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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark one)

 

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

 

For the fiscal year ended December 30, 2023

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

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

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

0

The registrant’s equity is not traded on any exchange or other public market; however, there have been private transactions. As of February 24, 2024, 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 1C. Cybersecurity 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 13
Item 6. Selected Financial Data 14
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 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 20
Item 9A. Controls and Procedures 20
Item 9B. Other Information 21
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections 21
     
  PART III.  
Item 10. Directors, Executive Officers and Corporate Governance 22
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters 34
Item 13. Certain Relationships and Related Transactions, and Director Independence 37
Item 14. Principal Accountant Fees and Services 39
     
  PART IV.  
Item 15. Exhibits, Financial Statement Schedules 40
  Signatures 43

 

 

 

 

 

 

 2 

 

 

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. As used in this report, the term “NBP” refers to National Beef Packing Company, LLC, 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.

 

 

 

 3 

 

 

PART I

 

ITEM 1.BUSINESS

 

BUSINESS OF U.S. PREMIUM BEEF, LLC

 

Overview

 

USPB’s mission is to increase the quality of beef and long-term profitability of cattle producers by creating a fully integrated producer-owned beef processing system that is a global supplier of high quality, value-added beef products responsive to consumer desires. USPB operates an integrated cattle processing and beef marketing enterprise where consumer and processor demands and requirements are implemented through changes in genetics, feeding, and management. USPB’s unitholders benefit from its supplier alliance with 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 is 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.

 

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 (NBP). 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 19.2 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 Transaction). The Purchase Agreement provided for Leucadia National Corporation 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.

 

 

 

 4 

 

 

On November 29, 2019, Jefferies Financial Group, Inc. (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%.

 

Employees

 

USPB has seven employees as of December 30, 2023. The complexity of USPB’s obligations under its various contracts with NBP require USPB to retain the services of key senior management personnel with the experience, skill and expertise necessary to manage an enterprise competitive with other sophisticated participants in the beef and meat industries. Each employee is compensated through the payment of a base salary with management being eligible for incentive and discretionary bonuses. In addition, each employee is eligible to participate in benefits programs maintained by USPB. These programs include group medical insurance, accidental death and dismemberment insurance and similar programs.

 

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

 

Governmental Regulation and Environmental Matters

 

The Company does not operate any processing facilities itself and is therefore not subject to federal and state regulations relating to grading of animals, quality control, labeling, sanitary control and waste disposal. Operational activities are conducted through NBP and significant efforts with respect to governmental and environmental regulation are conducted by NBP. See Business of National Beef Packing Company, LLC - Regulation and Environmental.

 

Sales, Marketing, and Customers

 

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

 

Beef Industry, Markets, and Competition

 

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

 

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.

 

 

 

 5 

 

 

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

 

BUSINESS OF NATIONAL BEEF PACKING COMPANY, LLC

 

General

 

NBP is one of the largest beef processing companies in the U.S., accounting for approximately 14% of fed cattle slaughter in the U.S.  NBP processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had approximately 10,200 employees at December 30, 2023 and generated total revenues of $11.9 billion in 2023.  

 

The largest part of NBP’s revenue is generated from the sale of boxed beef and beef by-products. NBP also generates revenues from value-added production of 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 of portioned beef and other products directly to consumers through internet, direct mail and direct response television by its subsidiary, Kansas City Steak Company, LLC, and service revenues generated by National Carriers, Inc., a wholly owned subsidiary 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 fed cattle, the primary raw material for its business, and the value received from selling boxed beef and beef by-products coupled with its overall volume. NBP operates in a 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 2023 increased approximately 1% in comparison to 2022, primarily due to an increase in selling price per unit, offset, in part, by lower volume. Fiscal year 2023 included 52 weeks of activity while Fiscal year 2022 included 53 weeks. Cost of sales increased by approximately 9% in 2023 as compared to 2022. The increase was driven by higher cattle prices. Reduced volume and a decline in gross margin per head resulted in lower profitability in 2023 as compared to 2022.

 

 

 

 6 

 

 

Revenues in 2022 increased approximately 2% in comparison to 2021, primarily due to an increase in selling price per unit and volume. Fiscal year 2022 included 53 weeks of activity while fiscal year 2021 included 52 weeks. Cost of sales increased by approximately 16% in 2022 as compared to 2021. The increase was due primarily to increased cattle prices and an increase in the costs for labor, packaging and supplies. Lower gross margin per head and higher costs led to lower profitability in 2022 as compared to 2021.

 

Sales and Marketing

 

NBP markets its products to national and regional retailers, including supermarket chains, independent grocers, club stores, wholesalers and distributors, foodservice 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 36 countries; in 2023, and export sales represented approximately 10% of consolidated revenue. The demand for beef is generally strongest in the spring and summer months and 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 fed cattle. Fed 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.

 

Processing Facilities

 

NBP owns two beef processing facilities located in Liberal and Dodge City, Kansas, which can each process approximately 6,000 cattle per day, and a third beef processing facility in Tama, Iowa which can process approximately 1,200 head per day. NBP’s three consumer-ready facilities are in Hummels Wharf, Pennsylvania, Moultrie, Georgia and Kansas City, Kansas. 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 fed 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.

 

 

 

 7 

 

 

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 25, 2021, NBP has obtained from an insurance company a surety bond in the amount of $50.4 million as a measure of protection for livestock sellers.

 

The Dodge City and Liberal facilities are subject to Title V permitting pursuant to the Federal Clean Air Act and the Kansas Air Quality Act. The St. Joseph 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.

 

All of NBP’s plants, other than Liberal and 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 Liberal operates a wastewater treatment plant and land applies the effluent from that plant under a permit issued by the Kansas Department of Health and Environment. 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.

 

ITEM 1A. RISK FACTORS

 

Risk Factors Associated With Operations of NBP

 

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

 

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

 

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

 

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

 

 

 

 8 

 

 

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 10% of NBP’s 2023 sales were export sales, primarily to Japan, Mexico, South Korea, Hong Kong, China, Taiwan, Italy and Egypt, and on average these sales have a higher margin than domestic sales of similar products. A reduction in international sales could adversely affect revenues and margins. Risks associated with international activities include inflation or deflation and changes in foreign currency exchange rates, including changes in currency exchange rates of other countries that may export beef products in competition with NBP; the closing of borders by foreign countries to product imports due to disease or other perceived health or food safety issues; exchange controls; changes in tariffs; changes in political or economic conditions; trade restrictions and changes in regulatory requirements. The occurrence of any of these events could increase costs, lower demand for products or limit operations, which could have a significant adverse effect on cash flows, results of operations and future prospects.

 

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

 

NBP’s operations are subject to extensive and 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. Most 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. The remaining processing facilities operate wastewater treatment facilities that are subject to environmental laws and permit limits. As permit limits are becoming more stringent, upgrades and capital improvements to these 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 an adequate labor supply and favorable labor relations with its employees, in particular employees represented by collective bargaining agreements. 

 

A substantial number of NBP’s employees are covered by collective bargaining agreements. In addition, many industries in the United States have recently experienced a shortage of trained labor, often for reasons beyond their control. A failure to procure and retain an adequate labor supply or a labor-related work stoppage by unionized employees, or employees who become unionized in the future, could limit NBP’s ability to process and ship products or could increase costs. Any significant decrease in adequately trained labor, any significant increase in labor costs, deterioration of employee relations, slowdowns or work stoppages at any of NBP’s locations, whether due to union activities, employee turnover, pandemic or otherwise, could have a material adverse effect on our financial condition, cash flows and results of operations.

 

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

 

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

 

NBP is a defendant in five class action lawsuits in the United States District Court for the District of Minnesota alleging that it violated some combination of the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws and two class action lawsuits in Canada alleging violations of Canadian Competition Act and various provincial laws. (the “Beef Antitrust Cases”). Since the original class action complaints were filed, certain purchasers of beef products have opted to file individual complaints and to proceed with direct actions making similar claims, and others may do so in the future. NBP is also a defendant in a class action lawsuit alleging that it directly and through industry wage surveys and a benchmarking service exchanged information regarding compensation and benefits in an effort to depress and stabilize wages and benefits in violation of federal antitrust laws (the “Wage Rate Antitrust Case”). NBP believes it has meritorious defenses to the claims in the Beef Antitrust Cases and the Wage Rate Antitrust Case 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.

 

 

 

 10 

 

 

Risk Factors Associated with USPB

 

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

 

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

 

USPB’s investment in NBP could become impaired.

 

USPB’s investment in NBP is carried under the equity method of accounting.  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.

 

Pandemics, such as COVID-19, may adversely affect 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.

 

Pandemics may cause NBP to temporarily 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. Further, 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.

 

 

 

 11 

 

 

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

 

ITEM 1B.UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 1C. CYBERSECURITY.

 

As part of our information technology needs, we have contracted with National Beef to provide certain equipment and services related to telephone systems, servers, network access, desktop and end-user support, and back-office equipment support. Inherent in the services provided by National Beef are its efforts to assess, identify and manage risks from cybersecurity threats related to the specific equipment and services it provides us. We have no independent internal processes for addressing cybersecurity threats and have not integrated any processes provided by National Beef in assessing, identifying and managing risks from cybersecurity threats into our overall risk management system; however, we do receive monthly reports from National Beef on user access changes to our electronic accounting file share folder.

 

We are not aware of any risks from cybersecurity threats or previous cybersecurity incidents (and we are not aware of any) that have materially affected or are reasonably likely to materially affect us, our business strategy, results of operations or financial condition.

 

The Board of Directors oversight of risks from cybersecurity threats has been limited to authorizing the engagement of National Beef to provide the information technology equipment and services described above.  Management’s role in assessing and managing our risks from cybersecurity risks has similarly been limited to the engagement of National Beef to provide information technology equipment and services.  If National Beef were to inform us of a cybersecurity incident, that incident would be reported to the Board of Directors if material in nature.

 

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.

 

ITEM 3.LEGAL PROCEEDINGS

 

For information regarding legal proceedings, see Note 8. Legal Proceedings in USPB’s consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

 

 12 

 

 

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 USPB. As of February 24, 2024, there were 490 record holders of Class A units and 510 record holders of Class B units. The per unit transfer prices for the fiscal years 2023 and 2022 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 2023                                
Quarter ending:                                
March 25, 2023  $202.71   $202.71   $449.32   $449.32   $550.00   $550.00   $1,000.00   $1,000.00 
June 24, 2023  $220.00   $550.00   $805.00   $850.00   $551.00   $551.00   $1,000.00   $1,000.00 
September 30, 2023  $500.00   $500.00   $997.17   $1,011.40   $551.00   $552.00   $950.00   $950.00 
December 30, 2023  $500.00   $550.75   $1,000.00   $1,011.40   $450.00   $450.00   $750.00   $900.00 
Subsequent to December 30, 2023  $500.00   $500.00   $900.00   $1,000.00   $363.00   $550.00   $900.00   $900.00 
                                         
Fiscal Year 2022                                        
Quarter ending:                                        
March 26, 2022  $140.00   $346.00   $310.00   $941.40   $–   $–   $926.00   $926.00 
June 25, 2022  $263.00   $363.50   $700.00   $917.15   $–   $–   $1,010.00   $1,013.00 
September 24, 2022  $346.00   $346.00   $700.00   $1,000.00   $500.00   $500.00   $–   $– 
December 31, 2022  $350.00   $363.00   $900.00   $1,028.00   $500.00   $501.00   $1,000.00   $1,028.00 
Subsequent to December 31, 2022  $–   $–   $–   $–   $–   $–   $–   $– 

 

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 2023 and 2022, USPB’s Board of Directors (Board of Directors) approved the following per unit cash distributions to be made to its Class A and Class B unitholders:

 

   Class A   Class B 
Fiscal Year 2023        
April 3, 2023  $0.45   $3.93 
April 17, 2023  $2.79   $24.45 
May 12, 2023  $2.72   $23.83 
June 5, 2023  $0.67   $5.90 
September 5, 2023  $0.49   $4.31 
November 16, 2023  $2.72   $23.83 
December 20, 2023  $0.14   $1.18 
           
Fiscal Year 2022          
December 29, 2021  $7.17   $62.85 
March 8, 2022  $3.40   $29.79 
March 15, 2022  $5.59   $49.00 
March 31, 2022  $3.83   $33.54 
April 5, 2022  $1.35   $11.80 
June 6, 2022  $3.85   $33.77 
September 13, 2022  $1.25   $10.93 
December 21, 2022  $0.45   $3.93 
December 29, 2022  $5.43   $47.59 

 

 

 

 13 

 

 

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

 

Not applicable.

 

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

 

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

 

Overview

 

USPB was formed as a closed marketing cooperative on July 1, 1996. Its mission is to increase the quality of beef and long-term profitability of cattle producers by creating a fully integrated producer-owned beef processing system that is a global supplier of high quality, value-added beef products responsive to consumer desires. 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 NBP through (i) premiums received in excess of cash market prices for higher quality cattle, (ii) allocations of profits and potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions.

 

Effective August 29, 2004, the cooperative restructured into a limited liability company (LLC) under Delaware law (the 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%.

 

 

 

 14 

 

 

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. As a result of its investment in NBP, substantially all of USPB’s income comes from its proportionate share of NBP’s net income.

 

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 is 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. in 2023.  NBP processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. Based in Kansas City, Missouri, NBP had approximately 10,200 employees on December 30, 2023 and generated total revenues of $11.9 billion in 2023. 

 

The largest part of NBP’s revenue is generated from the sale of boxed beef and beef by-products. NBP also generates revenues from value-added production of 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 revenue streams include sales of portioned beef and other products directly to consumers through internet, direct mail and direct response television by its subsidiary, Kansas City Steak Company, LLC, and service revenues generated by National Carriers, Inc., a wholly owned subsidiary 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 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:

 

Accounting for Investment in NBP. On December 30, 2011, USPB sold the majority of its ownership interest in NBP to Leucadia National Corporation. On that date, USPB’s investment in NBP was measured at fair value and has since been carried under the equity method of accounting. Operating losses, economic and industry events, and a variety of other factors may result in a decrease in the value of the investment, which is other than temporary. Such potential other than temporary decreases in value would 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.

 

 

 

 15 

 

 

Results of Operations

 

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

 

   52 weeks ended   53 weeks ended   52 weeks ended 
   December 30, 2023   December 31, 2022   December 25, 2021 
   (millions of dollars) 
Net sales  $–   $–   $– 
                
Costs and expenses:               
Cost of sales   –    –    – 
Selling, general, and administrative   3.5    7.1    6.2 
Operating loss   (3.5)   (7.1)   (6.2)
                
 Other income:               
Interest income   3.2    1.1    – 
Equity in income of National Beef Packing Company, LLC   41.2    174.7    365.0 
Other, net   0.7    0.7    0.7 
Total other income, net   45.1    176.5    365.7 
Net income  $41.6   $169.4   $359.5 

 

Fiscal Year Ended December 30, 2023 compared to December 31, 2022

 

Net Sales. There were no sales during the fifty-two week period ended December 30, 2023 and the fifty-three week period ended December 31, 2022.

 

Cost of Sales. There were no cost of sales during the fifty-two week period ended December 30, 2023 and the fifty-three week period ended December 31, 2022.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $3.5 million for the fifty-two weeks ended December 30, 2023, compared to approximately $7.1 million for the fifty-three weeks ended December 31, 2022, a decrease of approximately $3.6 million. The decrease is primarily due to lower phantom unit plan expense, which decreased primarily as a result of lower distribution dilution accruals.

 

Operating Loss. Operating loss was approximately $3.5 million for the fifty-two weeks ended December 30, 2023 compared to approximately $7.1 million for the fifty-three weeks ended December 31, 2022, a decrease of approximately $3.6 million.  The decrease was due to the decrease in Selling, General and Administrative Expenses discussed above.

 

Interest Income. Interest income was $3.2 million during the fifty-two weeks ended December 30, 2023 and $1.1 million in the fifty-three weeks ended December 31, 2022, an increase of approximately $2.1 million. The increase was due to higher interest rates.

 

Equity in Income of National Beef Packing Company, LLC. Equity in NBP income was $41.2 million for the fifty-two weeks ended December 30, 2023 compared to $174.7 million for the fifty-three weeks ended December 31, 2022, a decrease of approximately $133.5 million. The combined effects of lower gross margins per head and higher costs led to lower profitability in 2023 as compared to 2022. USPB carries its 15.0729% investment in NBP under the equity method of accounting.

 

 

 

 16 

 

 

Other, net. Other income was $0.7 million for the fifty-two weeks ended December 30, 2023 compared to $0.7 million for the fifty-three weeks ended December 31, 2022. Other, net is primarily due to delivery right lease income on company-owned delivery rights.

 

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 30, 2023 was approximately $41.6 million compared to approximately $169.4 million for the fifty-three weeks ended December 31, 2022, a decrease of approximately $127.8 million. The decrease was due to substantially lower net income at NBP.

 

Fiscal Year Ended December 31, 2022 compared to December 25, 2021

 

Net Sales. There were no sales during the fifty-three week period ended December 31, 2022 and the fifty-two week period ended December 25, 2021.  

 

Cost of Sales. There were no cost of sales during the fifty-three week period ended December 31, 2022 and the fifty-two week period ended December 25, 2021.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $7.1 million for the fifty-three weeks ended December 31, 2022, compared to approximately $6.2 million for the fifty-two weeks ended December 25, 2021, an increase of approximately $0.9 million. The increase is primarily due to higher phantom unit plan expense, which increased as a result of higher distribution dilution accruals and an increase in unit transfer prices.

 

Operating Loss. Operating loss was approximately $7.1 million for the fifty-three weeks ended December 31, 2022 compared to approximately $6.2 million for the fifty-two weeks ended December 25, 2021, an increase of approximately $0.9 million.  The increase was due to the increase in Selling, General and Administrative Expenses discussed above.

 

Interest Income. Interest income was $1.1 million during the fifty-three weeks ended December 31, 2022 and $0.0 million in the fifty-two weeks ended December 25, 2021, an increase of approximately $1.1 million due to higher interest rates.

 

Equity in Income of National Beef Packing Company, LLC. Equity in NBP income was $174.7 million for the fifty-three weeks ended December 31, 2022 compared to $365.0 million for the fifty-two weeks ended December 25, 2021, a decrease of approximately $190.3 million. The combined effects of lower gross margins per head and higher costs led to lower profitability in 2022 as compared to 2021. 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-three weeks ended December 31, 2022 compared to $0.7 million for the fifty-two weeks ended December 25, 2021. Other, net is primarily due to delivery right lease income on company-owned delivery rights.

 

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-three weeks ended December 31, 2022 was approximately $169.4 million compared to approximately $359.5 million for the fifty-two weeks ended December 25, 2021, a decrease of approximately $190.1 million. The decrease was due to substantially lower net income at NBP.

 

 

 

 17 

 

 

Liquidity and Capital Resources

 

As of December 30, 2023, we had net working capital (the excess of current assets over current liabilities) of approximately $78.5 million, which included cash and cash equivalents of $58.5 million. As of December 31, 2022, we had net working capital of approximately $93.8 million, which included cash and cash equivalents of $97.7 million. Our primary sources of liquidity for fiscal years 2023 and 2022 were cash, cash flows from operating activities, which includes distributions received from NBP, and available borrowings under the Credit Agreement and Master Loan Agreement with CoBank. Our principal uses of cash are distributions to our members and working capital.

 

USPB’s material contractual obligations include non-compete payments to be made to its Chief Executive Officer when he retires and payments for leased office space, the present value of which are approximately $0.3 million and $0.3 million, respectively.

 

CoBank Debt

 

On July 13, 2020, USPB and CoBank, ACB (CoBank), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (Promissory Note), and an Affirmation of Pledge Agreement (New Loan Agreements). The New Loan Agreements replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, Pledge Agreement, and Security Agreement dated July 26, 2011, as amended.

 

The New Loan Agreements provide for a $1.0 million revolving term commitment. That commitment carries a term of five years, maturing on June 30, 2025. All of the $1.0 million revolving credit commitment was available as of September 30, 2023. On July 6, 2023, USPB and CoBank amended the Promissory Note to provide for an interest rate equal to the Daily Simple SOFR Margin (as defined in the amendment) plus the higher of 0.00% and Daily Simply SOFR (as defined in the agreement). The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, NBP.

 

As of December 30, 2023, 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 30, 2023 and December 31, 2022.

 

Cash Flows

 

   52 weeks ended   53 weeks ended   52 weeks ended 
   December 30, 2023   December 31, 2022   December 25, 2021 
Net cash provided by (used in):  (thousands of dollars) 
Operating activities  $54,141   $205,907   $280,267 
Investing activities   (20,009)   (53)   0 
Financing activities   (73,383)   (238,522)   (226,636)
Net (decrease) increase in cash and cash equivalents  $(39,251)  $(32,668)  $53,631 

 

Operating Activities

 

Net cash provided by operating activities was $54.1 million in fiscal year 2023 as compared to $205.9 million in fiscal year 2022. The $151.8 million decrease was primarily due to decreased distributions received from NBP that were classified as a distribution from Operating Activities.

 

Net cash provided by operating activities was $205.9 million in fiscal year 2022 as compared to $280.3 million in fiscal year 2021. The $74.4 million decrease was primarily due to decreased distributions received from NBP that were classified as a distribution from Operating Activities.

 

 

 

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Investing Activities

 

Net cash used in investing activities was approximately $20.0 million in the fifty-two weeks ended December 30, 2023 compared to $0.1 in the fifty-three weeks ended December 31, 2022. The change was due to an investment in a certificate of deposit at USBank in 2023.

 

Net cash used in investing activities was $0.1 million and $0.0 million in fiscal years 2022 and 2021, respectively.

 

Financing Activities

 

Net cash used in financing activities was $73.4 million in fiscal year 2023 as compared to $238.5 million in fiscal year 2022. The $165.1 million decrease was due to a decrease in distributions to members in fiscal year 2023, compared to fiscal year 2022.

 

Net cash used in financing activities was $238.5 million in fiscal year 2022 as compared to $226.6 million in fiscal year 2021. The $11.9 million increase was due to an increase in distributions to members in fiscal year 2022, compared to fiscal year 2021.

 

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.

 

Off-Balance Sheet Arrangements

 

As of December 30, 2023 and December 31, 2022, 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 2023 and 2022. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse effect on our business, financial condition and results of operations.

 

Seasonality and Fluctuations in Operating Results

 

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

 

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The principal market risk affecting USPB’s business is exposure to interest rate risk, to the extent the Company has debt outstanding. As of December 30, 2023, the Company did not have any outstanding debt.

 

 

 

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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 30, 2023 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. 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.

 

 

 

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Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 2023. 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 30, 2023, the Company’s internal control over financial reporting was effective.

 

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

 

Trading Plans.

 

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.

 

During the quarter ended December 30, 2023, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.

 

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

None.

 

 

 

 

 

 

 

 

 

 

 

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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 Nominees and Executive Officers

 

Name   Age   Positions and Offices with Registrant   Term Expires in March of FY
Mark R. Gardiner   63   Chairman of the Board   2026
Joe M. Morgan   72   Vice Chairman of the Board   2026
Jerry L. Bohn   74   Secretary   2025
Wayne L. Carpenter   62   Director   2025
John M. Freund   56   Director   2026
Rex W. McCloy   69   Director   2024
Jeff H. Sternberger   63   Director   2024
Stanley D. Linville   65   Chief Executive Officer   —
Scott J. Miller   59   Chief Financial Officer   —
Danielle D. Imel   48   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.

 

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 100,000 head), plus ranches in six states. Mr. Morgan has had responsibility for all banking of Poky Feeders for over 35 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 of Directors 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.

 

 

 

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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 was NCBA’s President in 2021, President Elect in 2020 and 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 Nebraska. 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 of Directors 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 Bank of the Plains. 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.

 

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.

 

 

 

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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 Manager 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 of Directors 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.

 

 

 

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Code of Ethics

 

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

 

ITEM 11.EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview of Compensation Program

 

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

 

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

 

Compensation Philosophy and Objectives

 

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

 

·Attracting and retaining top talent—The compensation of USPB’s executive officers must be commensurate with the competitive regional marketplace taking into consideration job responsibilities and supply of competent employees with the education and background to perform at the highest levels in their field.

 

·Paying for financial and operational performance—The compensation of USPB’s executive officers should motivate them to achieve strong financial and operational results. USPB must achieve specific levels of financial and operational performance to allow executives to earn this portion of their compensation.

 

·Alignment with the equity interests of our unitholders—Management phantom unit plans approved in September 2010 and January 2013 aligns management’s interest with the equity interests of USPB’s unitholders.

 

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

 

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.

 

 

 

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Fiscal Year 2023 Executive Compensation Elements

 

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

 

·base salary;
   
·annual cash bonuses;
   
·long-term cash bonus;
   
·discretionary cash bonuses;
   
·retirement plans; and
   
·limited personal benefits.

 

Elements of Our Compensation Program

 

Base Salary

 

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

 

On December 22, 2021, USPB entered into an amended employment agreement with Mr. Linville (2022 Employment Agreement), which became effective on December 26, 2021. The 2022 Employment Agreement provides for Mr. Linville to serve as USPB’s CEO for a term that started on December 26, 2021 and expires on December 26, 2026. The 2022 Employment Agreement provides for Mr. Linville to receive an annual base salary of $363,000.

 

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 2022 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 2022 Employment Agreement.

 

 

 

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For fiscal year 2023, 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 2023 USPB earnings before tax plus USPB grid premiums during the fiscal year, 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.

 

Long-term Incentive

 

Mr. Linville is eligible for a long-term incentive compensation under the 2022 Employment Agreement. If he is employed by USPB on December 26, 2026, he is to be paid long-term incentive compensation equal to fifty one-hundredths of a percent (0.50%) of the amount by which the USPB Total Benefits from December 26, 2021 to December 26, 2026 exceed $75,000,000 (Long-Term Incentive). The 2022 Employment Agreement provides for a cumulative annual cap of $544,500 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive cash bonuses.

 

Discretionary Cash Bonuses

 

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

 

Retirement Plans

 

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

 

Limited Personal Benefits

 

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

 

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 remained outstanding.

 

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.

 

 

 

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CEO Employment Agreement

 

On December 22, 2021, USPB entered into the 2022 Employment Agreement with Mr. Linville, which became effective on December 26, 2021 and expires on December 26, 2026, subject to earlier termination as provided in the agreement. The 2022 Employment Agreement provides for a $363,000 salary and annual and long-term cash bonuses. The 2022 Employment Agreement provides for a cumulative average annual cap of $544,500 for payments to Mr. Linville for annual and long-term cash bonuses.

 

The 2022 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 2022 Employment Agreement for good reason, Mr. Linville shall be entitled to salary and benefits through employment year 2026; payment of certain fringe benefits through employment year 2026; the annual incentive bonus for the year in which the termination occurs and each subsequent year through employment year 2026; the long-term incentive bonus that would have accrued had Mr. Linville been employed through employment year 2026; and the payment of the noncompetition compensation.

 

Impact of Tax and Accounting Treatments

 

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

 

Unit Ownership Guidelines

 

USPB does not allow its named executive officers to own USPB’s Class A units. As of December 30, 2023, 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 of Directors that this Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

 

Compensation Committee

Mark Gardiner – Chairman

Joe Morgan

Jerry Bohn

 

 

 

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Summary Compensation Table

 

The table below sets forth information regarding compensation for our named executive officers for fiscal years 2023, 2022, and 2021. Non-Equity Incentive Plan Compensation amounts reflected in this table are performance based awards and include amounts earned under our annual and long term cash bonus plans.

 

Name and Principal Position  Period   Salary ($)   Bonus ($)   Option Awards ($)   Non-Equity Incentive Plan Compensation ($)   All Other Compensation ($)   Total ($) 
                             
Stanley D. Linville   FY 2023    363,000              544,500 (3)   461,424 (1)   1,368,924 
Chief Executive Officer   FY 2022    364,396              544,500 (3)   278,448 (1)   1,187,344 
    FY 2021    337,933              495,000 (3)   15,960 (1)   848,893 
                                    
Scott J. Miller   FY 2023    218,077              88,642 (2)   344,496 (1)   651,215 
Chief Financial Officer   FY 2022    207,692              300,000 (2)   208,992 (1)   716,684 
    FY 2021    188,273              271,950 (2)   14,823 (1)   475,046 
                                    
Danielle D. Imel   FY 2023    138,804              57,839 (2)   208,080 (1)   404,723 
Treasurer   FY 2022    131,755              195,750 (2)   127,391 (1)   454,896 
    FY 2021    131,755              195,750 (2)   11,157 (1)   338,662 

 

(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, $13,200 and $448,224, respectively in fiscal year 2023; $12,200 and $266,248, respectively in fiscal year 2022; and $11,600 and $4,360, respectively in fiscal year 2021.
  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, $13,200 and $331,296, respectively in fiscal year 2023; $12,200 and $196,792, respectively in fiscal year 2022; and $11,600 and $3,223, respectively in fiscal year 2021.
  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, $13,200 and $194,880, respectively in fiscal year 2023; $11,631 and $115,760, repectively in fiscal year 2022; and $9,261 and $1,896, respectively in fiscal year 2021.
   
(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 $544,500, $544,500, and $495,000 for fiscal years 2023, 2022, and 2021, respectively, and $0, $0, and $0 of long-term cash bonuses for fiscal years 2023, 2022, and 2021, 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 $544,500 for fiscal years 2023 and 2022 and $495,000 for fiscal year 2021.

 

 

 

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Grants of Plan-Based Awards in the Fiscal Year 2023

 

The table below sets forth information regarding grants of non-equity incentive plan-based awards made to our named executive officers during fiscal year 2023.

 

      Estimated Future Payouts under Non-Equity Incentive Plan Awards 
Name and Principal Position  Grant Date  Threshold ($)   Target ($)     Maximum ($) 
Stanley D. Linville (2)  n/a  $–    – (2)   $2,722,500 
Chief Executive Officer                    
                     
Scott J. Miller  10/18/2023  $–   $120,154 (1)   $324,450 
Chief Financial Officer                    
                     
Danielle D. Imel  10/18/2023  $–   $78,401 (1)   $211,704 
Treasurer                    

 

(1) The target amount is based on estimated benefits for fiscal year 2024. Amounts to be paid, which could be more or less, will be based on actual input amounts for fiscal year 2024 and will be paid out over a two-year period.
(2) Mr. Linville's maximum plan award, if earned, would be paid over several years. There were no grants of plan-based awards in fiscal year 2023 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 2024: 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 Employment Agreement.
     
     
Scott J. Miller and Danielle D. Imel   For fiscal year 2024: The executive’s proportionate share of the Management Bonus Pool, which is (1) the audited fiscal year 2024 USPB earnings before tax plus USPB grid premiums during fiscal year 2024, 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.

 

 

 

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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 years 2023, 2022, and 2021. The discretionary bonuses, if paid, are disclosed in the Bonus column in the Summary Compensation Table.

 

Outstanding Phantom Plan Awards at Fiscal Year End 2023

 

   Phantom Plan Awards
Name and Principal Position  Number of Securities Underlying Unexercised Awards     Strike Price ($)     Expiration Date
Stanley D. Linville  1,300 Class A Units  (1)  $0.00  (3)  None
Chief Executive Officer  1,300 Class B Units  (1)  $0.00  (3)  None
   1,000 Class A Units  (2)  $66.04     None
   1,000 Class B Units  (2)  $73.70     None
                 
Scott J. Miller  1,200 Class A Units  (1)  $0.00  (3)  None
Chief Financial Officer  1,200 Class B Units  (1)  $0.00  (3)  None
   500 Class A Units  (2)  $66.04     None
   500 Class B Units  (2)  $73.70     None
                 
Danielle D. Imel  1,000 Class A Units  (1)  $0.00  (3)  None
Treasurer  1,000 Class B Units  (1)  $0.00  (3)  None

 

(1) The phantom plan awards, which provide for the award of appreciation rights only, for Mr. Linville, Mr. Miller and Ms. Imel vested over a 5 year period. At the end of fiscal year 2023, 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. Linville and Mr. Miller vest over a 5 year period. At the end of fiscal year 2023, the unexercised phantom units were fully vested and therefore fully exercisable.
   
(3) During fiscal year 2011, a total of 5,000 Class A phantom units and 5,000 Class B phantom units were awarded to certain management employees, with a strike price of $118 and $157, respectively. However, as a result of the 2011 Leucadia Transaction, management employees received a payment under the management phantom unit plan. As a result of that payment, the strike price for both the Class A phantom units and Class B phantom units was satisfied and is now $0. As a result of the retirement of one of USPB’s employees on December 31, 2014, 4,750 Class A phantom units and 4,750 Class A phantom units remained outstanding at December 25,2021, all of which were fully vested.

 

 

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Phantom Plan Awards Exercised

 

   Phantom Plan Awards 
Name and Principal Position  Number of exercised awards   Value realized on 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 2023. 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

 

If the 2022 Employment Agreement is terminated upon death or permanent disability, Mr. Linville is entitled to:

 

·Salary to the date of the termination plus continued monthly payment of salary through the earlier of the first anniversary of the termination or the contract expiration date (Deemed Termination Date). If Mr. Linville were terminated upon death or disability in fiscal year 2023, his payment would be $363,000;
·If termination is due to permanent disability, provision of certain fringe benefits through the Deemed Termination Date, but excluding vacation pay, personal and sick days, vehicle, telecommunications, and 401(k) contributions, (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination shall be paid to CEO in equal monthly payments), through the Deemed Termination Date;
·Annual Incentive through the employment year in which the Deemed Termination Date occurs pro-rated for the last employment year based upon the period through the Deemed Termination Date;
·Long-term Incentive that would have accrued if Mr. Linville had remained employed under the 2022 Employment Agreement through the Deemed Termination Date; and
·The 2022 Employment Agreement provides for a cumulative annual cap of $544,500 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

 

 

 

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If the 2022 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 2022 Employment Agreement is terminated by USPB other than for cause, death or disability, or by Mr. Linville for good reason, he is entitled to:

 

·Salary and benefits through December 26, 2026;
·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 26, 2026;
·Annual Incentive for the year in which the termination occurs and each subsequent year through employment year 2026;
·Long-Term Incentive that would have accrued had Mr. Linville had remained employed through employment year 2026; and
·The payment of the noncompetition compensation.
·The 2022 Employment Agreement provides for a cumulative annual cap of $544,500 for payments to Mr. Linville for Annual Incentive and Long-Term Incentive amounts.

 

Where the 2022 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 2022 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 2022 Employment Agreement.

 

Director Compensation Table

 

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

 

The table below reflects compensation paid to each director during the fiscal year 2023.

 

Name  Fees Earned or Paid in Cash ($) 
Mark R. Gardiner   3,250 
Joe M. Morgan   3,250 
Jerry L. Bohn   3,250 
Wayne L. Carpenter   2,500 
John M. Freund   3,000 
Rex W. McCloy   3,000 
Jeff H. Sternberger   2,750 

 

 

 

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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 2023 $ 277,578
·Stanley D. Linville total annual compensation for 2023 $ 1,368,924
·Ratio of Stanley D. Linville to Median employee compensation 5 : 1

 

In determining the median employee total annual compensation, a listing was prepared of all employees, other than the CEO, as of December 30, 2023. 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 USPB 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 of Directors 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 
Plan Category  Type of Equity   Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected 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                    

 

 

 

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Security Ownership of Certain Beneficial Owners

 

The following table sets forth certain information as of February 24, 2024 regarding the only persons known by the Company to own directly or indirectly, more than 5% of its Class A and Class B units.

 

Name and Address of Beneficial Owner   Title of Class   Number of Units Beneficially 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 units held by JBT Land & Cattle, LLC., of which Mr. Fairleigh is part owner and ii) 24,288 Class B units held by Fairleigh Corporation 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 Trust.
(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.

 

 

 

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Security Ownership of Management

 

The following table furnishes information, as of February 24, 2024, 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 26, and (iii) all current directors and executive officers as a group.

 

   Beneficial Ownership of 
   Class A Units   Class B Units 
Name  Number   Percentage(1)   Number   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)   3,000    0.4%    3,000    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)   139,109    18.9%    115,846    15.3% 

 

(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 Trust.
(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 3,000 Class A and Class B units held by the Mark Gardiner Revocable Trust
(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.

 

 

 

 

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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.

 

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.

 

 

 

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Transactions with NBP

 

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 2023, 2022, and 2021, 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 2023, 2022, and 2021, USPB’s Class A unitholders and associates average deliveries were approximately 23.5% of NBP’s total cattle requirements, under the Amended Agreement. The purchase price for the cattle is determined by pricing grids, which, at all times, are required to be no less favorable than any other pricing grid being utilized by NBP and the pricing grid shall be competitive with NBP’s major competitors for the purchase of cattle. 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, 2026.

 

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 served as our auditor for the fiscal years ended December 31, 2023, December 31, 2022, and December 25, 2021 (thousands of dollars).

 

   December 30, 2023   December 31, 2022   December 25, 2021 
             
Audit Fees  $142   $139   $133 
Audit Related Fees   –    –    – 
Tax Fees   –    –    – 
Total  $142   $139   $133 

 

Audit Fees

 

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

 

Audit-Related Fees

 

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

 

Tax Fees

 

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

 

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

 

 

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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 Amended and Restated Limited Liability Company Agreement of U.S. Premium Beef, LLC, dated as of November 10, 2023 (incorporated herein by reference to Exhibit 3.3 to Form 10-Q (File No. 333-115164) filed with the SEC on November 13, 2023).
   
10.1 Amendment to the Amended and Restated Revolving Term Promissory Note Revolving Term Loan Supplement between U.S. Premium Beef, LLC and CoBank, ACB, executed July 10, 2023 (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 333-115164) filed with the SEC on July 10, 2023).
   
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).

 

 

 

 40 

 

 

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).

   

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 Loan 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).

 

 

 

 41 

 

 

10.6(a)* 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(b)* 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(c)* 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).
   
10.6(d)* Amended CEO Employment Agreement between U.S. Premium Beef, LLC and Stanley D. Linville, executed on December 22, 2021 and effective as of December 26, 2021 (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 22, 2021).
 
10.7 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.

 

 

 42 

 

 

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 11, 2024

 

* * * *

 

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
(Principal Executive Officer)		 March 11, 2024
Stanley D. Linville  
   
/s/ Scott J. Miller   Chief Financial Officer
(Principal Executive Officer)		 March 11, 2024
Scott J. Miller  
   
/s/ Mark R. Gardiner   Chairman of the Board March 11, 2024
Mark R. Gardiner  
   
/s/ Joe M. Morgan   Vice Chairman of the Board March 11, 2024
Joe M. Morgan  
   
/s/ Jerry L. Bohn   Secretary March 11, 2024
Jerry L. Bohn  
   
/s/ Wayne L. Carpenter   Director March 11, 2024
Wayne L. Carpenter  
   
/s/ John M. Freund   Director March 11, 2024
John M. Freund  
   
/s/ Rex W. McCloy   Director March 11, 2024
Rex W. McCloy  
   
/s/ Jeff H. Sternberger   Director March 11, 2024
Jeff H. Sternberger  

 

 

 

 

 

 43 

 

 

U.S. PREMIUM BEEF, LLC

 

INDEX TO FINANCIAL STATEMENTS

 

      Page
Audited Financial Statements:    
       
  Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)   F-2
       
  Balance Sheets at December 30, 2023 and December 31, 2022   F-3
       
  Statement of Operations for the years ended December 30, 2023, December 31, 2022, and December 25, 2021   F-4
       
  Statement of Cash Flows for the years ended December 30, 2023, December 31, 2022, and December 25, 2021   F-5
       
  Statement of Members' Capital for the years ended December 30, 2023, December 31, 2022, and December 25, 2021   F-6
       
  Notes to Financial Statements   F-7
       
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 30, 2023 and December 31, 2022 and Consolidated Statement of Operations, Comprehensive Income, Cash Flows and Members’ Capital for years ended December 30, 2023, December 31, 2022, and December 25, 2021 and Notes to Consolidated Financial Statements   F-16

 

 

 

 

 

 

 

 

 

 F-1 

 

 

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 30, 2023 and December 31, 2022, the related statements of operations, members’ capital, and cash flows for each of the three years in the period ended December 30, 2023, 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 30, 2023, and December 31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2023, 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.

 

Critical audit matters

The critical audit matters are matters arising from the current period audit of the financial statements that was were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

 

/s/ GRANT THORNTON LLP

 

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

 

Kansas City, Missouri

March 11, 2024

 

 

 

 F-2 

 

 

U.S. PREMIUM BEEF, LLC

Balance Sheets

(thousands of dollars, except unit information)

 

 

         
   December 30, 2023   December 31, 2022 
Assets          
Current assets:          
Cash and cash equivalents  $58,481   $97,732 
Certificate of Deposit   20,000    – 
Accounts receivable   –    9 
Accrued interest receivable   37    – 
Due from affiliates   283    921 
Other current assets   1,675    4 
Total current assets   80,476    98,666 
Property, plant, and equipment, at cost   274    266 
Less accumulated depreciation   231    212 
Net property, plant, and equipment   43    54 
Right of use assets, net   283    114 
Investment in National Beef Packing Company, LLC   162,597    179,556 
Other assets   2    1 
Total assets  $243,401   $278,391 
Liabilities and Members' Capital          
Current liabilities:          
Accounts payable - trade  $28   $36 
Due to National Beef Packing Company, LLC   –    1,132 
Due to other affiliates   48    25 
Accrued compensation and benefits   3,225    2,667 
Lease obligations   56    57 
Other accrued expenses and liabilities   390    969 
Distributions payable   –    1 
Total current liabilities   3,747    4,887 
Long-term liabilities:          
Lease obligations   228    57 
Other liabilities   7,293    9,506 
Total long-term liabilities   7,521    9,563 
Total liabilities   11,268    14,450 
           
Commitments and contingencies   –    – 
           
Members' capital          
Members' contributed capital, 735,385 Class A units and 755,385 Class B units authorized, issued and outstanding   232,133    263,941 
Total members' capital   232,133    263,941 
Total liabilities and members' capital  $243,401   $278,391 

 

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   53 weeks ended   52 weeks ended 
   December 30, 2023   December 31, 2022   December 25, 2021 
Net sales  $–   $–   $– 
Costs and expenses:               
Cost of sales   –    –    – 
Selling, general, and administrative expenses   3,525    7,089    6,220 
Depreciation and amortization   20    20    12 
Total costs and expenses   3,545    7,109    6,232 
Operating loss   (3,545)   (7,109)   (6,232)
Other income:               
Interest income   3,238    1,091    11 
Interest expense   (1)   (3)   – 
Equity in income of National Beef Packing Company, LLC   41,171    174,670    365,023 
Other, net   713    710    695 
Total other income   45,121    176,468    365,729 
Net income  $41,576   $169,359   $359,497 
                
Income per unit:               
Basic and diluted               
Class A units  $5.65   $23.03   $48.89 
Class B units  $49.54   $201.78   $428.32 
                
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.

 

 

 

 

 

 

 

 F-4 

 

 

U.S. PREMIUM BEEF, LLC

Statements of Cash Flows

(thousands of dollars)

 

 

             
   52 weeks ended   53 weeks ended   52 weeks ended 
   December 30, 2023   December 31, 2022   December 25, 2021 
Cash flows from operating activities:               
Net income  $41,576   $169,359   $359,497 
Adjustments to reconcile net income to net cash provided by operating activities:               
Depreciation and amortization   20    20    12 
Equity in net income of National Beef Packing Company, LLC   (41,171)   (174,670)   (365,023)
Distributions from National Beef Packing Company, LLC   58,130    208,404    283,227 
Changes in assets and liabilities:               
Accounts receivable   9    39    269 
Accrued interest receivable   (37)   –    – 
Due from affiliates   638    (863)   (3)
Taxes due from states   0    –    – 
Other assets   (1,671)   –    36 
Accounts payable   (8)   22    (3)
Due to affiliates   (1,109)   1,150    2 
Accrued compensation and benefits   (1,655)   2,587    1,722 
Other accrued expenses and liabilities   (580)   (141)   531 
Net cash provided by operating activities   54,142    205,907    280,267 
Cash flows from investing activities:               
Capital expenditures   (9)   (53)   – 
Redemption of Certificate of Deposit   20,000    –    – 
Investment in Certificate of Deposit   (40,000)   –    – 
Net cash used in investing activities   (20,009)   (53)   – 
Cash flows from financing activities:               
Member distributions   (73,384)   (238,522)   (226,636)
Net cash used in financing activities   (73,384)   (238,522)   (226,636)
Net (decrease) increase in cash   (39,251)   (32,668)   53,631 
Cash and cash equivalents at beginning of period   97,732    130,400    76,769 
Cash and cash equivalents at end of period  $58,481   $97,732   $130,400 
Supplemental cash disclosures:               
Cash paid during the period for interest  $–   $3   $– 
Supplemental noncash disclosures of operating activities:               
Right of use assets and lease obligations  $316   $–   $– 

 

See accompanying notes to financial statements.

 

 

 

 F-5 

 

 

U.S. PREMIUM BEEF, LLC

Statements of Members' Capital

(thousands of dollars)

 

 

     
   Members' capital 
Balance at December 26, 2020  $200,242 
Net income for the year ended December 25, 2021   359,497 
Member distributions   (227,467)
Balance at December 25, 2021   332,272 
Net income for the year ended December 31, 2022   169,359 
Member distributions   (237,690)
Balance at December 31, 2022   263,941 
Net income for the year ended December 30, 2023   41,576 
Member distributions   (73,384)
Balance at December 30, 2023  $232,133 

 

See accompanying notes to financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 F-6 

 

 

U.S. Premium Beef, LLC

Notes to Financial Statements

 

 

NOTE 1. Description of Business

 

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.

 

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

 

On November 29, 2019, Jefferies Financial Group, Inc. (“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%.

 

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. Fiscal year 2022 was a 53-week year and fiscal years 2023 and 2021 were 52-week years.

 

 

 

 F-7 

 

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of December 30, 2023 and December 31, 2022, the Company’s balance sheet reflected Cash and cash equivalents of $58.5 million and $97.7 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.

 

Certificates of Deposit Certificates of deposit held for investment with original maturities greater than three months and remaining maturities less than one year are classified as current assets. Certificates of deposit with remaining maturities greater than one year are classified as long-term assets. On December 14, 2023, USPB invested $10 million of its available cash balance in a twenty-six week certificate of deposit at USBank, at a 4.75% interest rate, that matures on June 13, 2024. On December 21, 2023, USPB invested $10 million of its available cash balance in a twenty-six week certificate of deposit at USBank, at a 4.60% interest rate, that matures on June 20, 2024.

 

Other Current Assets

 

Included in Other Current Assets are receivables from several states, with the largest amounts being due from Connecticut and New Jersey. The taxes are withheld by NBP from its members distributions.

 

Investment in National Beef Packing Company, LLC

 

USPB’s 15.0729% 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.

 

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

        
   December 30, 2023   December 31, 2022 
   (thousands of dollars) 
Beginning Investment Balance  $179,556   $213,290 
Equity in net income   41,171    174,670 
Distributions   (58,130)   (208,404)
Ending Investment Balance  $162,597   $179,556 

 

The difference between USPB’s percentage ownership share of NBP earnings and the recorded amount of Equity in income of National Beef Packing Company, LLC is attributable to the amortization of a basis difference related to the purchase accounting for NBP’s acquisition of Ohio Beef in 2019.

 

 

 

 F-8 

 

 

For fiscal years 2023 and 2022, 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. There were no qualitative items that indicated that the quantitative determination was not correct. As a result of the analysis, USPB concluded that the carrying value of its investment in NBP was not impaired as of December 30, 2023 and December 31, 2022.

 

Beginning on January 1, 2023, and annually thereafter, NBP’s minority members, including USPB, are eligible to deliver a put notice to NBM US Holdings, Inc., a Delaware corporation owned by Marfrig Global Foods S.A. (NBM).  The put period begins on January 1 and ends on January 31 of each year.  During the put period, a NBP minority member can put to NBM a maximum of one third of the aggregate units owned by such minority member as of February 28, 2019 and a minimum of 20% of the aggregate units owned by the applicable minority member as of February 28, 2019.  USPB’s Board of Directors gave consideration to USPB’s put option in December 2023 and chose to not exercise the put option for the January 2024 put period.

 

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.

 

A summary of cost and accumulated depreciation for property, plant, and equipment as of December 30, 2023 and December 31, 2022 follows (thousands of dollars): 

        
   December 30, 2023   December 31, 2022 
Machinery and equipment  $30   $24 
Furniture and fixtures   148    147 
Trailers and automotive equipment   96    95 
Total property, plant, and equipment, at cost   274    266 
Accumulated depreciation   231    212 
Property, plant, and equipment, net  $43   $54 

 

Depreciation expense was less than $0.1 million for fiscal years ended December 30, 2023, December 31, 2022, and December 25, 2021.

 

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 30, 2023 and December 31, 2022.

 

 

 

 F-9 

 

 

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 30, 2023 and December 31, 2022, Other accrued expenses and liabilities on the Company’s balance sheet reflected state taxes payable of $0.3 million and $0.9 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 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 30, 2023 and December 31, 2022, the Company had accrued $0.3 million and $0.3 million, respectively, for the noncompetition agreements. The accrued amounts are included in Other liabilities, respectively, on the balance sheet. The CEO’s employment agreement expires on December 26, 2026.

 

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.

 

 

 

 F-10 

 

 

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   53 weeks ended   52 weeks ended 
(thousands of dollars, except unit and per unit data)  December 30, 2023   December 31, 2022   December 25, 2021 
             
Basic and diluted earnings per unit:               
Income attributable to USPB available to unitholders (numerator)               
Class A  $4,158   $16,936   $35,950 
Class B  $37,418   $152,423   $323,547 
                
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  $5.65   $23.03   $48.89 
Class B  $49.54   $201.78   $428.32 

 

NOTE 3. Long-Term Debt and Loan Agreements

 

(a)       Credit Agreement

 

On July 13, 2020, USPB, and CoBank, ACB (CoBank), entered into a Credit Agreement, Amended and Restated Revolving Term Promissory Note (Promissory Note), and an Affirmation of Pledge Agreement (New Loan Agreements). The New Loan Agreements replace, amend and restate the arrangements between CoBank and USPB contained in that certain Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, Pledge Agreement, and Security Agreement dated July 26, 2011, as amended.

 

The New Loan Agreements provide for a $1.0 million revolving term commitment. That commitment carries a term of five years, maturing on June 30, 2025. All of the $1.0 million revolving credit commitment was available as of December 30, 2023. On July 6, 2023, USPB and CoBank amended the Promissory Note to provide for an interest rate equal to the Daily Simple SOFR Margin (as defined in the amendment) plus the higher of 0.00% and Daily Simply SOFR (as defined in the agreement). The Affirmation of Pledge Agreement provides CoBank with a first-priority security interest in USPB’s Membership Interests in, and Distributions from, NBP.

 

As of December 30, 2023, USPB had no long-term debt outstanding. USPB was in compliance with the financial covenant under its Credit Agreement as of December 30, 2023 and December 31, 2022.

 

(b)       Operating Leases 

 

USPB’s two office leases are accounted for under ASC 842, Leases. The Kansas City, MO office renewed its office lease in March 2023 and has a remaining term of approximately 4.25 years. The Dodge City, KS office renewed its office lease in October 2023 and has a remaining term of approximately 5.0 years. The Kansas City office lease agreement provides for renewals beyond the remaining term; the Dodge City office lease agreement does not provide for renewals beyond the remaining term. The monthly lease payment for the Kansas City office was $4,724, as of December 2023, and increases by approximately 3% on April 1 of each year. The monthly lease payment for the Dodge City office was $1,025, as of December 2023. In January 2024, the Dodge City lease payment increased to $1,050, and remains the same through the balance of the lease term. Both offices are used for general office use only. As of December 30, 2023, the present value of the remaining operating lease payments for the offices equaled $0.3 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 6.04%, USPB’s incremental borrowing rate adjusted for the lease term.

 

 

 

 F-11 

 

 

The table below states the total of the remaining lease payments as of December 30, 2023 (thousands of dollars): 

     
2024  $71 
2025   72 
2026   74 
2027   76 
2028 (3 months)   28 
Total   321 
Less: future interest   37 
Lease liabilities recognized  $284 

 

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. The payment to management was reduced by the strike price for both the Class A phantom units and Class B phantom units and is now $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 years 2023 and 2022, 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 $0.1 million, $2.6 million, and $1.8 million was recognized in fiscal years 2023, 2022, and 2021.

 

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 grant date fair value was established using a black scholes model). The phantom units became fully vested in January 2018 and remain outstanding at the end of fiscal years 2023 and 2022. A reduction of compensation expense of $0.2 million occurred in 2023 and compensation expense of $0.7 million, and $0.8 million was recognized in fiscal years 2022, and 2021, respectively.

 

As of December 30, 2023 and December 31, 2022, the Company had accrued $9.0 and $10.4 million, respectively, for the management phantom plans. The accrued amounts are included in Accrued compensation and benefits and Other liabilities on the balance sheet. 

        
   December 30, 2023   December 31, 2022 
    (thousands of dollars) 
Current phantom unit  $2,075   $1,210 
Long-term phantom unit   6,972    9,202 
Total phantom accrual   $9,047   $10,412 

 

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 30, 2023 and December 31, 2022, the Company had accrued $1.1 million and $1.5 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 2023, 2022, and 2021, respectively.

 

 

 

 F-12 

 

 

NOTE 5. Other Expense or Income

 

Other non-operating income, net was $0.7 million for fiscal years 2023, 2022, and 2021, 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 is 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 approximately $0.4 million in fiscal years 2023 and 2022, and less than $0.2 million in tax years 2021.

 

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 2023, 2022, and 2021, and 2020, USPB elected to increase the number of cattle that its Class A unitholders could deliver during USPB’s delivery year by up to 10%. For fiscal years 2023, 2022, and 2021, the average cattle deliveries by USPB’s Class A unitholders and associates were approximately 23.5% of NBP’s total cattle requirements, under the Amended Agreement. The purchase price for the cattle is determined by pricing grids, which, at all times, are required to be no less favorable than any other pricing grid being utilized by NBP and the pricing grid shall be competitive with NBP’s major competitors for the purchase of cattle. 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 for five years from the date of such anniversary, unless either party elects to not extend the term. The Amended Agreement currently extends through June 10, 2026.

 

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

 

At December 30, 2023 and December 31, 2022, the Company had receivables of approximately $0.1 million and $0.5 million, respectively, due from unitholders and associates. At December 30, 2023 and December 31, 2022, the Company had receivables of approximately $0.2 million and $0.4 million due from NBP, respectively.

 

At December 30, 2023 and December 31, 2022, the Company had payables of less than $0.1 million due to unitholders and associates. At December 30, 2023 and December 31, 2022, the Company had payables of approximately $0.0 million and $1.1 million due to NBP, respectively.

 

 

 

 F-13 

 

 

NOTE 8. Legal Proceedings

 

As of December 30, 2023, 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 (i) five putative class action lawsuits in the United States District Court for the District of Minnesota alleging that NBP violated some combination of the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws and (ii) putative class action lawsuits in the Supreme Court of British Columbia and the Superior Court of Quebec for the district of Montreal alleging that it violated the Canadian Competition Act and various provincial laws (the “Beef Class Actions”).  The Beef Class Actions 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; Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020; Specht v. Tyson Foods, Inc., et al., which was filed originally on October 31, 2022; Giang Bui v. Cargill, Incorporated, et al. which was filed originally on February 18, 2022; and Sylvie De Bellefeuille v. Cargill, Inc. et al., which was filed originally on March 24, 2022.  Since the original class action complaints were filed, certain purchasers of beef products have opted to file individual complaints and to proceed with direct actions making similar claims (the “Opt-Out Cases”), and others may do so in the future. The Opt-Out Cases are entitled Winn-Dixie Stores, Inc. and Bi-Lo Holding, LLC v. Cargill, Inc., et al., which was filed on August 2, 2021 in the United States District Court, Minnesota; Cheney Brothers, Inc. v. Cargill, Inc., et al., which was filed on January 31, 2022 in the United States District Court, Southern District of Florida; Subway v. Cargill, Inc. et al., which was filed on February 22, 2022 in the United States District Court, Connecticut; Amory Investments LLC v. Cargill, Inc. et al., which was filed originally on March 8, 2022 in the United States District Court, Northern District of New York; Associated Grocers, Inc., et al. v. Cargill, Inc., et al., which was filed originally on May 12, 2022 in the United States District Court, Northern District of Illinois; Giant Eagle, Inc. v. Cargill, Inc., et al., which was filed originally on June 8, 2022 in the United States District Court, Northern District of Illinois; Sysco Corporation v. Cargill, Inc., et al., which was filed originally on June 24, 2022 in the United States District Court, Southern District of Texas; John Soules Foods, Inc. v. Cargill, Inc., et al., which was filed originally on August 5, 2022 in the United States District Court, Eastern District of Texas; Associated Grocers of the South et al. v. Cargill, Inc., et al., which was filed originally on September 15, 2022 in the United States District Court, District of Montana; The Kroger Co. et al. v. Cargill, Inc., et al., which was filed originally on September 15, 2022 in the United States District Court, District of Montana; Spartannash Co vs. Cargill, Inc. et al, which was filed originally on September 21, 2022 in the United States District Court, Northern District of Illinois; Kraft Heinz Food Company v. Cargill Inc., et al., which was filed originally on September 30, 2022 in the United States District Court, Eastern District of New York; Aramark Food and Support Services Group., Inc. v. Cargill Inc., et al., which was filed originally on September 30, 2022 in the United States District Court, Eastern District of New York; ARCOP, Inc. v. Cargill, Inc., et al., which was filed originally on December 19, 2022 in the United States District Court, Southern District of Florida; CKE Restaurant Holdings, Inc. v. Cargill, Inc., et al., which was filed originally on December 19, 2022 in the United States District Court, Southern District of Florida; Sonic Industries Services Inc. v. Cargill, Inc. et al., which was filed originally on December 20, 2022 in the United States District Court, Southern District of Florida; Restaurant Services, Inc. v. Cargill, Inc., et al., which was filed originally on December 20, 2022 in the United States District Court, Southern District of Florida; Whatabrands LLC et al. vs. Cargill, Inc., et al. which was filed originally on December 20, 2022 in the United States District Court, Southern District of Florida; Sherwood Food Distributors, LLC et al.v. Cargill, Inc., et al., which was filed originally on March 7, 2023 in the United States District Court, Easter District of New York; McClane Company, Inc v. Cargill, Inc., et al., which was filed originally on April 3, 2023 in the United States District Court, Southern District of Florida; Aldi, Inc v. Cargill, Inc., et al., which was filed originally on August 28. 2023 in the United States District Court, Northern District of Illinois; Quirich Foods, LLC et al. v. Cargill, Inc., et al., which was filed originally on October 9, 2023 in the United States District Court, Northern District of Illinois; Conagra Brands, Inc v. Cargill, Inc., et al., which was filed originally on October 31, 2023 in the United States District Court, Northern District of Illinois; Compass Group USA, Inc v. Cargill, Inc., et al., which was filed originally on October 31, 2023 in the United States District Court, Western District of North Carolina; Target Corp v. Cargill, Inc., et al., which was filed originally on December 29, 2023 in the United States District Court, Eastern District of New York; BJ’s Wholesale Club, Inc v. Cargill, Inc., et al., which was filed originally on December 29, 2023 in the United States District Court, Eastern District of New York; Glazier Foods Co et al. v. Cargill, Inc., et al., which was filed originally on December 29, 2023 in the United States District Court, Eastern District of New York; Jetro Holdings, Inc v. Cargill, Inc., et al., which was filed originally on December 29, 2023 in the United States District Court, Eastern District of New York; and Quality Supply Chain Co-Op, Inc. v. Cargill, Inc., et al., which was filed originally on December 29, 2023 in the United States District Court, Eastern District of New York. On October 4, 2022, the United States Beef Class Actions and Opt-Out Cases were consolidated for pretrial proceedings in the United States District Court, Minnesota District under the style In re: Cattle and Beef Antitrust Litigation. The plaintiffs in these cases seek treble damages and other relief under various laws including the Sherman Antitrust Act, the Canadian Competition Act, the Packers & Stockyards Act, and/or the Commodities Exchange Act and various state and provincial laws and attorneys’ fees.  NBP believes it has meritorious defenses to the claims in these cases and intends to defend them vigorously. There can be no assurances, however, as to the outcome of these matters or the impact on NBP’s consolidated financial position, results of operations and cash flows.

 

 

 

 F-14 

 

 

In addition to the antitrust litigation, NBP is subject to an investigation by the United States Department of Justice (“DOJ”) and approximately 30 state attorneys general regarding fed cattle and beef packing markets.  NBP has responded to the federal and state requests for information and cooperated 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 and is a defendant in a putative class action lawsuit entitled Brown, et al. v. JBS USA Food Company et al. and filed in the United States District Court for the District of Colorado on November 1, 2022. The defendants filed motions to dismiss, which the court denied except as to the Company’s subsidiary, Iowa Premium. The plaintiffs filed an amended complaint on January 12, 2024. The amended complaint alleges that the defendants directly and through industry wage surveys and a benchmarking service (i) fixed wages and benefits, and (ii) exchanged information regarding compensation and benefits in an effort to depress and stabilize wages and benefits in violation of federal antitrust laws. The plaintiffs seek, among other things, treble monetary damages, pre- and post-judgment interest, declaratory and injunctive relief and the costs of the suit (including attorney fees). NBP believes it has meritorious defenses to the claims in this case and intends to defend the case vigorously. There can be no assurances, however, as to the outcome of this case or the impact on the 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 of NBP believes the ultimate resolution of such matters should not have a material adverse effect on NBP’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. 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-15 

 

 

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-17
       
  Consolidated Balance Sheets at December 30, 2023 and December 31, 2022   F-18
       
  Consolidated Statement of Operations for the years ended December 30, 2023, December 31, 2022, and December 25, 2021   F-19
       
  Consolidated Statement of Comprehensive Income for the years ended December 30, 2023, December 31, 2022, and December 25, 2021   F-20
       
  Consolidated Statement of Cash Flows for the years ended December 30, 2023, December 31, 2022, and December 25, 2021   F-21
       
  Consolidated Statement of Members' Capital for the years ended December 30, 2023, December 31, 2022, and December 25, 2021   F-22
       
  Notes to Consolidated Financial Statements   F-23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-16 

 

 

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

 

Board of Managers

National Beef Packing Company, LLC

 

We have audited the consolidated financial statements of National Beef Packing Company, LLC (a Delaware limited liability company) and subsidiaries, (the “Company”), which comprise the consolidated balance sheets as of December 30, 2023 and December 31, 2022, and the related consolidated statements of operations, comprehensive income, cash flows, and members’ capital for each of the three fiscal years in the period ended December 30, 2023, and the related notes to the financial statements.

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 30, 2023 in accordance with accounting principles generally accepted in the United States of America.

 

Basis for opinion

 

We conducted our audits of the consolidated financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Responsibilities of management for the financial statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.

 

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are issued.

 

Auditor’s responsibilities for the audit of the financial statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements. In performing an audit in accordance with US GAAS, we:

 

·Exercise professional judgment and maintain professional skepticism throughout the audit.
·Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
·Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.
·Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
·Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

 

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

 

/s/ Grant Thornton LLP

 

Kansas City, Missouri

February 23, 2024

 

 F-17 

 


NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

 

 

   December 30, 2023   December 31, 2022 
Assets          
Current assets:          
Cash and cash equivalents  $16,373   $39,308 
Accounts receivable, less allowance for returns and expected credit losses of $3,480 and $3,075, respectively   380,206    298,608 
Due from affiliates   4,885    3,835 
Other receivables   9,489    5,615 
Inventories   423,126    420,149 
Other current assets   60,049    64,726 
Total current assets   894,128    832,241 
Property, plant and equipment, at cost:          
Land and improvements   107,212    92,096 
Buildings and improvements   351,728    327,099 
Machinery and equipment   815,067    701,163 
Trailers and automotive equipment   5,686    4,172 
Furniture and fixtures   25,373    22,678 
Construction in progress   275,214    247,585 
    1,580,280    1,394,793 
Less accumulated depreciation   651,597    571,864 
Net property, plant and equipment   928,683    822,929 
Goodwill   30,634    30,634 
Other intangibles, net of accumulated amortization of $560,291 and $511,590, respectively   309,997    358,698 
Right of use assets, net of accumulated amortization of $59,944 and $61,394, respectively   84,621    65,070 
Other assets   20,626    42,199 
Total Assets  $2,268,689   $2,151,771 
Liabilities and Members’ Capital          
Current liabilities:          
Current installments of long-term debt   26,215    26,048 
Current portion of right of use liabilities   24,257    20,536 
Cattle purchases payable   185,155    201,555 
Accounts payable — trade   123,112    145,344 
Due to affiliates   979    5,409 
Accrued compensation and benefits   91,294    194,809 
Accrued insurance   11,770    11,471 
Other accrued expenses and liabilities   45,934    43,987 
Total current liabilities   508,716    649,159 
Long-term debt, excluding current installments   648,868    299,052 
Long-term portion of right of use liabilities   62,424    44,939 
Other liabilities   16,396    17,632 
Total liabilities   1,236,404    1,010,782 
Commitments and contingencies          
Members’ capital:          
Members’ capital   1,032,743    1,141,258 
Accumulated other comprehensive loss   (458)   (269)
Total members’ capital   1,032,285    1,140,989 
Total Liabilities and Members' capital  $2,268,689   $2,151,771 

 

See accompanying notes to consolidated financial statements.

 

 

 F-18 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands)

 

 

  

52 weeks ended

December 30, 2023

   53 weeks ended December 31, 2022   52 weeks ended December 25, 2021 
Net sales  $11,949,876   $11,876,074   $11,674,676 
Costs and expenses:               
Cost of sales   11,403,911    10,475,341    9,031,603 
Selling, general and administrative   105,868    103,173    94,727 
Depreciation and amortization   133,782    124,357    115,471 
Total costs and expenses   11,643,561    10,702,871    9,241,801 
Operating income   306,315    1,173,203    2,432,875 
Other income (expense):               
Interest income   66    167    103 
Interest expense   (26,544)   (5,650)   (7,766)
Income before taxes   279,837    1,167,720    2,425,212 
Income tax expense   2,692    4,885    3,494 
Net income  $277,145   $1,162,835   $2,421,718 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-19 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

 

 

  

52 weeks ended

December 30, 2023

   53 weeks ended December 31, 2022   52 weeks ended December 25, 2021 
Net income  $277,145   $1,162,835   $2,421,718 
Other comprehensive income (loss):               
Foreign currency translation adjustments   (189)   (137)   (114)
Comprehensive income  $276,956   $1,162,698   $2,421,604 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-20 

 

 

 NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

 

 

  

52 weeks ended

December 30, 2023

   53 weeks ended December 31, 2022   52 weeks ended December 25, 2021 
Cash flows from operating activities:               
Net income  $277,145   $1,162,835   $2,421,718 
Adjustments to reconcile net income to net cash provided by operating activities:               
Depreciation and amortization   133,782    124,357    115,471 
Provision for returns and doubtful accounts   11,028    12,980    14,878 
Deferred income tax provision   (43)   497    (243)
Loss on disposal of property, plant and equipment   145    1,438    90 
Amortization of debt issuance costs   920    822    1,687 
Change in assets and liabilities:               
Accounts receivable   (92,627)   24,483    (64,888)
Due from affiliates   (1,049)   3,254    (5,830)
Other receivables   (3,874)   (960)   1,447 
Inventories   (2,977)   (3,986)   (126,222)
Other assets   26,293    6,468    (28,774)
Right of use assets and lease liabilities, net   1,655    (1,088)   39 
Cattle purchases payable   (16,400)   66,034    7,985 
Accounts payable   (21,817)   (4,906)   33,077 
Due to affiliates   (4,430)   372    598 
Accrued compensation and benefits   (103,515)   (171,374)   126,542 
Accrued insurance   299    (12,074)   1,324 
Other accrued expenses and liabilities   711    (13,989)   301 
Net cash provided by operating activities   205,246    1,195,163    2,499,200 
Cash flows from investing activities:               
Capital expenditures, including interest capitalized   (191,827)   (200,782)   (165,307)
Proceeds from sale of property, plant and equipment   688    382    2,087 
Net cash used in investing activities   (191,139)   (200,400)   (163,220)
Cash flows from financing activities:               
Receipts under revolving credit lines   1,812,856    892,000    660,000 
Payments under revolving credit lines   (1,650,000)   (892,000)   (686,434)
Receipts under reducing revolving credit lines   4,530,000    1,745,000    1,022,000 
Payments under reducing revolving credit lines   (4,340,000)   (1,425,000)   (1,347,000)
Repayments of other indebtedness/finance leases   (1,917)   (2,420)   (2,256)
Cash paid for financing costs   (2,118)   –    (4,050)
Member distributions   (385,660)   (1,382,641)   (1,879,047)
Net cash used in financing activities   (36,839)   (1,065,061)   (2,236,787)
Effect of exchange rate changes on cash   (203)   (140)   (116)
Net (decrease) increase in cash   (22,935)   (70,438)   99,077 
Cash and cash equivalents at beginning of period   39,308    109,746    109,746 
Cash and cash equivalents at end of period  $16,373   $39,308   $109,746 
Supplemental disclosures:               
Cash paid during the period for interest  $38,049   $8,310   $7,870 
Cash paid during the period for taxes  $405   $2,963   $2,365 
Supplemental non-cash disclosures of investing and financing activities:               
Non-cash additions to property, plant and equipment  $3,210   $3,625   $1,206 
Distributions declared but unpaid  $–   $–   $350,000 

 

See accompanying notes to consolidated financial statements.

 

 

 F-21 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Members’ Capital

(in thousands)

 

 

   Members’ Capital  

Accumulated Other

Comprehensive

(Loss) Income

   TOTAL 
Balance at December 26, 2020  $818,393   $(18)  $818,375 
Net income   2,421,718    –    2,421,718 
Distributions   (2,229,047)   –    (2,229,047)
Foreign currency translation adjustments   –    (114)   (114)
Balance at December 25, 2021  $1,011,064   $(132)  $1,010,932 
Net income   1,162,835    –    1,162,835 
Distributions   (1,032,641)   –    (1,032,641)
Foreign currency translation adjustments   –    (137)   (137)
Balance at December 31, 2022  $1,141,258   $(269)  $1,140,989 
Net income   277,145    –    277,145 
Distributions   (385,660)   –    (385,660)
Foreign currency translation adjustments   –    (189)   (189)
Balance at December 30, 2023  $1,032,743   $(458)  $1,032,285 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 F-22 

 

 

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 produce and sell meat products to customers in the retail, distribution, food service, international, and further processor channels. The Company also produces and sells by-products, that are derived from its meat processing operations, 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 to 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 30, 2023, and December 31, 2022, approximately 57% of the Company’s employees were represented by collective bargaining agreements. The Company makes certain contributions for the benefit of employees (see Note 6).

 

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.

 

Fiscal Year

 

The Company’s fiscal year consists of 52 or 53 weeks, ending on the last Saturday in December. Fiscal 2023 and 2021 were each 52-week fiscal years. Fiscal 2022 was a 53-week fiscal year. 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. The Company’s cash deposits are held at multiple financial institutions. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.

 

 

 

 F-23 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 expected credit losses for the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021 (in thousands):

 

Period Ended   Beginning Balance   Provision   Charge Off   Ending Balance
December 25, 2021   $ (2,627 )   $ (14,878 )   $ 14,282     $ (3,223 )
December 31, 2022   $ (3,223 )   $ (12,980 )   $ 13,128     $ (3,075 )
December 30, 2023   $ (3,075 )   $ (11,028 )   $ 10,623     $ (3,480 )

 

Inventories

 

Inventories consist primarily of beef, beef by-products, 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 30, 2023 and December 31, 2022 consisted of the following (in thousands):

 

   December 30, 2023   December 31, 2022 
Dressed and boxed beef products  $317,891   $319,221 
Beef by-products   44,833    44,473 
Parts, supplies and other   60,402    56,455 
Total inventory  $423,126   $420,149 

 

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 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

 

 

 

 F-24 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Depreciation expense was $85.1 million, $75.3 million and $66.4 million for the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021, 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 capitalized to the property, plant and equipment accounts and are amortized through depreciation charges over the estimated useful lives of the assets. Interest capitalized was $12.7 million, $4.2 million and $1.7 million for the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021, 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 the Company’s property plant, and equipment may not be recoverable during 2023, 2022 or 2021.

  

Goodwill and Other Intangible Assets

 

Accounting Standards Codification (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 the Company believes 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 in the periods presented. Adverse market or economic events could result in impairment charges in future periods.

 

ASC 360, Impairment and Disposal of Long-Lived Assets, provides that the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, the Company groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management’s estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. As a result of the review performed, no triggering events occurred during 2023, 2022 or 2021 related to the Company’s long-lived assets, thus no impairment charge was recorded.

 

 

 

 

 F-25 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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

 

   Weighted   December 30, 2023 
  

Average

Amortization

Period

  

Gross

Carrying

Amount

  

Accumulated

Amortization

 
Intangible assets subject to amortization:               
Customer relationships   18   $433,300   $279,188 
Trade names   20    290,148    162,983 
Cattle supply relationships   15    143,600    114,880 
Other   6    3,240    3,240 
Total intangible assets       $870,288   $560,291 

 

   Weighted   December 31, 2022 
  

Average

Amortization

Period

  

Gross

Carrying

Amount

  

Accumulated

Amortization

 
Intangible assets subject to amortization:               
Customer relationships   18   $433,300   $254,819 
Trade names   20    290,148    148,479 
Cattle supply relationships   15    143,600    105,307 
Other   6    3,240    2,985 
Total intangible assets       $870,288   $511,590 

 

For the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021 the Company recognized $48.7 million, $49.1 million and $49.1 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 30, 2023, for each of the next five years and thereafter (in thousands):

 

Estimated amortization expense for fiscal years ending:     
2024  $48,445 
2025   48,445 
2026   48,445 
2027   38,872 
2028   38,872 
Thereafter   86,918 
Total  $309,997 

 

 

 

 F-26 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 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 these foreign offices, 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 fiscal years 2023, 2022, 2021 and 2020.

 

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 30, 2023 and December 31, 2022, as substantially all debt carries variable interest rates.

 

 

 

 F-27 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Selling, General and Administrative Costs

 

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

 

Shipping Costs

 

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

 

Advertising

 

Advertising expenses are charged to operations in the period incurred and were $23.5 million, $25.7 million and $25.3 million for the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021.

 

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.

 

 

 

 F-28 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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

 

NOTE 3.  REVENUE RECOGNITION

 

The Company generates revenue primarily from customers in the retail, foodservice, international, and other channels. The Company’s revenues primarily result from contracts with customers which are generally short term in nature with the delivery of product as the single performance obligation. The Company recognizes revenue from the sale of the product at the point in time when the Company’s performance obligation has been satisfied and control of the product has transferred to its customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale. In accordance with ASC 340 Other Assets and Deferred Costs, 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. The Company’s contracts are generally less than one year, therefore the Company has elected this practical expedient and has 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.

 

Revenue is measured by the transaction price, which is defined as the amount of consideration the Company expects 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, product returns, 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 the Company expects to pay. The Company bases these estimates on current performance, historical utilization, and projected redemption rates of each program. The Company reviews and updates 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, the Company does not grant payment financing terms greater than one year.

 

Disaggregated Revenue

 

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

 

  

52 weeks ended

December 30, 2023

  

53 weeks ended

December 31, 2022

   52 weeks ended December 25, 2021 
Beef, pork, & beef by-products  $12,336,171   $12,238,662   $12,008,507 
Other   288,681    299,729    276,508 
Intercompany   (674,976)   (662,317)   (610,339)
Net Sales  $11,949,876   $11,876,074   $11,674,676 

 

 

 

 F-29 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 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 2023 are as follows (in thousands):

 

   December 30, 2023   December 31, 2022   Change 
Contract liabilities  $19,939   $18,594   $1,345 
                

Changes in the contract liability balances during 2022 are as follows (in thousands):

 

   December 31, 2022   December 25, 2021   Change 
Contract liabilities  $18,594   $31,310   $(12,716)
                

Substantially all of the contract liability as of December 31, 2022 was recognized in revenue during 2023. The Company expects to recognize substantially all of the current year liability in 2024.

 

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 Leases. The Company’s portfolio of leases primarily consists of machinery, equipment and railcars for its slaughter and fabrication facilities and tractors and trailers for its wholly owned trucking subsidiary, National Carriers. In addition, the Company leases its corporate headquarters facility and various regional offices.

 

Many of the Company’s 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 the Company’s leases include fixed rental payments. Certain of the Company’s lease agreements contain options or renewals that extend the lease term. Upon lease commencement, the Company only reflects 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. For the majority of the Company’s non-TRAC leases, the Company generally expects that it will renew lease agreements or enter new leases as the existing leases expire.

 

 

 

 F-30 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

The Company has 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 its 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, the Company uses or its incremental borrowing rate.

 

During its fiscal years ended December 30, 2023, December 31, 2022, and December 25, 2021 the Company recognized rent expense associated with its leases as follows (in thousands):

 

  

52 weeks ended

December 30, 2023

  

53 weeks ended

December 31, 2022

  

52 weeks ended

December 25, 2021

 
Operating lease cost:               
Fixed rent expense  $30,030   $26,865   $28,250 
Variable rent expense   34    61    36 
Finance lease cost:               
Amortization of ROU assets   2,254    2,326    2,356 
Interest expense   236    320    404 
Short-term lease cost   12,097    4,642    5,376 
Net lease cost  $44,651   $34,214   $36,422 
                
Lease cost – Cost of sales  $41,220   $29,772   $31,153 
Lease cost – SG&A   941    1,796    2,509 
Lease cost – Depreciation & Amortization   2,254    2,326    2,356 
Lease cost – Interest expense   236    320    404 
Net lease cost  $44,651   $34,214   $36,422 

 

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 30, 2023, and December 31, 2022, right-of-use assets and lease liabilities related to finance leases were as follows (in thousands):

 

   December 30, 2023   December 31, 2022 
Finance lease ROU assets  $3,899   $5,911 
Finance lease liabilities:          
Current installments of long-term debt   2,139    1,858 
Long-term debt   2,389    4,345 

 

 

 F-31 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

During the fiscal years ended December 30, 2023, December 31, 2022, and December 25, 2021 the Company had the following cash and non-cash activities associated with its leases (in thousands):

 

   December 30, 2023   December 31, 2022   December 25, 2021 
Cash paid for amounts included in the measurement of lease liabilities:               
Operating cash flows from operating leases  $28,702   $28,605   $28,580 
Operating cash flows from finance leases  $222   $346   $408 
Financing cash flows from finance leases  $1,889   $2,461   $2,247 
                
Supplemental non-cash information               
Additions to ROU assets obtained from:               
New operating lease liabilities   41,400    22,663    12,370 
New finance lease liabilities   242    46    170 

 

The future payments due under operating and finance leases as of December 30, 2023 is as follows (in thousands):

 

   Operating   Finance 
Due in:          
2024  $24,257   $2,280 
2025   24,339    2,253 
2026   19,116    203 
2027   11,725    – 
2028   4,655    – 
Thereafter   8,758    – 
Total   92,850    4,736 
           
Future interest   (6,169)   (208)
           
Lease liabilities recognized  $86,681   $4,528 

 

As of December 30, 2023, the weighted-average remaining lease term for all operating leases is 4.09 years, while the weighted-average remaining lease term for all finance leases is 2.06 years. As of December 31, 2022, the weighted-average remaining lease term for all operating leases is 3.86 years, while the weighted-average remaining lease term for all finance leases is 3.02 years.

 

As of December 30, 2023, the weighted-average discount rate associated with operating leases is 4.19%, while the weighted-average discount rate associated with finance leases is 4.44%. As of December 31, 2022, the weighted-average discount rate associated with operating leases is 3.36%, while the weighted-average discount rate associated with finance leases is 4.23%.

 

 

 

 F-32 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 5.  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 30, 2023, and December 31, 2022, debt consisted of the following (in thousands):

 

   December 30, 2023   December 31, 2022 
Short-term debt:          
Reducing revolver credit facility (a)  $25,000   $25,000 
Current portion of loan costs (b)   (924)   (810)
Current portion of finance lease obligations   2,139    1,858 
    26,215    26,048 
Long-term debt:          
Reducing revolver credit facility (a)   485,000    295,000 
Revolving credit facility (a)   162,856    – 
Long-term portion of loan costs (b)   (3,377)   (2,293)
Other Debt (c)   2,000    2,000 
Long-term finance lease obligations   2,389    4,345 
    648,868    299,052 
Total debt  $675,083   $325,100 

 ___________________________________

 

(a) Senior Credit Facilities - In September 2023, the Company amended its Fourth Amended and Restated Credit Agreement (Debt Agreement). The Debt Agreement matures in September 2028. The Debt Agreement includes a $775.0 million reducing revolver loan and a $350.0 million revolving credit facility. The reducing revolver loan commitment decreases by $25.0 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 financial covenant that requires the Company to maintain a minimum tangible net worth; at December 30, 2023, the Company was in compliance with the financial covenant.

 

At December 30, 2023, the Company’s outstanding debt balance under the Debt Agreement was $672.9 million. The reducing revolving loan and the revolving credit facility bear interest at the Base Rate or the SOFR Rate (as defined in the Debt Agreement), plus a margin ranging from 0.25% to 2.75% depending upon certain financial ratios and the rate selected.  As of December 30, 2023 the interest rate on the reducing revolver credit facility and the revolving credit facility was 7.2% and 7.2%, 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. There were letters of credit aggregating $2.3 million outstanding at December 30, 2023.  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.  On December 30, 2023, after deducting outstanding amounts and issued letters of credit, $184.8 million of the unused revolving credit facility and $265.0 million of the reducing revolver loan was available to the Company.

 

 

 

 F-33 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

(b) Debt issuance costs –In conjunction with the 2023 Debt Amendment, the Company paid financing charges of approximately $2.12 million, which are being amortized over the life of the loan along with any unamortized loan charges from previous amendments.

 

Amortization of $0.9 million, $0.8 million and $1.7 million was charged to interest expense during the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021, respectively.

 

(c)   Other Debt - 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 the Company’s Debt Agreement, these due-on-demand bonds have been presented as non-current obligations until twelve months prior to their maturity.

 

The aggregate minimum principal maturities of the long-term debt and amortization of loan costs for each of the five fiscal years and thereafter following December 30, 2023, are as follows (in thousands):

 

  

Minimum

Principal

Maturities

 
Fiscal year ending December:     
2024  $26,215 
2025   1,141 
2026   (723)
2027   209 
2028   647,241 
Thereafter   1,000 
Total minimum principal maturities  $675,083 

 

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 2023, 2022 and 2021, respectively. 

 

 

 

 F-34 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 purchased 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.

 

NOTE 6.  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 $5.0 million, $4.4 million and $4.0 million for the fiscal years 2023, 2022 and 2021, 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 the Company’s 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 $14.0 million and $14.8 million as of December 30, 2023 and December 31, 2022 and is included in Other liabilities on the consolidated balance sheets.

 

NOTE 7.  INCOME TAXES

 

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

 

   52 weeks ended December 30, 2023   53 weeks ended December 31, 2022   52 weeks ended December 25, 2021 
Current provision:               
Federal  $1,288   $2,095   $1,158 
State   1,430    2,166    2,475 
Foreign   17    127    104 
Total current tax expense   2,735    4,388    3,737 
Deferred provision:               
Federal   (37)   415    (202)
State   (6)   82    (41)
Foreign   –    –    – 
Total deferred tax expense   (43)   497    (243)
Total income tax expense  $2,692   $4,885   $3,494 

 

 

 

 F-35 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 8.  RELATED PARTY TRANSACTIONS

 

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

 

During fiscal years 2023, 2022 and 2021, the Company had sales and purchases with the following related parties (in thousands):

 

   52 weeks ended December 30, 2023   53 weeks ended December 31, 2022   52 weeks ended December 25, 2021 
Sales to:               
Empirical Foods, Inc. (1)  $105,555   $129,732   $89,894 
MF Foods USA, LLC (2)   1,634    1,869    1,302 
Total sales to affiliate  $107,189   $131,601   $91,196 
Purchases from:               
Empirical Foods, Inc. (1)  $11,923   $9,664   $8,015 
Marfrig affiliates (3)   44,553    72,619    42,903 
Total purchases from affiliate  $56,476   $82,283   $50,918 

__________________________________

(1)Empirical Foods, Inc. (Empirical), formerly 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

 

In January 2007, the Company entered into an agreement with Empirical for Empirical to manufacture and install a grinding system in one of the Company’s plants. In accordance with the agreement with Empirical, the Company is to pay Empirical 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.  The Company paid approximately $1.4 million during 2023, $1.5 million during 2022 and $1.5 million during fiscal years 2021 to Empirical in technology and support fees.

 

The Company is party to a long-term cattle supply agreement with U.S. Premium Beef, LLC (US Premium Beef), a minority owner of the Company.  Under this agreement the Company has 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. The Company obtained approximately 25% of the Company’s cattle requirements under this agreement during each of the fiscal years 2023, 2022 and 2021.

 

 

 F-36 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 9.  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 the Company’s established policies:

 

•Forward purchase contracts for cattle for use in the Company’s 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 30, 2023 and December 31, 2022. 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 regarding derivative instruments not designated as hedging instruments as of December 30, 2023 and December 31, 2022 (in thousands):

 

  

Derivative Asset

As of December 30, 2023

 

Derivative Liability

As of December 30, 2023

  

Balance Sheet

Location

  Fair Value  

Balance Sheet

Location

  Fair Value 
Commodity contracts  Other current assets  $2,186   Other accrued expenses and liabilities  $2,679 
Totals     $2,186      $2,679 

 

 

  

Derivative Asset

As of December 31, 2022

 

Derivative Liability

As of December 31, 2022

  

Balance Sheet

Location

  Fair Value  

Balance Sheet

Location

  Fair Value 
Commodity contracts  Other current assets  $396   Other accrued expenses and liabilities  $395 
Totals     $396      $395 

 

 

 

 F-37 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

The following table presents the unrealized and realized gains (losses) on derivative contracts as reflected in the consolidated statement of operations for the fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021 (in thousands):

 

 

    

Amount of Gain or (Loss)

Recognized in Income on Derivatives

 

Derivatives Not Designated as

Hedging Instruments

  Location of Gain or (Loss) Recognized in Income on Derivatives 

Fiscal Year

Ended

December 30, 2023

  

Fiscal Year

Ended

December 31, 2022

  

Fiscal Year

Ended

December 25, 2021

 
Commodity contracts  Net sales  $15,067   $7,832   $4,421 
Commodity contracts  Cost of sales   (1,694)   605    (105)
Totals  ssdafsdf  $13,373   $8,437   $4,316 

 

NOTE 10.  LEGAL PROCEEDINGS AND CONTINGENCIES

 

The Company is a defendant in (i) five putative class action lawsuits in the United States District Court for the District of Minnesota alleging that the Company violated some combination of the Sherman Antitrust Act, the Packers and Stockyards Act, the Commodity Exchange Act, and various state laws; and (ii) putative class action antitrust lawsuits in the Supreme Court of British Columbia and the Superior Court of Quebec for the District of Montreal, alleging that it violated the Canadian Competition Act and various provincial laws (the “Beef Antitrust Cases”).  The Beef 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; Erbert & Gerbert’s, Inc. v. JBS USA Food Company Holdings, et al., which was filed originally on June 18, 2020; Specht v. Tyson Foods, Inc., et al., which was filed originally on October 31, 2022; Giang Bui v. Cargill, Incorporated, et al., which was filed originally on February 18, 2022; and Sylvie De Bellefeuille v. Cargill, Inc. et al., which was filed originally on March 24, 2022.  Since the original class action complaints were filed, certain purchasers of beef products have opted to file individual complaints and to proceed with direct actions making similar claims, and others may do so in the future. The plaintiffs in the Beef Antitrust Cases generally seek treble damages and other relief under the Sherman Antitrust Act and various state antitrust or consumer protection laws or general damages, aggravated, exemplary, and punitive damages, injunctive relief, costs, and interest and other damages under the Canadian Competition Act and various provincial laws. Some of the Beef Antitrust Cases also allege that the Company violated the Packers & Stockyards Act and the Commodities Exchange Act.  In addition to the Beef Antitrust Cases, the Company is subject to investigations by the United States Department of Justice (the “DOJ”) and approximately 30 state attorneys general regarding fed cattle and beef packing markets.  The Company has responded to the federal and state requests for information and cooperated with the investigations. The Company believes it has meritorious defenses to the claims in the Beef Antitrust Cases and any potential claims that might arise out of these government investigations and intends to defend these matters vigorously. There can be no assurances, however, as to the outcome of the cases or the impact on NBP’s consolidated financial position, results of operation or cash flows.

 

The Company is a defendant in a putative class action lawsuit entitled Brown, et al. v. JBS USA Food Company et al. and filed in the United States District Court for the District of Colorado on November 1, 2022. The defendants filed motions to dismiss, which the court denied except as to the Company’s subsidiary, Iowa Premium. The plaintiffs filed an amended complaint on January 12, 2024. The amended complaint alleges that the defendants directly and through industry wage surveys and a benchmarking service (i) fixed wages and benefits, and (ii) exchanged information regarding compensation and benefits in an effort to depress and stabilize wages and benefits in violation of federal antitrust laws (the “Wage Rate Case”). The plaintiffs seek, among other things, treble monetary damages, pre- and post-judgment interest, declaratory and injunctive relief and the costs of the suit (including attorney fees). The Company believes it has meritorious defenses to the claims in the Wage Rate Case and intends to defend these matters vigorously. There can be no assurances, however, as to the outcome of the case or the impact on NBP’s consolidated financial position, results of operation or cash flows.

 

 

 

 F-38 

 

 

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 11.  SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through February 23, 2024, the date the consolidated financial statements were available for issuance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-39