment and railcars for our slaughter and fabrication facilities and tractors and trailers for our wholly owned trucking subsidiary, National Carriers. In addition, we lease our corporate headquarters facility and various regional offices.

     Many of our tractor and trailer leases include a terminal rental adjustments clause (“TRAC”). Under these arrangements, at the end of the lease term and upon the lessor’s sale or disposition of the assets, if the amount received by the lessor is less than an amount predetermined and agreed upon in the lease arrangement, or the TRAC value, the Company is liable to the Lessor and shall immediately pay to the Lessor the amount of the deficiency as additional rental payments. The additional amount is typically limited to the TRAC value less a percentage of the original fair value of the leased assets. The Company considers these potential incremental lease payments as residual value guarantees and only includes the probable portion as lease payments upon lease commencement.

     The majority of our leases include fixed rental payments. Certain of our lease agreements contain options or renewals that extend the lease term. Upon lease commencement, we only reflect the payments related to options or renewals within the right of use asset and lease liability balances when the option or renewals are reasonably certain to be exercised. The Company expects that it will renew lease agreements or enter new leases as the existing leases expire.

     Upon adoption of ASC 842, we elected the package of practical expedients whereby the Company will not assess whether any expired or existing contracts are leases or contain leases under ASC 842, classification of any expired or existing leases under ASC 842 and whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under ASC 842. In addition, we have elected the practical expedient to keep short-term leases (defined as less than 12 months without a purchase option that is likely to be exercised) off of our balance sheet and the practical expedient to combine lease and non-lease components by class of underlying asset.

     When capitalizing right of use assets and lease liabilities, the Company uses the rate implicit in the lease, if it is readily available, otherwise, we use or our incremental borrowing rate.

     During our fiscal years ended December 26, 2020, and December 28, 2019, we recognized rent expense associated with our leases as follows (in thousands):

F-28


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  December 26, 2020    December 28, 2019
Operating lease cost:          
   Fixed rent expense $

28,560

  $

25,494

   Variable rent expense  

26

   

14

Finance lease cost:          
   Amortization of ROU assets  

2,137

   

1,752

   Interest expense  

479

   

437

Short-term lease cost  

4,514

   

6,448

Net lease cost $

35,716

  $

34,145

           
Lease cost – Cost of sales  

30,593

   

29,388

Lease cost – SG&A  

2,507

   

2,568

Lease cost – Depreciation & Amortization  

2,137

   

1,752

Lease cost – Interest expense  

479

   

437

Net lease cost $

35,716

  $

34,145

     Rent expense associated with operating leases was $24.5 million for fiscal year 2018.

     Amounts recognized as right-of-use assets related to finance leases are included in Property, plant and equipment, at cost in the accompanying consolidated balance sheet, while amounts related to finance lease liabilities are included in Current installments of long-term debt and Long-term debt. As of December 26, 2020, and December 28, 2019, right-of-use assets and lease liabilities related to finance leases were as follows (in thousands):

  December 26, 2020    December 28, 2019
Finance lease ROU assets $

10,385

  $

11,388

Finance lease liabilities:          
   Current installments of long-term debt  

2,239

   

1,832

   Long-term debt  

8,427

   

9,895

     During the fiscal years ended December 26, 2020 and December 28, 2019, we had the following cash and non-cash activities associated with our leases (in thousands):

  December 26, 2020    December 28, 2019
     
Cash paid for amounts included in the measurement of lease liabilities:          
   Operating cash flows from operating leases $

28,621

  $

24,928

   Operating cash flows from finance leases  

485

   

401

   Financing cash flows from finance leases  

2,200

   

1,429

           
Supplemental non-cash information          
Additions to ROU assets obtained from:          
   New operating lease liabilities  

7,676

   

112,218

   New finance lease liabilities  

1,145

   

12,849

     The future payments due under operating and finance leases as of December 26, 2020 is as follows (in thousands):

F-29


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Operating    Finance
Due in:          
   2021 $

27,484

  $

2,633

   2022  

22,406

   

2,707

   2023  

13,169

   

1,969

   2024  

7,752

   

2,133

   2025  

4,278

   

2,175

Thereafter  

5,017

   

172

Total  

80,106

   

11,789

           
Future interest  

(5,230)

   

(1,123)

           
Lease liabilities recognized $

74,876

  $

10,666

     As of December 26, 2020, the weighted-average remaining lease term for all operating leases is 3.44 years, while the weighted-average remaining lease term for all finance leases is 4.84 years. As of December 28, 2019, the weighted-average remaining lease term for all operating leases is 3.71 years, while the weighted-average remaining lease term for all finance leases is 5.96 years.

     As of December 26, 2020, the weighted-average discount rate associated with operating leases is 3.6%, while the weighted-average discount rate associated with finance leases is 4.2%. As of December 28, 2019, the weighted-average discount rate associated with operating leases is 3.7%, while the weighted-average discount rate associated with finance leases is 4.2%.

NOTE 5.   ACQUISITIONS

     On February 28, 2019, we acquired 100% of the ownership interests in Ohio Beef USA, LLC (Ohio Beef) from NBM US Holdings, Inc., a subsidiary of Marfrig, for $60.0 million in cash. Ohio Beef is a fresh and frozen beef patty processor in North Baltimore, Ohio. The Company determined this acquisition to be a common control transaction under ASC 805, “Business Combinations.” Therefore, we accounted for this transaction at the carrying amount of the net assets acquired.

     As a result of the Ohio Beef transaction, the prior period consolidated financial statements for the periods in which both entities were under common control have been adjusted. Accordingly, the Company’s prior period consolidated financial statements from the date of common control under Marfrig, or June 5, 2018, have been adjusted to include the financial information of Ohio Beef for that same period. The $60.0 million cash payment in fiscal 2019 was treated as an equity distribution in the current period.

     On June 10, 2019, the members of the Company acquired 100% of the ownership interests in Iowa Premium, LLC (“Iowa Premium”) from Sysco Holdings, LLC for $153.2 million in cash after customary working capital adjustments. The cash utilized by the members for the acquisition was distributed from the Company and immediately upon closing of the acquisition, each of the members of the Company contributed all its Iowa Premium ownership interests to the Company. The distribution, acquisition and contribution transactions were governed by several related agreements that resulted in the Company, in substance, acquiring 100% of the Iowa Premium ownership interests. The following table summarizes the purchase price allocation for Iowa Premium and the fair value of the assets acquired, and liabilities assumed at the acquisition date (in thousands):

F-30


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Tangible assets and liabilities    
   Cash and cash equivalents $

7,975

   Accounts receivable  

18,873

   Inventory  

18,477

   Other current assets  

69

   Property, plant and equipment  

48,815

   Other assets  

146

   Accounts payable  

(3,748)

   Cattle purchases payable  

(7,208)

   Other accrued expenses and liabilities  

(5,092)

Other intangible assets  

59,220

Goodwill  

15,643

Net assets acquired $

153,170

     The Company allocated approximately $59.2 million of the purchase price to identifiable intangible assets. The following table summarizes the major classes of intangible assets, as well as the respective weighted average amortization periods (amounts in thousands):

  Weighted-    
  Average    
  Amortization    
  Period    Amount
Identifiable Intangible Assets:      
   Trade names

20 

  $

30,040

   Non-compete

4

   

2,410

   Noncontractual customer relationships

15 

   

26,770

Total identifiable intangible assets     $

59,220

     The fair value of identifiable intangible assets consists of trade names, customer relationships, and non-compete agreements. As a result of the acquisition, we recognized $15.6 million of goodwill. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values as of the date of acquisition, and the excess was allocated to goodwill. Goodwill represents the value we expect to achieve through the implementation of operation synergies and growth opportunities.

     The fair value of assets acquired, and liabilities assumed are based on estimates of fair values as of the acquisition date. Several valuation techniques were used to determine fair value, with the primary techniques being discounted cashflow, relief-from-royalty and excess earnings methods, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy.

NOTE 6.    LONG-TERM DEBT AND LOAN AGREEMENTS

     The Company has entered into various debt agreements to finance acquisitions and provide liquidity to operate the business on a going forward basis. As of December 26, 2020, and December 28, 2019, debt consisted of the following (in thousands):

F-31


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  December 26, 2020    December 28, 2019
Short-term debt:          
   Reducing revolver credit facility (a)  

18,750

   

18,750

   Current portion of loan costs (c)  

(1,101 )

   

(904)

   Current portion of capital lease obligations (c)  

2,239

   

1,832

   

19,888

   

19,678

   

   

Long-term debt:          
   Reducing revolver credit facility (a)  

306,250

   

387,250

   Industrial Development Revenue Bonds (b)  

2,000

   

2,000

   Revolving credit facility (a)  

26,434

   

12,696

   Long-term portion of loan costs (c)  

(462 )

   

(1,281)

   Long-term capital lease obligations (c)  

8,427

   

9,895

   

342,649

   

410,560

Total debt $

362,537

  $

430,238

_____________________________________

(a) Senior Credit Facilities - In June 2017, the Company entered into a Third Amended and Restated Credit Agreement (Debt Agreement). The Debt Agreement matures in June 2022. In March 2018, the Company amended the Debt Agreement to include a $375.0 million reducing revolver loan and a $275.0 million revolving credit facility. In November 2019, the Company exercised an Accordion Option (Accordion Option) associated with the reducing revolver credit facility. Through the exercise of the Accordion Option, the reducing revolver commitment was increased to $456.3 million. In April of 2020, we exercised an additional Accordion Option which increased our availability under our reducing revolver by $75 million. The reducing revolver loan commitment decreases by approximately $18.8 million on each annual anniversary of the Debt Agreement. The Debt Agreement is secured by a first priority lien on substantially all of the assets of the Company and its subsidiaries and includes customary covenants including a single financial covenant that requires the Company to maintain a minimum tangible net worth; at December 26, 2020, the Company was in compliance with the single financial covenant..

     At December 26, 2020, the Company’s outstanding debt under the Debt Agreement consisted of a reducing revolver loan with an outstanding balance of $325.0 million and $26.4 million drawn on the revolving credit facility. The reducing revolving loan and the revolving credit facility bear interest at the Base Rate or the LIBOR Rate (as defined in the credit facility), plus a margin ranging from 0.75% to 3.0% depending upon certain financial ratios and the rate selected. At December 26, 2020, the interest rates on the outstanding reducing revolving loan and revolving credit facility were 1.9% and 4.0%, respectively.

     Borrowings under the reducing revolver loan and the revolving credit facility are available for the Company’s working capital requirements, capital expenditures and other general corporate purposes. Unused capacity under the revolving credit facility can also be used to issue letters of credit. Letters of credit aggregating $14.4 million were outstanding at December 26, 2020. Amounts available under the revolving credit facility are subject to a borrowing base calculation primarily comprised of receivable and inventory balances; amounts available under the reducing revolver facility are constrained only by the annual reduction in the commitment amount. At December 26, 2020, after deducting outstanding amounts and issued letters of credit, $198.5 million of the unused revolving credit facility and $187.5 million of the reducing revolver commitment was available to the Company.

(b) Industrial Development Revenue Bonds - Effective December 30, 2004, the Company entered into a transaction with the City of Dodge City, Kansas, designed to provide property tax savings. Under the transaction, the City purchased the Company’s Dodge City facility, or the facility, by issuing $102.3 million in bonds due in December 2019, used the proceeds to purchase the facility and leased the facility to the Company for an identical term under a capital lease. The Company purchased the City's bonds with proceeds of its term loan under the Debt Agreement. Because the City has assigned the lease to the bond trustee for the benefit of the Company as the sole bondholder, the Company, effectively controls enforcement of the lease against itself. As a result of the capital lease treatment, the facility remains a component of property, plant and equipment in the Company’s consolidated balance sheets. As a result of the legal right of offset, the capital lease obligation and the corresponding bond investments have been eliminated in consolidation. The transaction provides the Company with property tax exemptions for the leased facility, that, after netting payments to the City and local school district under payment in lieu of tax agreements, result in an annual property tax savings of approximately 25%. The facility remains subject to a prior mortgage and security interest in favor of the lenders under the Debt Agreement. Additional revenue bonds may be issued to cover the costs of certain improvements to this facility. The total amount of revenue bonds authorized for issuance is $120.0 million. During 2019 the Company extended the basic term of the bonds based on the original agreement and exercised its right to purchase the project. The purchase closed in 2020.

F-32


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The cities of Liberal and Dodge City, Kansas issued an aggregate of $13.9 million of industrial development revenue bonds on the Company’s behalf to fund the purchase of equipment and construction improvements at the Company’s facilities in those cities. These bonds were issued in four series of $1.0 million, $1.0 million, $6.0 million and $5.9 million. Of the four series of bonds, only the $1.0 million and $1.0 million due on demand or on February 1, 2029 and March 1, 2027, respectively remain outstanding. The bonds issued in 1999 and 2000 are variable rate demand obligations that bear interest at a rate that is adjusted weekly, which rate will not exceed 10% per annum. The Company has the option to redeem a series of bonds at any time for an amount equal to the principal plus accrued interest to the date of such redemption. The holders of the bonds have the option to tender the bonds upon seven days’ notice for an amount equal to par plus accrued interest. To the extent that the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent could use the letter of credit to fund such tender. Because each series of bonds is backed by a letter of credit under our Debt Agreement, these due-on-demand bonds have been presented as non-current obligations until twelve months prior to their maturity.

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

     Effective April 3, 2020, the Company entered a transaction with the City of Liberal, Kansas, designed to provide property tax savings. Under the transaction, the City intends to purchase certain assets of the Company’s Liberal, Kansas facility (the facility) by issuing federally taxable industrial revenue bonds in an amount not to exceed $65.0 million with a stated maturity of December 31, 2032. The City then leased the assets to the Company under a capital lease with a basic term expiring when any and all principal, redemption premium, and interest on said bonds are redeemed and paid in full. The Company purchased the City’s bonds with proceeds of its loans under the Debt Agreement. Because the City has assigned the lease to the bond trustee for the benefit of the Company as the sole bondholder, the Company, effectively controls enforcement of the lease against itself. As a result of the capital lease treatment, the facility remains a component of property, plant and equipment in the Company’s consolidated balance sheets. As a result of the legal right of offset, the capital lease obligation and the corresponding bond investments have been eliminated in consolidation. The facility remains subject to a prior mortgage and security interest in favor of the lenders under the Debt Agreement. The total amount of revenue bonds authorized for issuance is $65.0 million.

(c) Debt issuance costs - Amortization of $1.0 million, $0.7 million and $0.7 million was charged to interest expense during the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018, respectively.

F-33


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years and thereafter following December 26, 2020, are as follows (in thousands):

  Minimum
  Principal
 
Maturities
Fiscal year ending December:    
2021 $

19,888

2022  

334,592

2023  

1,771

2024  

1,997

2025  

1,994

   Thereafter  

2,295

Total minimum principal maturities $

362,537

Other Commitments

     Utilities Commitment - Effective December 30, 2004, the Company finalized an agreement with the City of Dodge City, Kansas, whereby in consideration of certain improvements made to the city water and wastewater systems, the Company committed to make a series of service charge payments totaling $19.3 million over a 20-year period, of which $0.8 million was paid in each of the fiscal years 2020, 2019 and 2018, respectively. Payments under the commitment will be $0.8 million in each of the fiscal years 2021 through 2023.

NOTE 7.    RETIREMENT PLANS

     The Company maintains tax-qualified employee savings and retirement plans, or the 401(k) Plans, covering certain of the Company’s employees. Pursuant to the 401(k) Plans, eligible employees may elect to reduce their current compensation by up to the lesser of 75% of their annual compensation or the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plans. The 401(k) Plans provide for additional matching contributions by the Company, based on specific terms contained in the 401(k) Plans. The trustees of the 401(k) Plans, at the direction of each participant, invest the assets of the 401(k) Plan in designated investment options. The 401(k) Plans are intended to qualify under Section 401 of the Internal Revenue Code. Expenses related to the 401(k) Plans totaled approximately $2.4 million, $1.9 million and $1.5 million for the fiscal years 2020, 2019 and 2018, respectively.

     During 2017, the Company bargained with the United Food and Commercial Workers International Union (UFCW) Local 2 for a complete withdrawal from a UFCW sponsored retirement plan in which certain of our employees participate (the “UFCW Plan”). As a result, the Company is required to make withdrawal payments into the fund over a 20-year period. The Company recorded expenses related to the UFCW Plan withdrawal of approximately $18.6 million which was included in Cost of sales during 2017. Payments into the UFCW Plan began during 2018. The current portion of the withdrawal liability is approximately $0.8 million and is included in Other accrued expenses and liabilities on the consolidated balance sheets. The long-term portion of the withdrawal liability is approximately $16.4 million and $17.2 million for the periods ending December 26, 2020 and December 28, 2019 and is included in Other liabilities on the consolidated balance sheets.

NOTE 8.    INCOME TAXES

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

F-34


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  52 weeks ended    52 weeks ended    52 weeks ended
  December 26, 2020   December 28, 2019   December 29, 2018
Current provision:                
   Federal $

1,827

  $

1,442

  $

1,233

   State  

1,838

   

1,338

   

1,081

   Foreign  

94

   

92

   

45

   Total current tax expense  

3,759

   

2,872

   

2,359

Deferred provision:                
   Federal  

   

136

   

200

   State  

   

30

   

48

   Foreign  

   

   

   Total deferred tax expense  

   

166

   

248

      Total income tax expense $

3,759

  $

3,038

  $

2,607

     Income tax expense differed from the “expected” income tax (computed by applying the federal income tax rate of 21% in 2020, 2019 and 2018 to earnings before income taxes) as follows (in thousands):

  52 weeks ended    52 weeks ended    52 weeks ended
  December 26, 2020   December 28, 2019   December 29, 2018
Computed “expected” income tax expense $

279,020

  $

169,865

  $

125,395

Passthrough “expected” income tax expense  

(277,293)

   

(168,442 )

   

(124,152 )

State taxes, net of federal  

1,838

   

1,368

   

1,129

Permanent differences  

254

   

249

   

229

Rate Change  

   

   

Other  

(60)

   

(2 )

   

6

   Total income tax expense $

3,759

  $

3,038

  $

2,607

NOTE 9.    RELATED PARTY TRANSACTIONS

      The Company entered into various transactions with a company affiliated with NBPCo Holdings, which holds an ownership interest in the Company, in the ordinary course of business. In addition, the Company has certain purchase and sale transactions with various Marfrig affiliates in the ordinary course of business.

     During fiscal years 2019, 2018 and 2017, the Company had sales and purchases with the following related parties (amounts in thousands):

  52 weeks ended    52 weeks ended    52 weeks ended
  December 26, 2020   December 28, 2019   December 29, 2018
Sales to:                
   Beef Products, Inc. (1) $

46,735

  $

34,773

  $

28,360

   MF Foods USA, LLC (2)  

820

   

57

   

      Total sales to affiliate $

47,555

  $

34,830

  $

28,360

Purchases from:                
   Beef Products, Inc. (1) $

8,653

  $

12,565

  $

12,750

   Marfrig affiliates (3)  

32,455

   

656

   

      Total purchases from affiliate $

41,108

  $

13,221

  $

12,750

__________________________________

(1) Beef Products, Inc. (BPI) is an affiliate of NBPCo Holdings
(2) MF Foods USA, LLC is a wholly owned subsidiary of Marfrig
(3) Marfrig affiliates include Weston Importers, LTD, Establecimientos Colonia, Frigorifico Tacuarem, Inaler SA, and Frigorifico LaCaballada

F-35


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     In January 2007, we entered into an agreement with BPI for BPI to manufacture and install a grinding system in one of our plants. In accordance with the agreement with BPI, we are to pay BPI a technology and support fee based on the number of pounds of product produced using the grinding system. The installation of the grinding system was completed in fiscal year 2008. We paid approximately $1.7 million during 2020, $1.6 million during 2019 and $1.7 million during fiscal years 2018 to BPI in technology and support fees.

     We are party to a long-term cattle supply agreement with US Premium Beef, a minority owner of the Company. Under this agreement we have agreed to purchase from the members of US Premium Beef, and US Premium Beef has agreed to cause its members to deliver, 735,385 head of cattle each year (subject to adjustment) at prices based on those published by the U.S. Department of Agriculture, subject to adjustments for cattle performance. We obtained approximately 23% of our cattle requirements under this agreement during each of the years 2020 and 2019 and approximately 28% of our cattle requirements under this agreement during 2018.

NOTE 10.    FAIR VALUE MEASUREMENTS

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

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

     The following table details the assets and liabilities measured at fair value on a recurring basis as of December 26, 2020, and December 28, 2019 and also the level within the fair value hierarchy used to measure each category of assets (in thousands).

         Quoted Prices in         Significant
        Active Markets for   Significant Other   Unobservable
        Identical Assets   Observable   Inputs
Description    December 26, 2020   (Level 1)   Inputs (Level 2)   (Level 3)
Other current assets — derivatives   $

86

  $

  $

86

  $

Other accrued expenses and                        
liabilities — derivatives   $

77

  $

52

  $

25

  $

                         
           

Quoted Prices in

         

Significant

           

Active Markets for

   

Significant Other

   

Unobservable

           

Identical Assets

   

Observable

   

Inputs

Description    

December 28, 2019

   

(Level 1)

   

Inputs (Level 2)

   

(Level 3)

Other current assets — derivatives   $

722

  $

25

  $

697

  $

Other accrued expenses and                        
liabilities — derivatives   $

644

  $

637

  $

7

  $

NOTE 11.    DISCLOSURE ABOUT DERIVATIVE INSTRUMENTS

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

F-36


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Forward purchase contracts for cattle for use in our beef plants
  • Exchange traded futures contracts for cattle
  • Exchange traded futures contracts for agricultural products

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

      The Company enters into certain commodity derivatives, primarily with a diversified group of counterparties. The maximum amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is deemed to be immaterial as of December 26, 2020 and December 28, 2019. The exchange-traded contracts have been entered into under a master netting agreement. None of the derivatives entered into have credit-related contingent features.

     The following table presents the fair values as discussed in Note 11 and other information regarding derivative instruments not designated as hedging instruments as of December 26, 2020 and December 28, 2019 (in thousands of dollars):

  Derivative Asset   Derivative Liability
  As of December 26, 2020   As of December 26, 2020
  Balance Sheet       Balance Sheet     
  Location    Fair Value    Location   Fair Value
Commodity contracts  Other current assets   $

86

  Other accrued expenses and liabilities   $

77

   Totals     $

86

      $

77

       

 

         
 

Derivative Asset

 

Derivative Liability

 

As of December 28, 2019

 

As of December 28, 2019

 

Balance Sheet

       

Balance Sheet

     
 

Location

   

Fair Value

 

Location

   

Fair Value

Commodity contracts Other current assets   $

722

  Other accrued expenses and liabilities   $

644

    Totals     $

722

      $

644

     The following table presents the unrealized and realized gains (losses) on derivative contracts as reflected in the consolidated statement of operations for the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018 (in thousands):

        Amount of Gain or (Loss)
        Recognized in
       
Income on Derivatives
    Location of Gain or (Loss)   Fiscal Year   Fiscal Year   Fiscal Year
Derivatives Not Designated as   Recognized in Income   Ended   Ended   Ended
Hedging Instruments    on Derivatives    December 26, 2020    December 28, 2019    December 29, 2018
Commodity contracts   Net sales   $

(12,569

) $

(11)

  $

5,876

Commodity contracts   Cost of sales    

3,376

   

2,443

   

4,936

   Totals       $

(9,193

) $

2,432

  $

10,812

F-37


NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.    LEGAL PROCEEDINGS AND CONTINGENCIES

      The Company is a defendant in four class action lawsuits in the United States District Court, Minnesota District alleging that it violated the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws (the “Antitrust Cases”). The Antitrust Cases are entitled In re Cattle Antitrust Litigation, which was filed originally on April 23, 2019, Peterson et al. v. JBS USA Food Company Holdings, et al., which was filed originally on April 26, 2019; In re DPP Beef Litigation, which was filed originally on April 26, 2019; and Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020. The plaintiffs in the Antitrust Cases seek treble damages and other relief under the Sherman Antitrust Act, the Packers & Stockyards Act, the Commodities Exchange Act and attorneys’ fees. The Company is also a defendant in two class action lawsuits filed on January 7, 2020, alleging that it misrepresented the origin of its products in violation of the New Mexico Unfair Practices Act (the “Labelling Cases”). The Labelling Cases are entitled Thornton v. Tyson Foods, Inc., et al., filed in the New Mexico Second Judicial District Court, Bernalillo County, and Lucero v. Tyson Foods, et al., filed in the New Mexico Thirteenth Judicial District Court, Sandoval County. The Labelling Cases were subsequently removed to the United States District Court, New Mexico District. The plaintiffs in the Labelling Cases seek treble damages and other relief and attorneys’ fees. The Company believes it has meritorious defenses to the claims in the Antitrust Cases and the Labelling Cases and intends to defend these cases vigorously. There can be no assurances, however, as to the outcome of these matters or the impact on the Company’s consolidated financial position, results of operations and cash flows.

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

     The Company is a party to various other lawsuits and claims arising out of the operation of its business. Management believes the ultimate resolution of such matters should not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

NOTE 13.    SUBSEQUENT EVENTS

     The Company evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through March 5, 2021, the date the consolidated financial statements were available for issuance.

 

 

 

 

 

 

 

F-38