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 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

þ

 

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

 

 

For the quarterly period ended September 29, 2012

or

 

 

 

 

o

 

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)

 

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

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 þ No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o  

Accelerated Filer o  Non-Accelerated Filer þ Small Reporting Company o

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

The registrant’s units are not traded on an exchange or in any public market.  As of October 27, 2012, there were 735,385 Class A units and 755,385 Class B units outstanding.    


 

 

 


 


 

 

 

 

 

 

TABLE OF CONTENTS

 

 

PART I.

FINANCIAL INFORMATION

Page No.

 

 

 

Item 1.

Financial Statements (unaudited).

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations.

11

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

17

 

 

 

Item 4.

Controls and Procedures.

17

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings.

18

 

 

 

   Item 1A.

Risk Factors.

18

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

18

 

 

 

Item 3.

Defaults Upon Senior Securities.

18

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders.

18

 

 

 

Item 5.

Other Information.

18

 

 

 

Item 6.

Exhibits.   

18

 

 

 

 

Signatures.

20

 

 

Unless the context indicates or otherwise requires, the terms “the Company”, “we”, “our” and “us” refer to U.S. Premium Beef, LLC and its consolidated subsidiaries. As used in this report, the terms “NBP” and “National Beef” refer to National Beef Packing Company, LLC (formerly known as Farmland National Beef Packing Company, LP), a Delaware limited liability company, and “USPB” refers to U.S. Premium Beef, LLC prior to consolidation.

                                                                                               

ii


 


 


 

 

 

 

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements (unaudited).

 

 

 

 

 

 

 

 

 

 

 

 

1


                                                                                               


 


 

 

 

 

U.S. PREMIUM BEEF, LLC

Consolidated Balance Sheets

(thousands of dollars, except unit data)

 

September 29,

 

December 31,

Assets

2012

 

2011

 

 

 

(unaudited)

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

64,543 

 

$

642,670 

 

Due from affiliates

 

51 

 

2,333 

 

Other receivables

 

388 

 

 

 

Total current assets

 

64,982 

 

645,003 

Property, plant, and equipment, at cost

 

244 

 

241 

 

Less accumulated depreciation

 

236 

 

231 

 

 

Net property, plant, and equipment

 

 

10 

Investment in National Beef Packing Company, LLC

 

167,403 

 

165,696 

Restricted cash

 

36,943 

 

36,943 

Other assets

 

366 

 

418 

 

 

Total assets

 

$

269,702 

 

$

848,070 

 

 

 

 

 

 

 

Liabilities and Capital Shares and Equities

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable - trade

 

$

17 

 

$

44 

 

Due to affiliates

 

36 

 

34 

 

Accrued compensation and benefits

 

2,646 

 

2,559 

 

Other accrued expenses and liabilities

 

136 

 

9,831 

 

Patronage notices payable in cash

 

136 

 

42,160 

 

Distributions payable

 

172 

 

508,936 

 

 

Total current liabilities

 

3,143 

 

563,564 

Long-term liabilities:

 

 

 

 

 

Accrued compensation and benefits

 

2,216 

 

2,184 

 

 

Total liabilities

 

5,359 

 

565,748 

Capital shares and equities:

 

 

 

 

 

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

 

 

 

 

 

 

authorized, issued and outstanding

 

264,343 

 

282,322 

 

 

Total liabilities and capital shares and equities

 

$

269,702 

 

$

848,070 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

2


                                                                                               


 


 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Statements of Operations

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

 

13 weeks ended

 

13 weeks ended

 

39 weeks ended

 

39 weeks ended

 

September 29, 2012

September 24, 2011

September 29, 2012

September 24, 2011

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

Net sales

 

 

$

 

$

1,813,987 

 

$

 

$

5,286,399 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

1,729,112 

 

 

4,996,738 

 

Selling, general, and administrative expenses

 

1,252 

 

15,524 

 

4,972 

 

46,809 

 

Depreciation and amortization

 

 

13,674 

 

 

40,808 

 

 

Total costs and expenses

 

1,254 

 

1,758,310 

 

4,977 

 

5,084,355 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

(1,254)

 

55,677 

 

(4,977)

 

202,044 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

10 

 

 

45 

 

18 

 

Interest expense

 

(19)

 

(2,038)

 

(49)

 

(8,782)

 

Equity interest in net income of National Beef Packing Company, LLC

6,285 

 

 

10,613 

 

 

Other, net

 

 

(465)

 

(107)

 

(49)

 

 

 

Income before taxes

 

5,022 

 

53,180 

 

5,525 

 

193,231 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(928)

 

 

(2,310)

 

 

 

Net income

 

5,022 

 

52,252 

 

5,525 

 

190,921 

Less: Net income attributable to noncontrolling interest in:

 

 

 

 

 

 

 

 

 

Kansas City Steak Company, LLC

 

 

(13)

 

 

(154)

 

National Beef Packing Company, LLC

 

 

(16,825)

 

 

(61,219)

Net income attributable to U.S. Premium Beef, LLC

 

$

5,022 

 

$

35,414 

 

$

5,525 

 

$

129,548 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per unit:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

Class A units

 

$

0.68 

 

$

4.35 

 

$

0.74 

 

$

16.73 

 

 

Class B units

 

$

5.98 

 

$

38.10 

 

$

6.58 

 

$

146.56 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

Class A units

 

$

0.67 

 

$

4.27 

 

$

0.74 

 

$

16.44 

 

 

Class B units

 

$

5.98 

 

$

38.10 

 

$

6.58 

 

$

146.56 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding weighted-average Class A and Class B units:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

Class A units

 

735,385 

 

735,385 

 

735,385 

 

735,385 

 

 

Class B units

 

755,385 

 

755,385 

 

755,385 

 

755,385 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

Class A units

 

747,646 

 

748,554 

 

747,995 

 

748,189 

 

 

Class B units

 

755,385 

 

755,385 

 

755,385 

 

755,385 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

3


                                                                                               


 


 

 

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(thousands of dollars)

 

13 weeks ended

 

13 weeks ended

 

39 weeks ended

 

39 weeks ended

 

September 29, 2012

September 24, 2011

September 29, 2012

September 24, 2011

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

Net income

 

$

5,022 

 

$

52,252 

 

$

5,525 

 

$

190,921 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(29)

 

 

(8)

 

 

Comprehensive income

 

$

5,022 

 

$

52,223 

 

$

5,525 

 

$

190,913 

Comprehensive income attibutable to noncontrolling interest in:

 

 

 

 

 

 

 

 

 

Kansas City Steak Company, LLC

 

 

(13)

 

 

(154)

 

National Beef Packing Company, LLC

 

 

(16,825)

 

 

(61,219)

Comprehensive income attributable to USPB

 

$

5,022 

 

$

35,385 

 

$

5,525 

 

$

129,540 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


                                                                                               


 


 

 

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(thousands of dollars)

 

 

 

 

 

39 weeks ended

 

39 weeks ended

 

 

 

 

 

September 29, 2012

 

September 24, 2011

 

 

 

 

 

(unaudited)

 

(unaudited)

Cash flows from operating activities:

 

 

 

 

 

Net income

 

 

$

5,525 

 

$

190,921 

 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

40,808 

 

 

Equity in net income of National Beef Packing Company, LLC

 

(10,613)

 

 

 

Distribution from National Beef Packing Company, LLC

 

8,906 

 

 

 

Loss on disposal of property, plant, and equipment

 

 

(1,314)

 

 

Amortizaton of debt issuance costs

 

 

1,032 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

10,092 

 

 

 

Due from affiliates

 

2,282 

 

(1,370)

 

 

 

Other receivables

 

(388)

 

17 

 

 

 

Inventories

 

 

(54,891)

 

 

 

Other assets

 

51 

 

46,489 

 

 

 

Cattle purchases payable

 

 

31,313 

 

 

 

Accounts payable

 

(27)

 

16,944 

 

 

 

Due to affiliates

 

 

(860)

 

 

 

Accrued compensation and benefits

 

118 

 

49,866 

 

 

 

Accrued insurance

 

 

648 

 

 

 

Other accrued expenses and liabilities

 

(874)

 

(20,504)

 

 

 

 

Net cash provided by operating activities

 

4,987 

 

309,191 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures, including interest capitalized

 

(3)

 

(50,227)

 

Proceeds from sale of property, plant, and equipment

 

 

4,561 

 

 

Net cash used in investing activities

 

(3)

 

(45,666)

Cash flows from financing activities:

 

 

 

 

 

Net receipts under revolving credit lines

 

 

(200,119)

 

Payments of term notes payable

 

 

(28,522)

 

Borrowings of term notes payable

 

 

175,000 

 

Repayments of other indebtedness / capital leases

 

 

(967)

 

Payments of patronage notices

 

(21,868)

 

 

Change in overdraft balances

 

(20,031)

 

(39,710)

 

Distributions to noncontrolling interests in National Beef Packing Company, LLC

 

 

(51,349)

 

Member distributions

 

(541,212)

 

(76,243)

 

 

 

 

Net cash used in financing activities

 

(583,111)

 

(221,910)

 

Effect of exchange rate changes on cash

 

 

(8)

 

 

 

 

Net (decrease) increase in cash

 

(578,127)

 

41,607 

Cash and cash equivalents at beginning of the period

 

642,670 

 

52,030 

Cash and cash equivalents at end of the period

 

$

64,543 

 

$

93,637 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

5


                                                                                               


 


 

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Interim Financial Statements

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), for interim financial information; therefore, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary to a fair statement have been included using management’s best estimates and judgments where appropriate.  These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of 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.  For further information, refer to the audited Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are included in the Company’s Annual Report on Form 10-KT on file with the Securities and Exchange Commission (SEC), for the transition period ended December 31, 2011.  The results of operations for the interim periods presented are not necessarily indicative of the results for a full fiscal year.

As a result of the transaction with Leucadia National Corporation (Leucadia) on December 30, 2011 in which Leucadia purchased 56.2415% of the membership interests in National Beef Packing Company, LLC (NBP) from the Company, the Company’s financial statements are no longer consolidated with NBP.  USPB’s remaining 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. In the thirteen and thirty-nine week periods ended September 24, 2011, the Company’s consolidated financial statements included the accounts of USPB and its majority owned subsidiary, NBP, and its direct and indirect subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

Historically, the Company’s fiscal year consisted of a 52 or 53 week period, which ended on the last Saturday in August.  With the closing of the transaction with Leucadia, the Company’s fiscal year-end changed from the last Saturday in August to the last Saturday in December.  The Company will file annual reports for each 52 week or 53 week period ended on the last Saturday in December, beginning with the 52 week period ended December 29, 2012.

(2) Members’ Capital

The following table represents a reconciliation of Members’ Capital for the thirty-nine week period ended September 29, 2012 (thousands of dollars).

Balance at December 31, 2011

$

282,322 

Allocation of net income for the thirty-nine week period ended September 29, 2012

5,525 

Member distributions

(23,504)

Balance at September 29, 2012

$

264,343 

 (3) Disclosure about Derivative Instruments and Hedging Activities

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

  • Forward purchase contracts for cattle for use in the beef plants
  • Exchange traded futures contracts for cattle
  • Exchange traded futures contracts for grain

 

6


                                                                                               


 


 

 

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

The following table presents the impact of derivative instruments on the Consolidated Statement of Operations for the thirteen and thirty-nine week periods ended September 29, 2012 and September 24, 2011 (thousands of dollars):

 

 

Location of Loss

 

 

 

 

 

 

 

 

 

Derivatives Not Designated 

 

Recognized in Income on

 

 

 

 

 

 

 

 

 

as Hedging Instruments

 

Derivatives

 

 

Amount of Loss Recognized in Income On Derivatives

 

 

 

 

 

13 weeks ended

 

13 weeks ended

 

39 weeks ended

 

39 weeks ended

 

 

 

 

 

September 29, 2012

 

September 24, 2011

 

September 29, 2012

 

September 24, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Net sales

 

 

$

 

$

(1,086)

 

$

 

$

(985)

Commodity contracts

 

Cost of sales

 

 

 

(1,773)

 

 

(4,455)

 

Total

 

 

 

 

$

 

$

(2,859)

 

$

 

$

(5,440)

 (4) Income Attributable to USPB 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, income attributable to USPB per unit (EPU) has been presented in the accompanying Consolidated Statements of Operations and in the table that follows.

Basic EPU excludes dilution and is computed by first allocating a portion of net income (loss) attributable to USPB to Class A units and the remainder is allocated to Class B units.  For the thirteen and thirty-nine week periods ended September 29, 2012 and September 24, 2011, income was allocated 10% to the Class A’s and 90% to the Class B’s.  Income (loss) allocated to the Class A and Class B units is then divided by the weighted-average number of Class A and Class B units outstanding for the period to determine the basic EPU for each respective class of unit. 

Diluted EPU reflects the potential dilution that could occur if potential Class A unit purchase rights were exercised or contractual appreciation rights were converted into units.   Upon termination of the CEO employment agreement and until eighteen months after the termination of the CEO employment agreement, at the election of the CEO, or upon mutual agreement of the Board of the Company and the CEO, the CEO may purchase up to 20,000 Class A units, or upon agreement of the CEO and the Board of the Company, the CEO may convert the contractual unit appreciation rights to up to 20,000 Class A units.  The diluted EPU reflects the circumstances of termination of the CEO employment agreement, and the election of the CEO or agreement by the Board of the Company and the CEO for the CEO to purchase or convert contractual rights to the maximum 20,000 Class A units at $55 per unit for the periods as provided in the CEO employment agreement.

Certain affiliates of NBP’s current Chief Executive Officer, Timothy M. Klein (collectively referred to herein as the “Klein Affiliates”) entered into a unit redemption agreement on April 13, 2009 which provided the right at any time after July 31, 2011, to request that NBP repurchase their interests, the value of which was to be determined by a specified formula.  This formula-based valuation differed from estimates of fair value from period to period.  When the differences between the estimated fair value of the non-controlling interest in NBP held by the Klein Affiliates and the formula-based valuation are appropriately considered this reduces the amount of net earnings allocated to NBP’s owners and thus to the Company’s unitholders for their proportionate share.  The difference between the two values for the thirteen and thirty-nine week periods ended September 24, 2011 is reflected in the table below.  The units subject to the unit redemption agreement were redeemed as part of the Leucadia transaction and do not have an impact on the EPU calculation for the thirteen and thirty-nine week periods ended September 29, 2012.

 

7


                                                                                               


 


 

 

Income Per Unit Calculation

 

 

 

 

 

 

 

 

 

 

13 weeks ended

 

13 weeks ended

 

39 weeks ended

 

39 weeks ended

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

September 29, 2012

 

September 24, 2011

 

September 29, 2012

 

September 24, 2011

Basic income per unit

 

 

 

 

 

 

 

Income attributable to USPB available to

 

 

 

 

 

 

 

 

unitholders (numerator)

 

 

 

 

 

 

 

 

 

Class A

$

502 

 

$

3,197 

 

$

552 

 

$

12,301 

 

 

Class B

$

4,520 

 

$

28,776 

 

$

4,972 

 

$

110,709 

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding units (denominator)

 

 

 

 

 

 

 

 

Class A

735,385 

 

735,385 

 

735,385 

 

735,385 

 

Class B

755,385 

 

755,385 

 

755,385 

 

755,385 

 

 

 

 

 

 

 

 

 

 

Per unit amount

 

 

 

 

 

 

 

 

Class A

$

0.68 

 

$

4.35 

 

$

0.75 

 

$

16.73 

 

Class B

$

5.98 

 

$

38.10 

 

$

6.58 

 

$

146.56 

 

 

 

 

 

 

 

 

 

 

Diluted income per unit:

 

 

 

 

 

 

 

Income attributable to USPB available to

 

 

 

 

 

 

 

 

unitholders (numerator)

 

 

 

 

 

 

 

 

 

Class A

$

502 

 

$

3,197 

 

$

552 

 

$

12,301 

 

 

Class B

$

4,520 

 

$

28,776 

 

$

4,972 

 

$

110,709 

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding Class A units

735,385 

 

735,385 

 

735,385 

 

735,385 

Effect of dilutive securities - Class A unit options

12,261 

 

13,169 

 

12,610 

 

12,804 

 

Units (denominator)

747,646 

 

748,554 

 

747,995 

 

748,189 

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding Class B units

755,385 

 

755,385 

 

755,385 

 

755,385 

Effect of dilutive securities - Class B unit options

 

 

 

 

Units (denominator)

755,385 

 

755,385 

 

755,385 

 

755,385 

 

 

 

 

 

 

 

 

 

 

Per unit amount

 

 

 

 

 

 

 

 

Class A

$

0.67 

 

$

4.27 

 

$

0.74 

 

$

16.44 

 

Class B

$

5.98 

 

$

38.10 

 

$

6.58 

 

$

146.56 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


                                                                                               


 


 

(5) Investment in National Beef Packing Company, LLC

As of December 31, 2011, USPB’s investment in NBP is accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control.  Below is a summary of the results of operations for NBP for the thirteen and thirty-nine week periods ended September 29, 2012 and September 24, 2011 (thousands of dollars):

 

 

 

 

 

13 weeks ended

 

13 weeks ended

 

39 weeks ended

 

39 weeks ended

 

 

 

 

 

September 29, 2012

 

September 24, 2011

 

September 29, 2012

 

September 24, 2011

Net sales

 

$

1,909,204 

 

$

1,813,987 

 

$

5,613,374 

 

$

5,286,399 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

1,830,129 

 

1,729,112 

 

5,430,675 

 

4,996,738 

 

 

Selling, general, and administrative expenses

13,481 

 

13,330 

 

41,873 

 

39,314 

 

 

Depreciation and amortization

20,803 

 

12,825 

 

61,868 

 

38,261 

 

 

 

Total costs and expenses

1,864,413 

 

1,755,267 

 

5,534,416 

 

5,074,313 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

44,791 

 

58,720 

 

78,958 

 

212,086 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

30 

 

 

40 

 

 

 

Interest expense

(2,988)

 

(2,030)

 

(9,288)

 

(8,755)

 

 

Other, net

126 

 

(459)

 

1,589 

 

(23)

 

 

 

 

Income before taxes

41,959 

 

56,233 

 

71,299 

 

203,316 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

(409)

 

(928)

 

(1,145)

 

(2,253)

 

 

 

 

Net income

41,550 

 

55,305 

 

70,154 

 

201,063 

Less: net income (loss) attributable to Kansas City Steak Company, LLC

146 

 

(14)

 

254 

 

(154)

 

Net income attributable to NBP

$

41,696 

 

$

55,291 

 

$

70,408 

 

$

200,909 

 

 

 

 

 

 

 

 

 

 

 

 

 

NBP's net income attributable to USPB

$

6,285 

 

$

38,466 

 

$

10,613 

 

$

139,690 

(6) Immaterial Prior Period Error

The Company identified an immaterial error in the manner in which expense has been recognized under its management phantom unit plan.  These phantom units vest over a 5 year period.  Since February 2011, the Company has recorded the fair value of the award as a liability rather than only the percentage of the fair value that had vested.  This matter impacted the selling, general and administrative expenses, the management phantom plan accrual, and members’ capital for the periods discussed below, but did not impact cash flows for any period presented.  Of the $1.0 million adjustment to member's capital for the four months ended December 31, 2011, approximately $0.35 million relates to the four months ended December 31, 2011, the balance relates to expense in the prior fiscal year.  The Company assessed the materiality of this item in all periods in accordance with the SEC’s guidance in Staff Accounting Bulletin 99 and concluded that the adjustment was not material to any period. These immaterial corrections impacted the prior period consolidated financial statements included below and will be revised the next time they are filed.

 

 

 

 

 

 

 

 

 

9


 


 


 

 

 

4 months ended December 31, 2011

 

 

 

 

 

 

 

Original

 

Adjustment

 

As Adjusted

 

 

 

 

 

 

Net Income

 

 

 

781,993 

 

343 

 

782,336 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Class A Units

 

 

 

106.27 

 

0.11 

 

106.38 

 

 

 

 

 

 

    Class B Units

 

 

 

931.1 

 

1.01 

 

932.11 

 

 

 

 

 

 

  Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Class A Units

 

 

 

104.47 

 

0.12 

 

104.59 

 

 

 

 

 

 

    Class B Units

 

 

 

931.1 

 

1.01 

 

932.11 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

 

 

5,736 

 

(993)

 

4,743 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Member's capital

 

 

 

281,329 

 

993 

 

282,322 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13 weeks ended March 31, 2012

 

13 weeks ended June 30, 2012

 

Original

 

Adjustment

 

As Adjusted

 

Original

 

Adjustment

 

As Adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

(4,783)

 

(68)

 

(4,851)

 

5,372 

 

(18)

 

5,354 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Class A Units

 

 

 

(0.65)

 

(0.01)

 

(0.66)

 

0.73 

 

(0.00)

 

0.73 

    Class B Units

 

 

 

(5.70)

 

(0.08)

 

(5.78)

 

6.40 

 

(0.02)

 

6.38 

  Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Class A Units

 

 

 

(0.65)

 

(0.01)

 

(0.66)

 

0.72 

 

(0.00)

 

0.72 

    Class B Units

 

 

 

(5.70)

 

(0.08)

 

(5.78)

 

6.40 

 

(0.02)

 

6.38 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued compensation and benefits

 

 

 

3,381 

 

(925)

 

2,456 

 

3,376 

 

(907)

 

2,469 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Member's capital

 

 

 

255,414 

 

925 

 

256,339 

 

258,414 

 

907 

 

259,321 

 

 

 

 

 

 

10


 


 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this report.

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 issues, livestock disease, including the identification of cattle with Bovine Spongiform Encephalopathy (BSE), product contamination and recall concerns, competitive practices and consolidation in the cattle production and processing industries and among our customers, actions of domestic or foreign governments, hedging risk, changes in interest rates and foreign currency exchange rates, trade barriers and exchange controls, 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 Part II. 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.

Recent Events 

On December 5, 2011, USPB and the other members of NBP entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Purchase Agreement), pursuant to which Leucadia agreed to purchase from USPB and NBPCo Holdings a substantial portion of the issued and outstanding membership interests in NBP. 

The transactions contemplated by the Purchase Agreement were completed on December 30, 2011.  Pursuant to the Purchase Agreement, Leucadia purchased 56.2415% of the membership interests in NBP (National Interests) from the Company for approximately $646.8 million and 19.8775% of the National Interests from NBPCo Holdings for approximately $228.6 million.  As contemplated by the Purchase Agreement and pursuant to pre-existing put rights, NBP purchased from TKK Investments, LLC (TKK) and TMKCo, LLC (TMKCo) all National Interests owned by TKK and TMKCo for approximately $75.9 million.  Simultaneously, Leucadia sold to TMK Holdings, LLC 0.6522% of the National Interests for $7.5 million.  Following consummation of the various transactions contemplated by the Purchase Agreement, the parties now own the following percentage membership interests in NBP: Leucadia 78.9477%; the Company 15.0729%; NBPCo Holdings 5.3272%; and TMK Holdings, LLC 0.6522%.

When the transaction closed, the Company received consideration of approximately $646.8 million; of that amount approximately $609.8 million was immediately paid to USPB in cash.  The remaining amount of approximately $37.0 million was deposited in an escrow account to satisfy potential indemnification claims from Leucadia under the Purchase Agreement.  If no indemnification claims arise during a period of two years after the closing of the Purchase Agreement, those remaining funds (or any portion remaining after payment of any indemnification claims) will be distributed to USPB.  USPB distributed a portion of the cash consideration received at closing to each unitholder in the amount (before applicable tax withholding, if any) of approximately $70 for each USPB Class A unit and $617 for each USPB Class B unit held by such unitholder.  The total distribution to Class A and Class B unitholders was approximately $517.7 million.  The Company also paid all outstanding patronage notices, which totaled approximately $42.1 million.  In addition, the Company’s fiscal year has been changed to the last Saturday in December. 

11


                                                                                               


 


 

 

 

 

As part of the transactions with Leucadia, the Company entered into a Cattle Purchase and Sale Agreement with NBP, pursuant to which the Company will facilitate the delivery of cattle from the Company’s unitholders and associates to NBP.  NBP, in the aggregate, will purchase on an annual basis, a base amount of 735,385 head of cattle annually, subject to an adjustment of plus or minus 10%.  The Cattle Purchase and Sale Agreement will remain in effect for an initial term of five years. 

In connection with completion of the transactions governed by the Purchase Agreement, the Company entered into a Pledge Agreement with NBP (Pledge Agreement).  The Pledge Agreement was entered into in order to secure the payment and performance of the Company’s obligations under the Cattle Purchase and Sale Agreement.  Under the terms of the Pledge Agreement, the Company has granted NBP a perfected security interest in and to the Company’s Membership Interests in NBP (Collateral), subject only to the prior first priority security interest in the Collateral held by CoBank, ACB (CoBank), up to a maximum principal amount of $15.0 million plus fees and expenses, pursuant to the Pledge Agreement dated July 26, 2011 by and between the Company and CoBank.

Beef Export Markets

On April 24, 2012, the U.S. Department of Agriculture's (USDA) Animal and Plant Health Inspection Service (APHIS) confirmed the nation's fourth case of BSE in a dairy cow from central California.  Confirmatory results using immunohistochemistry and western blot tests confirmed the animal was positive for atypical BSE, a very rare form of the disease not generally associated with an animal consuming infected feed.  The animal was never presented for slaughter for human consumption, so at no time presented a risk to the food supply or human health.

Export markets for U.S. beef products remain constrained since the discovery of a single case of BSE in the State of Washington in December 2003, as well as other isolated cases.  In July 2006, Japan agreed to reopen its market to U.S. beef from cattle aged 20 months and younger.  South Korea announced a provisional opening of its border to U.S. beef from animals 30 months and younger in September 2006 but subsequently closed its border again in October 2007.  South Korea reopened its border and started inspecting U.S. beef near the end of June 2008.  These constraints and uncertainties have historically had a negative impact on beef demand during the periods in which they occurred.

We cannot presently assess the full economic impact of the consequences of BSE on the U.S. beef packing industry or on NBP’s operations.  Existing or new import restrictions or additional regulatory restrictions or disruptions in domestic and foreign consumer demand for beef may have a material adverse effect on NBP’s revenues and net income.

Investment in National Beef Packing Company, LLC

As of December 31, 2011, USPB’s investment in NBP is accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. 

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

12


                                                                                               


 


 

 

 

 

The USDA regularly reports market values for cattle, beef, offal and other products produced by ranchers, farmers, and beef processors.  Generally, NBP expects its profitability to improve as the ratio of the USDA comprehensive boxed beef cutout (a weekly reported measure of the total value of all USDA inspected beef primal cuts, grind and trim produced from fed cattle) to the USDA 5-area weekly average slaughter cattle price increases and for profitability to decline as the ratio decreases.  The ratio during the nine month period ended September 29, 2012 was the lowest ratio for the corresponding periods during the past ten years.  Due in part to the declining U.S. cattle herd, during this period average cattle prices increased to record levels; however, NBP’s per head revenue did not increase as much as its per head cost for cattle, resulting in reduced margins. 

During the three and nine month period ended September 29, 2012, revenues from beef processing operations increased compared to the pre-acquisition periods, principally due to price increases. However, gross margins declined due to the lower trending cutout ratio described above. Depreciation and amortization expenses include $11.3 million and $33.9 million for the three and nine months ended September 30, 2012, respectively, of amortization expenses related to identifiable intangible assets recorded on the date of Leucadia’s acquisition.

As part of NBP’s operations, it is exposed to market risks from changes in certain commodity prices.  To manage these risks, NBP may enter into forward purchase contracts for cattle and exchange traded futures and options contracts for cattle or grain.  While these instruments are intended to mitigate market risks, they are not designated and accounted for as hedges; accordingly, the gains and losses associated with changes in fair value of derivative financial instruments are recorded in net sales or cost of goods sold in the period of change.  Income (losses) related to these activities reflected in NBP’s revenues and cost of sales were ($2.5 million) and $0.1 million, respectively, for the three months ended September 30, 2012 and ($0.3 million) and ($0.6 million), respectively, for the nine months ended September 30, 2012.

The drought across much of the country has caused prices for corn, hay and certain other cattle feedstuffs to increase and pastures to wither; as such, some cattle producers are reducing the size of their cow herds.  Since NBP’s profitability is primarily dependent upon the spread between what it pays for fed cattle and the price it receives for its products, along with the efficiency of its processing facilities, it has not yet been significantly impacted by the current drought conditions.  However, if the drought causes the beef cow herd to further decline, it could result in the price NBP pays for fed cattle to increase more than it could pass along in the form of higher selling prices for its products, thus causing its profitability to be negatively impacted.

NBP has received notice from Wal-Mart that it intends to discontinue using NBP as a provider of its case-ready products in 2013.  NBP has two case-ready processing facilities, one of which is completely dedicated to Wal-Mart’s business and the other substantially so, with an aggregate book value of $46.6 million at September 30, 2012.  Total case-ready revenues were approximately 7% of NBP consolidated revenues for the nine months ended September 30, 2012, but as a value-added product, case-ready products have historically constituted a higher percentage of NBP’s gross margin.  Since 2008, case-ready products have represented from 10% to 21% of NBP’s total gross margin, and are at the higher end of that range in 2012 due, in part, to reduced gross margin from other NBP products.

NBP is currently pursuing replacement business for its case-ready facilities once Wal-Mart leaves; however, it may not be able to fully replace the operating cash flow generated by these facilities in the near future, if at all.  NBP’s tangible and intangible assets were evaluated for impairment as of September 30, 2012 and it was concluded that they are not impaired; the evaluation included an estimate of expected future cash flows to be generated by the case-ready facilities from prospective customers who have not, as yet, committed to purchase case-ready products from NBP.  If NBP is unsuccessful in securing any new case-ready business, it may not be necessary to record any impairment to its intangible assets or goodwill.  However, if NBP is unable to generate sufficient new case-ready business, and concludes its best course of action is to close one or both case-ready facilities, impairment charges may be recorded if the fair value of those facilities on a held for sale basis is less than the book value.

USPB Results of Operations

As a result of the Purchase Agreement, which is discussed further in Recent Events above, USPB’s financial statements were not consolidated with NBP’s for the thirteen and thirty-nine week periods ended September 29, 2012.  Unless otherwise indicated, all changes in financial statement line items between the thirteen and thirty-nine week periods ended September 29, 2012 and September 24, 2011 are due to this change in reporting.

 

13


                                                                                               


 


 

 

Thirteen weeks ended September 29, 2012 compared to thirteen weeks ended September 24, 2011

Net Sales.  Net sales were $0.0 million for the thirteen weeks ended September 29, 2012 compared to approximately $1,814.0 million for the thirteen weeks ended September 24, 2011.   

Cost of Sales.  Cost of sales were $0.0 million for the thirteen weeks ended September 29, 2012 compared to approximately $1,729.1 million for the thirteen weeks ended September 24, 2011.   

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were approximately $1.3 million for the thirteen weeks ended September 29, 2012 compared to approximately $15.5 million for the thirteen weeks ended September 24, 2011, a decrease of approximately $14.2 million.  The $15.5 million in the prior year included $2.2 million in selling, general and administrative expenses attributable to USPB.  From that perspective, USPB’s selling, general and administrative expenses were $0.9 million less than the same period a year ago.  That decrease is primarily due to lower legal expenses and compensation expense on the phantom unit plans.

Depreciation and Amortization Expense.  Depreciation and amortization expenses were approximately $0.0 million for the thirteen weeks ended September 29, 2012 compared to approximately $13.7 million for the thirteen weeks ended September 24, 2011.            

Operating (Loss) Income.  Operating loss was approximately $1.3 million for the thirteen weeks ended September 29, 2012 compared to operating income of approximately $55.7 million for the thirteen weeks ended September 24, 2011, a decrease of approximately $57.0 million.   

Interest Expense.  Interest expense was $0.0 million for the thirteen weeks ended September 29, 2012 compared to $2.0 million for the thirteen weeks ended September 24, 2011.  

Equity Interest in Net Income of National Beef Packing Company, LLC.  Equity in NBP was income of $6.3 million for the thirteen weeks ended September 29, 2012 compared to $0.0 million for the thirteen weeks ended September 24, 2011.  As of December 31, 2011, USPB is carrying its 15.0729% investment in NBP under the equity method of accounting.

Income Tax Expense.  Income tax expense was $0.0 million and $0.9 million for the thirteen weeks ended September 29, 2012 and September 24, 2011, respectively.   Income tax expense in the prior year period was recorded on taxable income from National Carriers, which is organized as a C Corporation and the apportioned taxable income of NBP by certain states which impose privilege taxes. 

Net Income.  Net income for the thirteen-week period ended September 29, 2012 was approximately $5.0 million compared to net income of approximately $52.3 million for the thirteen-week period ended September 24, 2011, a decrease of approximately $47.3 million. The decrease in net income is primarily due to the Company’s sale of a majority of its ownership interest in NBP to Leucadia and due to lower gross margins at NBP.

Net Income Attributable to Noncontrolling Interest in NBP.  Noncontrolling interest in the net income of NBP for the thirteen weeks ended September 29, 2012 was $0.0 million compared to $16.8 million in the same period a year ago. The noncontrolling interest in NBP represented the minority owners’ interest in NBP’s earnings while USPB was consolidating NBP.

Net Income Attributable to USPB.  Net income attributable to USPB for the thirteen-week period ended September 29, 2012 was approximately $5.0 million compared to net income of approximately $35.4 million for the thirteen-week period ended September 24, 2011, a decrease of approximately $30.4 million.

Thirty-nine weeks ended September 29, 2012 compared to thirty-nine weeks ended September 24, 2011

Net Sales.  Net sales were $0.0 million for the thirty-nine weeks ended September 29, 2012 compared to approximately $5,286.4 million for the thirty-nine weeks ended September 24, 2011.   

Cost of Sales.  Cost of sales were $0.0 million for the thirty-nine weeks ended September 29, 2012 compared to approximately $4,996.7 million for the thirty-nine weeks ended September 24, 2011.   

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Selling, General and Administrative Expenses.  Selling, general and administrative expenses were approximately $5.0 million for the thirty-nine weeks ended September 29, 2012 compared to approximately $46.8 million for the thirty-nine weeks ended September 24, 2011, a decrease of approximately $41.8 million.  The $46.8 million in the prior year included $7.5 million in selling, general and administrative expenses attributable to USPB.  From that perspective, USPB’s selling, general and administrative expenses were $2.5 million less than the same period a year ago.  That decrease is primarily due to lower compensation expense on the phantom unit plans and lower legal expenses.  

Depreciation and Amortization Expense.  Depreciation and amortization expenses were approximately $0.0 million for the thirty-nine weeks ended September 29, 2012 compared to approximately $40.8 million for the thirty-nine weeks ended September 24, 2011.               

Operating (Loss) Income.  Operating loss was approximately $5.0 million for the thirty-nine weeks ended September 29, 2012 compared to operating income of approximately $202.0 million for the thirty-nine weeks ended September 24, 2011, a decrease of approximately $207.0 million.   

Interest Expense.  Interest expense was $0.0 million for the thirty-nine weeks ended September 29, 2012 compared to $8.8 million for the thirty-nine weeks ended September 24, 2011.  

Equity Interest in Net Income of National Beef Packing Company, LLC.  Equity in NBP was income of $10.6 million for the thirty-nine weeks ended September 29, 2012 compared to $0.0 million for the thirty-nine weeks ended September 24, 2011.  As of December 31, 2011, USPB is carrying its 15.0729% investment in NBP under the equity method of accounting.

Income Tax Expense.  Income tax expense was $0.0 million and $2.3 million for the thirty-nine weeks ended September 29, 2012 and September 24, 2011, respectively.   Income tax expense in the prior year period was recorded on taxable income from National Carriers, which is organized as a C Corporation and the apportioned taxable income of NBP by certain states which impose privilege taxes. 

Net Income.  Net income for the thirty-nine week period ended September 29, 2012 was approximately $5.5 million compared to net income of approximately $190.9 million for the thirty-nine week period ended September 24, 2011, a decrease of approximately $185.4 million. The decrease in net income is primarily due to the Company’s sale of a majority of its ownership interest in NBP to Leucadia and as a result of lower gross margins and higher depreciation and amortization at NBP. 

Net Income Attributable to Noncontrolling Interest in NBP.  Noncontrolling interest in the net income of NBP for the thirty-nine weeks ended September 29, 2012 was $0.0 million compared to $61.2 million in the same period a year ago. The noncontrolling interest in NBP represented the minority owners’ interest in NBP’s earnings while USPB was consolidating NBP.

Net Income Attributable to USPB.  Net income attributable to USPB for the thirty-nine week period ended September 29, 2012 was approximately $5.5 million compared to net income of approximately $129.5 million for the thirty-nine week period ended September 24, 2011, a decrease of approximately $124.0 million.

Liquidity and Capital Resources

As of September 29, 2012, USPB had net working capital of approximately $61.9 million, which included cash and cash equivalents of $64.5 million and $0.2 million in distributions payable and $0.1 million in patronage notices payable.  As of December 31, 2011, we had net working capital of approximately $81.4 million, which included cash and cash equivalents of $642.7 million, with $508.9 million in distributions payable and $42.2 million in patronage notices payable.

As of September 29, 2012, we had a $15.0 million revolving term loan with CoBank, all of which was available.  USPB was in compliance with all of the financial covenants under the Credit Facilities as of September 29, 2012.

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We believe that available borrowings under our Credit Facility and cash provided by operating activities will be sufficient to support working capital and capital expenditures.  For a review of our obligations that affect liquidity, please see the “Cash Payment Obligations” table in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-KT for the transition period ended December 31, 2011.

Operating Activities

Net cash provided by operating activities in the thirty-nine weeks ended September 29, 2012 was approximately $5.0 million compared to net cash provided by operating activities of approximately $309.2 million in the thirty-nine weeks ended September 24, 2011.  In the thirty-nine weeks ended September 29, 2012, USPB received $8.9 million in tax distributions related to tax year 2012. 

Investing Activities

Net cash used in investing activities was approximately $0.0 million in the thirty-nine weeks ended September 29, 2012 compared to approximately $45.7 million in the thirty-nine weeks ended September 24, 2011.  

Financing Activities

Net cash used in financing activities was approximately $583.1 million in the thirty-nine weeks ended September 29, 2012 compared to approximately $221.9 million in the thirty-nine weeks ended September 24, 2011.  The change was primarily related to distributions to USPB’s unitholders, and the redemption of the patronage notices which occurred as a result of the transaction with Leucadia.  Overdraft balances in the current period primarily relate to patronage redemption checks that were issued in December 2011 and cleared in the current thirty-nine week period.

Master Loan Agreement

On July 28, 2011, USPB and CoBank entered into a Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, and Pledge Agreement.  These agreements replace the Amended and Restated Credit Agreement and Security Agreement dated June 22, 2009.

The Master Loan Agreement and the Revolving Term Loan Supplement provide for a $15 million revolving credit commitment.  That commitment carries a term of three years, maturing on June 30, 2014.  The Pledge Agreement provides CoBank with a first-priority security interest in USPB’s membership interests in, and distributions from, NBP.

All of the $15 million revolving credit commitment was available as of September 29, 2012.  Borrowings under the revolving credit commitment bear interest at the base rate or LIBOR rate plus applicable margin.

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

Comparative Data

As a result of the transaction with Leucadia on December 30, 2011 in which Leucadia purchased 56.2415% of the membership interests in NBP from the Company, the Company’s financial statements are no longer consolidated with NBP.  As a result of the sale, 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.  The following table provides a comparison of the Company’s statement of operations for the thirteen and thirty-nine week periods ended September 29, 2012 and September 24, 2011, both of which reflect our investment in NBP under the equity method of accounting. 

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13 weeks ended

 

13 weeks ended

 

39 weeks ended

 

39 weeks ended

(Non-GAAP; thousands of dollars)

September 29, 2012

 

September 24, 2011

 

September 29, 2012

 

September 24, 2011

 

 

 

 

 

 

 

 

 

Statement of Operations Data:

 

 

 

 

 

 

 

Net sales

$

 

$

 

$

 

$

Operating loss

$

(1,254)

 

$

(3,043)

 

$

(4,977)

 

$

(10,041)

Equity interest in net income of 
   National Beef Packing Company, LLC

$

6,285 

 

$

38,466 

 

$

10,613 

 

$

139,690 

Net income

$

5,022 

 

$

35,414 

 

$

5,525 

 

$

129,548 

 

 

 

 

 

 

 

 

 

Statement of Cash Flow Data:

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

 

 

$

4,987 

 

$

93,568 

Net cash used in investing activities

 

 

 

 

(3)

 

Net cash used in financing activities

 

 

 

 

(583,111)

 

(90,211)

 

Net (decrease)/increase in cash

 

 

 

 

$

(578,127)

 

$

3,357 

 

The decrease in net income in the thirteen and thirty-nine week periods ended September 29, 2012 as compared to the thirteen and thirty-nine week periods ended September 24, 2011 are due to the Company’s sale of a majority of its ownership interest in NBP to Leucadia and as a result of lower gross margins at NBP. 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As part of NBP’s operations, it is exposed to market risks from changes in certain commodity prices.  To manage these risks, NBP may enter into forward purchase contracts for cattle and exchange traded futures and options contracts for cattle or grain.  While these instruments are intended to mitigate market risks, they are not designated and accounted for as hedges; accordingly, the gains and losses associated with changes in fair value of derivative financial instruments are recorded in net sales or cost of goods sold in the period of change.

The principal market risks affecting USPB’s business are exposure to interest rate risk, to the extent the company has debt outstanding.  As of September 29, 2012, the company did not have any outstanding debt.

Item 4.  Controls and Procedures.

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the Consolidated Financial Statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, 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 controls over financial reporting during the thirteen weeks ended September 29, 2012 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.

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

The risk factors set forth in our Annual Report on Form 10-KT for the transition period ended December 31, 2011 have not materially changed.  Please refer to the Company’s report on Form 10-KT for the transition period ended December 31, 2011 to consider those risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

None.        

Item 6. Exhibits.

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(A)

 

Exhibits

 

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 Principal Financial and Accounting 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

 

 

 

101.INS

 

101.SCH

 

101.CAL

 

101.DEF

 

101.LAB

 

101.PRE

 

 

 

Certification of the Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

XBRL Instance Document *

 

XBRL Taxonomy Extension Schema Document *

 

XBRL Taxonomy Extension Calculation Linkbase *

 

XBRL Taxonomy Extension Definition Linkbase Document *

 

XBRL Taxonomy Extension Label Linkbase Document *

 

XBRL Taxonomy Extension Presentation Linkbase Document *

 

 

 

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

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

                                                                                                             

 

  U.S. Premium Beef, LLC
     

 

 

 

By:

 

/s/ Steven D. Hunt

 

 

 

 

 

Steven D. Hunt
Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

By:

 

/s/ Scott J. Miller

 

 

 

 

 

Scott J. Miller
 Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

Date: November 15, 2012

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