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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

 

For the quarterly period ended September 28, 2013

or

 

 

Commission file number 333-115164

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

 

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 the definitions 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 (Do not check if a smaller reporting company)  Smaller 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 26, 2013, there were 735,385 Class A units and 755,385 Class B units outstanding.    

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	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.	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	12
Item 4.	Controls and Procedures.	12
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings.	13
Item 1A.	Risk Factors.	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	13
Item 3.	Defaults Upon Senior Securities.	13
Item 4.	Submission of Matters to a Vote of Security Holders.	13
Item 5.	Other Information.	13
Item 6.	Exhibits.	13
	Signatures.	15

 

 

Unless the context indicates or otherwise requires, the terms “USPB”, “the Company”, “we”, “our”, and “us” refer to U.S. Premium Beef, LLC. As used in this report, the terms “NBP” and “National Beef” refer to National Beef Packing Company, LLC, a Delaware limited liability company.

                                                                                               

 

 

 

 

 

 

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements (unaudited).

 

 

 

 

 

 

 

 

                                                                                               

 

 

 

 

 

 

U.S. PREMIUM BEEF, LLC
Balance Sheets
(thousands of dollars, except unit data)
				September 28,				December 29,
Assets				2013				2012
				(unaudited)				(unaudited)
Current assets:
	Cash and cash equivalents				$	60,680		$	62,683
	Due from affiliates				1,438			657
	Other receivables				3			78
	Restricted cash				36,943			-
		Total current assets			99,064			63,418
Property, plant, and equipment, at cost					250			250
	Less accumulated depreciation				243			238
		Net property, plant, and equipment			7			12
Investment in National Beef Packing Company, LLC					170,622			165,401
Restricted cash					-			36,943
Other assets					339			1,664
		Total assets			$	270,032		$	267,438
Liabilities and Capital Shares and Equities
Current liabilities:
	Accounts payable - trade				$	31		$	42
	Due to affiliates				11			446
	Accrued compensation and benefits				2,633			4,654
	Other accrued expenses and liabilities				60			197
	Patronage notices payable in cash				90			115
	Distributions payable				223			172
		Total current liabilities			3,048			5,626
Long-term liabilities:
	Accrued compensation and benefits				6,173			7,266
		Total liabilities			9,221			12,892
Capital shares and equities:
	Members' capital, 735,385 Class A units and 755,385 Class B units
		authorized, issued and outstanding			260,811			254,546
		Total liabilities and capital shares and equities			$	270,032		$	267,438
See accompanying notes to financial statements.

 

                                                                                               

 

 

 

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
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 28, 2013				September 29, 2012			September 28, 2013			September 29, 2012
					(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales					$	-		$	-		$	-		$	-
Costs and expenses:
	Cost of sales				-			-			-			-
	Selling, general, and administrative expenses				719			1,117			3,077			4,570
	Depreciation and amortization				1			2			5			5
		Total costs and expenses			720			1,119			3,082			4,575
			Operating loss		(720)			(1,119)			(3,082)			(4,575)
Other income (expense):
	Interest income				10			10			30			45
	Interest expense				(19)			(19)			(57)			(49)
	Equity interest in net income of National Beef Packing Company, LLC				7,255			6,285			8,230			10,613
	Other, net				6			-			282			(107)
			Income before taxes		6,532			5,157			5,403			5,927
Income tax expense					-			-			-			-
			Net income		$	6,532		$	5,157		$	5,403		$	5,927
Income per unit:
	Basic
		Class A units			$	0.89		$	0.70		$	0.73		$	0.81
		Class B units			$	7.78		$	6.14		$	6.44		$	7.06
	Diluted
		Class A units			$	0.88		$	0.69		$	0.73		$	0.79
		Class B units			$	7.78		$	6.14		$	6.44		$	7.06
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			744,452			747,646			744,192			747,995
		Class B units			755,385			755,385			755,385			755,385
See accompanying notes to financial statements.

 

                                                                                               

 

 

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Statements of Cash Flows
(thousands of dollars)
					39 weeks ended				39 weeks ended
					September 28, 2013				September 29, 2012
					(unaudited)				(unaudited)
Cash flows from operating activities:
	Net income					$	5,403		$	5,927
	Adjustments to reconcile net (loss) income to net cash provided by
		operating activities:
		Depreciation and amortization				5			5
		Equity in earnings of National Beef Packing Company, LLC				(8,230)			(10,613)
		Distribution from National Beef Packing Company, LLC				4,517			8,906
		Changes in assets and liabilities:
			Due from affiliates			58			2,282
			Other receivables			75			(388)
			Other assets			1,324			51
			Accounts payable			(11)			(27)
			Due to affiliates			(435)			2
			Accrued compensation and benefits			(3,114)			(284)
			Other accrued expenses and liabilities			(137)			(875)
				Net cash (used in) provided by operating activities		(545)			4,986
Cash flows from investing activities:
	Additional minority interest acquired in National Beef Packing Company, LLC					(1,507)			-
	Capital expenditures, including interest capitalized					-			(3)
		Net cash used in investing activities				(1,507)			(3)
Cash flows from financing activities:
	Payments of patronage notices					-			(21,868)
	Change in overdraft balances					26			(20,031)
	Prior year excess distribution					23			-
	Member distributions					-			(541,211)
				Net cash provided by (used in) financing activities		49			(583,110)
	Effect of exchange rate changes on cash					-			-
				Net decrease in cash		(2,003)			(578,127)
Cash and cash equivalents at beginning of the period						62,683			642,670
Cash and cash equivalents at end of the period						$	60,680		$	64,543
See accompanying notes to financial statements.

 

                                                                                               

 

 

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

NOTES TO 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 for a fair presentation 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-K on file with the Securities and Exchange Commission, for the fiscal year ended December 29, 2012.  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.

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.

 On July 22, 2013, USPB contributed $1.5 million in additional capital to NBP to purchase 69 NBP units.  The capital contribution will be used by NBP for purposes of funding its operations and providing flexibility in complying with various financial covenants contained in its credit agreements.

Certain expenses related to compensation payments made to the former CEO, pursuant to his employment agreement, in the 2012 Statements of Operations have been reclassified from interest expense to selling, general and administrative expenses, to conform to the 2013 presentation.

(2) Members’ Capital

The following table represents a reconciliation of Members’ Capital for the thirty-nine week period ended September 28, 2013 (thousands of dollars).

Balance at December 29, 2012	$	254,546
Allocation of net income for the thirty-nine week period ended September 28, 2013	5,403
Prior year excess distribution	862
Balance at September 28, 2013	$	260,811

 

                                                                                               

 

 

 

 

 

 

 

For tax year 2012, USPB’s Board of Directors authorized the Company to make quarterly tax distributions to its unitholders to assist those that make quarterly estimated tax payments.  USPB made one such distribution in April 2012, which was based on a conservative estimate of taxable income for the first quarter.  The estimate for the quarter was ultimately higher than actual taxable income for the full year, which caused the Company to be over-distributed.  USPB’s Board of Director’s directed management to offset future tax distributions by the amount of the over-distribution.  The over-distribution also resulted in a violation of the terms of the Company’s Master Loan Agreement with CoBank.  The Company informed CoBank of the over-distribution and CoBank waived the violation.  The over-distribution is reflected as a receivable in Due From Affiliates on the Company’s Balance Sheets.

(3) 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 Statements of Operations and in the table that follows.

Basic EPU excludes dilution and is computed by first allocating a portion of net income attributable to USPB to Class A units and the remainder is allocated to Class B units.  For the thirteen week and thirty-nine week periods ended September 28, 2013 and September 29, 2012, income was allocated 10% to the Class A’s and 90% to the Class B’s.  Income 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 former CEO’s, Steven Hunt, employment agreement and until eighteen months after the termination of the employment agreement, at the election of Mr. Hunt, or upon mutual agreement of the Board of the Company and Mr. Hunt, Mr. Hunt may purchase up to 20,000 Class A units, or upon agreement of Mr. Hunt and the Board of the Company, Mr. Hunt may convert the contractual unit appreciation rights to up to 20,000 Class A units.  The diluted EPU reflects the circumstances of termination of Mr. Hunt’s employment agreement, and the election of Mr. Hunt or agreement by the Board of the Company and Mr. Hunt for him to purchase or convert contractual rights to the maximum 20,000 Class A units at $55 per unit for the periods as provided in his employment agreement.

 

 

 

 

 

                                                                                               

 

 

 

 

 

 

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 28, 2013			September 29, 2012			September 28, 2013			September 29, 2012
Basic income per unit
Income attributable to USPB available to
	unitholders (numerator)
		Class A	$	653		$	516		$	540		$	592
		Class B	$	5,879		$	4,641		$	4,863		$	5,335
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		$	0.89		$	0.70		$	0.73		$	0.81
	Class B		$	7.78		$	6.14		$	6.44		$	7.06
Diluted income per unit:
Income attributable to USPB available to
	unitholders (numerator)
		Class A	$	653		$	516		$	540		$	592
		Class B	$	5,879		$	4,641		$	4,863		$	5,335
Weighted average outstanding Class A units			735,385			735,385			735,385			735,385
Effect of dilutive securities - Class A unit options			9,067			12,261			8,807			12,610
	Units (denominator)		744,452			747,646			744,192			747,995
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		$	0.88		$	0.69		$	0.73		$	0.79
	Class B		$	7.78		$	6.14		$	6.44		$	7.06

 

 

                                                                                               

 

 

 

 

 

(4) 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 28, 2013 and September 29, 2012 (thousands of dollars):

					13 weeks ended			13 weeks ended			39 weeks ended			39 weeks ended
					September 28, 2013			September 29, 2012			September 28, 2013			September 29, 2012
Net sales					$	1,920,747		$	1,909,204		$	5,629,564		$	5,613,374
Costs and expenses:
		Cost of sales			1,832,908			1,830,129			5,455,755			5,430,675
		Selling, general, and administrative expenses			14,489			13,481			42,386			41,873
		Depreciation and amortization			22,250			20,803			65,838			61,868
			Total costs and expenses		1,869,647			1,864,413			5,563,979			5,534,416
				Operating income	51,100			44,791			65,585			78,958
Other income (expense):
		Interest income			2			30			9			40
		Interest expense			(2,944)			(2,988)			(9,428)			(9,288)
		Other, net			153			126			(1,082)			1,589
			Income before taxes		48,311			41,959			55,084			71,299
Income tax expense					(177)			(409)			(737)			(1,145)
			Net income		48,134			41,550			54,347			70,154
Less: net income attributable to Kansas City Steak Company, LLC					-			146			255			254
	Net income attributable to NBP				$	48,134		$	41,696		$	54,602		$	70,408
	NBP's net income attributable to USPB				$	7,255		$	6,285		$	8,230		$	10,613

 

(5) Restricted Cash

When the transaction with Leucadia closed on December 30, 2011, approximately $36.9 million of the Company’s proceeds were deposited in an escrow account to satisfy potential indemnification claims from Leucadia.  USPB received 40%, or approximately $14.8 million, in January 2013; however, those funds remain subject to potential indemnification claims that may arise during the second year after the closing of the transaction and are therefore included in Restricted cash on the balance sheet.  If no indemnification claims arise during the second year, the remaining 60% of the funds will be distributed to USPB.  As the Company anticipates receipt of those funds from the escrow agent in January 2014, the full amount has been reclassified from non-current assets to current assets.

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, 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.

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 commodity 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.

The USDA reports market values for cattle, beef, offal and other products produced by ranchers, farmers and beef processors.  Generally, NBP expects its profitability to improve as the ratio of the USDA comprehensive boxed beef cutout (a weekly reported measure of the total value of all USDA inspected 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 months of 2012 was the lowest for the corresponding periods during the past ten years and was largely unchanged during the thirty-nine week period ended September 28, 2013. 

Revenues were largely unchanged during 2013 as compared to 2012 due primarily to slightly higher selling prices but fewer cattle processed.  Cost of sales per head increased during 2013 as compared to 2012 as cattle prices rose to record high levels, due in part to the declining U.S. cattle herd, which was exacerbated by drought conditions across key cattle raising areas in 2012. 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.

As more fully discussed in the 2012 10-K, Walmart discontinued using NBP as a provider of its case-ready products during 2013.  During 2013, NBP’s two case-ready facilities began to operate at reduced levels, resulting in an approximate 50% reduction in the number of personnel employed at the facilities.  In connection with the reduction in the labor force, NBP recorded charges of approximately $1.9 million during the thirty-nine week period ended September 28, 2013.  NBP is currently pursuing replacement business for its case-ready facilities; however, it may not be able to fully replace the operating cash flow generated by these facilities.

USPB Results of Operations

Thirteen weeks ended September 28, 2013 compared to thirteen weeks ended September 29, 2012

Net Sales.  There were no Net Sales in the thirteen week periods ended September 28, 2013 and September 29, 2012.   

Cost of Sales.  There were no Cost of Sales in the thirteen week periods ended September 28, 2013 and September 29, 2012.   

                                                                                               

 

 

 

 

 

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were approximately $0.7 million for the thirteen weeks ended September 28, 2013 compared to approximately $1.1 million for the thirteen weeks ended September 29, 2012, a decrease of approximately $0.4 million.  The decrease was primarily due to lower salary and bonus expenses, which were partially offset by higher phantom unit plan expense.

Operating Loss.  Operating loss was approximately $0.7 million for the thirteen weeks ended September 28, 2013 compared to an operating loss of approximately $1.1 million for the thirteen weeks ended September 29, 2012, a decrease of approximately $0.4 million.   

Interest Expense.  Interest expense was $0.0 million for the thirteen weeks ended September 28, 2013 compared to $0.0 million for the thirteen weeks ended September 29, 2012.  

Equity Interest in Net Income of NBP Packing Company, LLC.  Equity in NBP net income was $7.3 million for the thirteen weeks ended September 28, 2013 compared to $6.3 million for the thirteen weeks ended September 29, 2012.  As of December 31, 2011, USPB is carrying its 15.0729% investment in NBP under the equity method of accounting.

Net Income.  Net income for the thirteen-week period ended September 28, 2013 was approximately $6.5 million compared to net income of approximately $5.2 million for the thirteen-week period ended September 29, 2012, an increase of approximately $1.3 million. The increase in net income is primarily due to higher gross margins at NBP and lower expenses for the Company.

Thirty-nine weeks ended September 28, 2013 compared to thirty-nine weeks ended September 29, 2012

Net Sales.  There were no Net Sales in the thirty-nine week periods ended September 28, 2013 and September 29, 2012.   

Cost of Sales.  There were no Cost of Sales in the thirty-nine week periods ended September 28, 2013 and September 29, 2012.   

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were approximately $3.1 million for the thirty-nine weeks ended September 28, 2013 compared to approximately $4.6 million for the thirty-nine weeks ended September 29, 2012, a decrease of approximately $1.5 million.  That decrease is primarily due to lower bonus and salary expenses, which were partially offset by higher expenses related to the phantom unit plans and the former CEO’s non-compete agreement.

Operating Loss.  Operating loss was approximately $2.9 million for the thirty-nine weeks ended September 28, 2013 compared to an operating loss of approximately $4.4 million for the thirty-nine weeks ended September 29, 2012, a decrease of approximately $1.5 million.   

Interest Expense.  Interest expense was $0.1 million for the thirty-nine weeks ended September 28, 2013 compared to $0.0 million for the thirty-nine weeks ended September 29, 2012.  

Equity Interest in Net Income of NBP Packing Company, LLC.  Equity in NBP net income was $8.2 million for the thirty-nine weeks ended September 28, 2013 compared to $10.6 million for the thirty-nine weeks ended September 29, 2012.  As of December 31, 2011, USPB is carrying its 15.0729% investment in NBP under the equity method of accounting.

Net Income.  Net income for the thirty-nine-week period ended September 28, 2013 was approximately $5.4 million compared to net income of approximately $5.9 million for the thirty-nine-week period ended September 29, 2012, a decrease of approximately $0.5 million. The decrease is primarily due to lower gross margins at NBP, which was partially offset by lower expenses for the company.

Liquidity and Capital Resources

As of September 28, 2013, USPB had net working capital (the excess of current assets over current liabilities) of approximately $96.1 million, which included cash and cash equivalents of $60.7 million, restricted cash of $36.9 million, and $0.2 million in distributions payable and $0.1 million in patronage notices payable.  As the Company anticipates receipt of the restricted cash in January 2014, the full amount has been reclassified from non-current assets to current assets in fiscal year 2013.  As of December 29, 2012, we had net working capital of approximately $57.8 million, which included cash and cash equivalents of $62.7 million, with $0.2 million in distributions payable and $0.1 million in patronage notices payable. 

 

 

                                                                                               

 

 

As of September 28, 2013, 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 Master Loan Agreement as of September 28, 2013.

Accordingly, if NBP continues to sustain losses and does not make distributions to the Company, we believe our cash and available borrowings under our Master Loan Agreement will be sufficient to support our cash needs for the foreseeable future.  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-K for fiscal year 2012.

Operating Activities

Net cash used in operating activities in the thirty-nine weeks ended September 28, 2013 was approximately $0.5 million compared to net cash provided by operating activities of approximately $5.0 million in the thirty-nine weeks ended September 29, 2012.  The $5.5 million change was primarily due to a smaller tax distribution received from NBP in fiscal year 2013, lower net income in fiscal year 2013, and the payment of accrued bonuses and other accrued liabilities in fiscal year 2013.

Investing Activities

Net cash used in investing activities in the thirty-nine weeks ended September 28, 2013 was approximately $1.5 million compared to immaterial cash flow from investing activities in the thirty-nine weeks ended September 29, 2012.  On July 22, 2013, USPB contributed $1.5 million in additional capital to NBP to purchase 69 NBP units.  

Financing Activities

Net cash provided by financing activities was approximately $0.0 million in the thirty-nine weeks ended September 28, 2013 compared to net cash used of approximately $583.1 million in the thirty-nine weeks ended September 29, 2012.  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. 

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 28, 2013.  Borrowings under the revolving credit commitment bear interest at the base rate or LIBOR rate plus applicable margin.

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

For tax year 2012, USPB’s Board of Directors authorized the Company to make quarterly tax distributions to its unitholders to assist those that make quarterly estimated tax payments.  USPB made one such distribution in April 2012, which was based on a conservative estimate of taxable income for the first quarter.  The estimate for the quarter was ultimately higher than actual taxable income for the full year, which caused the Company to be over-distributed.  USPB’s Board of Director’s directed management to offset future tax distributions by the amount of the over-distribution.  The over-distribution also resulted in a violation of the terms of the Company’s Master Loan Agreement with CoBank.  The Company informed CoBank of the over-distribution and CoBank waived the violation.

 

                                                                                               

 

 

Item 3. 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 September 28, 2013, 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 28, 2013 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.

                                                                                               

 

 

 

 

 

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-K for the fiscal year ended December 29, 2012 have not materially changed.  Please refer to the Company’s report on Form 10-K for the fiscal year ended December 29, 2012 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.

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*

 

 

                                                                                               

 

 

 

 

 

*  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.

 

 

                                                                                               

 

 

 

 

 

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.

 

 

                                                                                                           

 

 

 

 

 

Date: November  8, 2013