**__________**

 

 

 **UNITEDSTATES**

**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 February 28, 2009** |
| **or**                                               |

 

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

 

|                                                                                                                                                                                        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **For the transition period from                to              .** |
| ** **                                                                                                                                                                                  |

**Commissionfile 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.)** |

 

**12200North Ambassador Drive KansasCity, MO 64163**(Addressof principal executive offices) 

 **Telephone:(866) 877-2525**(Registrant’stelephone number, including area code) 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes þ Noo

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

Large Accelerated Filer o   Accelerated Filero  Non-Accelerated Filerþ Small Reporting Companyo

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes oNoþ

The registrant’s unitsare not traded on an exchange or in any public market.  As March 28, 2009,there were 735,385 Class A units and 735,385 Class B unitsoutstanding.     

**__________**

 

 

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|                  | TABLE OF CONTENTS

                                                                     |         |
|-----------------------|----------------------------------------------------------------------------------------------|--------------|
| PART I.               | FINANCIAL INFORMATION                                                                        | **Page No.** |
|                  |                                                                                         |         |
| Item 1.               | Financial Statements.                                                                        | 1            |
|                  |                                                                                         |         |
| Item 2.               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. | 12           |
|                  |                                                                                         |         |
| Item 3.               | Quantitative and Qualitative Disclosures About Market Risk.                                  | 19           |
|                  |                                                                                         |         |
| Item 4T.              | Controls and Procedures.                                                                     | 21           |
|                  |                                                                                         |         |
|                  |                                                                                         |         |
| PART II.              | OTHER INFORMATION                                                                            |         |
|                  |                                                                                         |         |
| Item 1.               | Legal Proceedings.                                                                           | 22           |
|                  |                                                                                         |         |
|    Item 1A. | Risk Factors.                                                                                | 22           |
|                  |                                                                                         |         |
| Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds.                                 | 22           |
|                  |                                                                                         |         |
| Item 3.               | Defaults Upon Senior Securities.                                                             | 22           |
|                  |                                                                                         |         |
| Item 4.               | Submission of Matters to a Vote of Security Holders.                                         | 22           |
|                  |                                                                                         |         |
| Item 5.               | Other Information.                                                                           | 22           |
|                  |                                                                                         |         |
| Item 6.               | Exhibits.                                                                                    | 22           |
|                  |                                                                                         |         |
|                  | Signatures.                                                                                  | 24           |

 

 

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

 

ii

**                                                                                               **

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**PART I.  FINANCIAL INFORMATION**

** **

**Item 1.  Financial Statements.**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

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** **

| ** **                                                                                                                                                  |                                                                                                                |                                                                            |          |                  |          |                |         |          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|---------------|-----------------------|---------------|---------------------|--------------|---------------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                                                                                        |
| **Consolidated Balance Sheets**                                                                                                                   |
| (in thousands, except unit data)                                                                                                        |
|                                                                                                                                                        |                                                                                                                |                                                                            |          |                  |          |                |
|                                                                                                                                                        |                                                                                                                |                                                                            |          | **February 28,** |          | **August 30,** |
| **Assets**                                                                                                                                                  |                                                                                                                | **2009**                                                                        |          | **2008**              |
|                                                                                                                                                        |                                                                                                                |                                                                            |          | **(unaudited)**       |          |                |
| Current assets:                                                                                                                                        |                                                                                                                |                                                                            |          |                  |
|                                                                                                                                                        | Cash and cash equivalents                                                                            |                                                                            | $             | 72,348           |          | $                   | 77,399  |
|                                                                                                                                                        | Accounts receivable, less allowance for returns and doubtful accounts       |                                                                            |          |                  |          |
|                                                                                                                                                        |                                                                                                                | of $1,768 and $1,665, respectively                          |          | 165,783          |          | 218,023        |
|                                                                                                                                                        | Due from affiliates                                                                                       |                                                                            | 2,890    |                  | 5,827    |
|                                                                                                                                                        | Other receivables                                                                                              |                                                                            | 6,047    |                  | 5,392    |
|                                                                                                                                                        | Inventories                                                                                                         |                                                                            | 167,530  |                  | 192,480  |
|                                                                                                                                                        | Other current assets                                                                                      |                                                                            | 28,506   |                  | 12,765   |
|                                                                                                                                                        |                                                                                                                | Total current assets                                                  |          | 443,104          |          | 511,886        |
| Property, plant, and equipment, at cost                                                                                            |                                                                                                                | 447,639                                                                    |          | 431,584          |
|                                                                                                                                                        | Less accumulated depreciation                                                                             |                                                                            | (152,714)     |                  | (133,436)     |
|                                                                                                                                                        |                                                                                                                | Net property, plant, and equipment                          |          | 294,925          |          | 298,148        |
| Goodwill                                                                                                                                                    |                                                                                                                | 80,642                                                                     |          | 80,642           |
| Other intangible assets, net of accumulated amortization                                                                      |                                                                                                                |                                                                            |          |                  |
|                                                                                                                                                        | of $10,394 and $9,347, respectively                                                             |                                                                            | 25,650   |                  | 26,690   |
| Other assets                                                                                                                                           |                                                                                                                | 9,736                                                                      |          | 9,710            |
|                                                                                                                                                        |                                                                                                                | Total assets                                                               |          | $                     | 854,057  |                | $            | 927,076  |
|                                                                                                                                                        |                                                                                                                |                                                                            |          |                  |          |                |
| **Liabilities and Capital Shares and Equities**                                                                                    |                                                                                                                |                                                                            |          |                  |
| Current liabilities:                                                                                                                                   |                                                                                                                |                                                                            |          |                  |
|                                                                                                                                              | Current installments of long-term debt                                                          |                                                                            | $             | 10,001           |          | $                   | 4,620   |
|                                                                                                                                                        | Cattle purchases payable                                                                                  |                                                                            | 50,916   |                  | 65,378   |
|                                                                                                                                                        | Accounts payable - trade                                                                             |                                                                            | 56,151   |                  | 71,321   |
|                                                                                                                                                        | Due to affiliates                                                                                         |                                                                            | 355      |                  | 1,004    |
|                                                                                                                                                        | Accrued compensation and benefits                                                                    |                                                                            | 25,527   |                  | 49,320   |
|                                                                                                                                                        | Accrued insurance                                                                                              |                                                                            | 13,824   |                  | 12,918   |
|                                                                                                                                                        | Other accrued expenses and liabilities                                                          |                                                                            | 31,589   |                  | 10,152   |
|                                                                                                                                                        | Distributions payable                                                                                          |                                                                            | 364      |                  | 19,245   |
|                                                                                                                                                        |                                                                                                                | Total current liabilities                                             |          | 188,727          |          | 233,958        |
| Long-term liabilities:                                                                                                                                 |                                                                                                                |                                                                            |          |                  |
|                                                                                                                                                        | Long-term debt, excluding current installments                                                  |                                                                            | 341,941  |                  | 376,298  |
|                                                                                                                                                        | Other liabilities                                                                                              |                                                                            | 2,212    |                  | 2,327    |
|                                                                                                                                                        |                                                                                                      | Total long-term liabilities                                           |          | 344,153          |          | 378,625        |
|                                                                                                                                                        |                                                                                                                | Total liabilities                                                          |          | 532,880          |          | 612,583        |
| Minority interest in National Beef Packing Company, LLC and Kansas City Steak Company, LLC | 257,543                                                                                                        |                                                                            | 187,997  |
| Capital shares and equities:                                                                                                                 |                                                                                                                |                                                                            |          |                  |
|                                                                                                                                                        | Members' capital, 735,385 Class A units and 735,385 Class B units |                                                                            |          |                  |          |
|                                                                                                                                                        |                                                                                                                | authorized, issued and outstanding                               |          | 13,043           |          | 75,831         |
|                                                                                                                                                        | Patronage notices                                                                                              |                                                                            | 50,642   |                  | 50,642   |
|                                                                                                                                                        | Accumulated other comprehensive (loss) income                                                   |                                                                            | (51)          |                  | 23       |
|                                                                                                                                                        |                                                                                                                | Total capital shares and equities                           |          | 63,634           |          | 126,496        |
| Commitments and contingencies                                                                                                                     |                                                                                                                | -                                                                          |          | -                |
|                                                                                                                                                        |                                                                                                                | Total liabilities and capital shares and equities |          | $                     | 854,057  |                | $            | 927,076  |
|                                                                                                                                                        |                                                                                                                |                                                                            |          |                  |          |                |
| See accompanying notes to consolidated financial statements.                                                                  |                                                                                                                |                                                                            |          |                  |

** **

 

 

2

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** **

 

| ** **                                                                                 |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |         |            |    |     |
|--------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|--------------------------------------------------------|-------------------------------------------|---------------------------------|---------------------------------|---------------------------------|---------------------------------|-----------------|------------------------------|-----------------|------------------------------|--------------|-----------------|---------|----------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                       |
| **Consolidated Statements of Operations**                                   |
| (in thousands, except unit and per unit data)           |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
|                                                                                       |                                                                                           |                                                   |                                      |                            | **13 weeks ended**    |                            | **13 weeks ended**    |            | **26 weeks ended** |            | **26 weeks ended** |
|                                                                                       |                                                                                           |                                                   |                                      | **February 28, 2009** | **February 23, 2008** | **February 28, 2009** | **February 23, 2008** |
|                                                                                       |                                                                                           |                                                   |                                      |                            | **(unaudited)**                 |                            | **(unaudited)**                 |            | **(unaudited)**              |            | **(unaudited)**              |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
| Net sales                                                                             |                                                                                           |                                                   | $                                         | 1,298,218                  |                            | $                               | 1,305,950                  |            | $                            | 2,727,195  |                         | $            | 2,704,052  |
|                                                                             |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
| Costs and expenses:                                                              |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |
|                                                                                       | Cost of sales                                                                        |                                                   | 1,236,297                            |                            | 1,288,194                  |                            | 2,640,335                  |            | 2,681,887               |
|                                                                                       | Selling, general, and administrative expenses                              |                                                   | 10,021                               |                            | 13,212                     |                            | 22,907                     |            | 24,871                  |
|                                                                                       | Depreciation and amortization                                                        |                                                   | 11,269                               |                            | 8,755                      |                            | 21,239                     |            | 17,584                  |
|                                                                                       |                                                                                 | Total costs and expenses                |                                      | 1,257,587                  |                            | 1,310,161                  |                            | 2,684,481  |                         | 2,724,342  |
|                                                                                       |                                                                                           |                                         |                                      |                            |                            |                            |                            |            |                         |            |                         |
|                                                                                       |                                                                                           |                                                   | Operating income (loss)         |                            | 40,631                     |                            | (4,211)                         |            | 42,714                  |            | (20,290)                     |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
| Other income (expense):                                                          |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |
|                                                                                       | Interest income                                                                           |                                                   | 63                                   |                            | 414                        |                            | 245                        |            | 942                     |
|                                                                                       | Interest expense                                                                          |                                                   | (5,601)                                   |                            | (9,190)                         |                            | (12,454)                        |            | (18,410)                     |
|                                                                                       | Minority owners' interest in net (income) loss of           |                                                   |                                      |                            |                            |                            |                            |            |                         |
|                                                                                       |                                                                                           | National Beef Packing Company, LLC |                                      | (13,236)                        |                            | 4,872                      |                            | (11,720)        |                         | 16,263     |
|                                                                                       | Minority owners' interest in net income of Kansas City |                                                   |                                      |                            |                            |                            |                            |            |                         |
|                                                                                       |                                                                                           | Steak Company, LLC                           |                                      | (546)                           |                            | (421)                           |                            | (717)           |                         | (446)           |
|                                                                                       | Equity in loss of aLF Ventures, LLC                              |                                                   | (24)                                      |                            | (25)                            |                            | (49)                            |            | (50)                         |
|                                                                                       | Termination fee                                                                           |                                                   | 14,572                               |                            | -                          |                            | 14,572                     |            | -                       |
|                                                                                       | Other, net                                                                                |                                                   | (4,237)                                   |                            | 1,541                      |                            | (3,845)                         |            | 1,809                   |
|                                                                                       |                                                                                           |                                                   | Income (loss) before taxes |                            | 31,622                     |                            | (7,020)                         |            | 28,746                  |            | (20,182)                     |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
| Income tax expense                                                               |                                                                                           | (192)                                                  |                                      | (530)                           |                            | (561)                           |                            | (1,080)         |
|                                                                                       |                                                                                           |                                                   | Net income (loss)               |                            | $                               | 31,430                     |                            | $               | (7,550)                      |            | $                            | 28,185  |            | $       | (21,262) |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
| Income (loss) per linked unit:                                         |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |
|                                                                                       | Basic                                                                                          |                                                   |                                      | $                               | 42.74                      |                            | $                               | (10.27)         |                         | $               | 38.33                   |         | $               | (28.91) |
|                                                                                       | Diluted                                                                                        |                                                   |                                      | $                               | 42.12                      |                            | $                               | (10.27)         |                         | $               | 37.77                   |         | $               | (28.91) |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
| Outstanding weighted-average Class A and Class B units: |                                                                                           |                                                   |                                      |                            |                            |                            |                            |
|                                                                                       | Basic                                                                                          |                                                   |                                      | 735,385                    |                            | 735,385                    |                            | 735,385    |                         | 735,385    |
|                                                                                       | Diluted                                                                                        |                                                   |                                      | 746,218                    |                            | 735,385                    |                            | 746,218    |                         | 735,385    |
|                                                                                       |                                                                                           |                                                   |                                      |                            |                            |                            |                            |            |                         |            |                         |
| See accompanying notes to consolidated financial statements. |                                                                                           |                                                   |                                      |                            |                            |                            |

** **

 

 

3

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** **

|  
** **                                                                            |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |         |                            |         |                            |      |   |
|----------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|------------------------------------------------------------|----------------------------------------------------------------------------------------|--------------|---------------------------------|--------------|---------------------------------|-----------|--------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                         |
| **Consolidated Statements of Cash Flows**(in thousands)             |
|                                                                               |                                                                                                                                   |                                                                        |                                             |                                                                                   |         | **26 weeks ended**    |         | **26 weeks ended**    |
|                                                                                         |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |         | **February 28, 2009** |         | **February 23, 2008** |
|                                                                                         |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |         | **(unaudited)**                 |         | **(unaudited)**                 |
| Cash flows from operating activities:                                    |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Net income (loss)                                                                                                                      |                                                                                  | $                                                          | 28,185                                                                            |         | $                               | (21,262)     |
|                                                                                         | Adjustments to reconcile net income (loss) to net cash provided by

operating activities: |                                                                                  |                                                       |                                                                                   |         |
|                                                                                         |                                                                                                                                             | Depreciation and amortization                                               |                                                       | 21,239                                                                            |         | 17,584                     |
|                                                                                         |                                                                                                                                             | Termination Fee                                                                  |                                                       | (14,572)                                                                               |         | -                          |
|                                                                                         |                                                                                                                                             | Loss on disposal of property, plant, and equipment |                                                       | 132                                                                               |         | 13                         |
|                                                                                         |                                                                                                                                             | Gain on disposal of investment                                    |                                                       | -                                                                                 |         | (1,342)                         |
|                                                                                         |                                                                                                                                             | Minority interest                                                                |                                                       | 12,165                                                                            |         | (15,945)                        |
|                                                                                         |                                                                                                                                             | Changes in assets and liabilities:                                |                                                       |                                                                                   |         |                            |
|                                                                                         |                                                                                                                                             |                                                                                  | Accounts receivable                                   |                                                                                   | 52,240  |                            | 19,966  |
|                                                                                         |                                                                                                                                             |                                                                                  | Due from affiliates                              |                                                                                   | 4,194   |                            | (491)        |
|                                                                                         |                                                                                                                                             |                                                                                  | Other receivables                                     |                                                                                   | (655)        |                            | 2,354   |
|                                                                                         |                                                                                                                                             |                                                                                  | Inventories                                                |                                                                                   | 24,950  |                            | 8,468   |
|                                                                                         |                                                                                                                                             |                                                                                  | Other assets                                          |                                                                                   | (15,773)     |                            | (454)        |
|                                                                                         |                                                                                                                                             |                                                                                  | Cattle purchases payable                         |                                                                                   | (561)        |                            | 3,232   |
|                                                                                         |                                                                                                                                             |                                                                                  | Accounts payable                                      |                                                                                   | (11,688)     |                            | 8,064   |
|                                                                                         |                                                                                                                                             |                                                                                  | Due to affiliates                                |                                                                                   | (653)        |                            | (742)        |
|                                                                                         |                                                                                                                                             |                                                                                  | Accrued compensation and benefits           |                                                                                   | (23,793)     |                            | (2,844)      |
|                                                                                         |                                                                                                                                             |                                                                                  | Accrued insurance                                     |                                                                                   | 906     |                            | (3,714)      |
|                                                                                         |                                                                                                                                             |                                                                                  | Other accrued expenses and liabilities |                                                                                   | 20,069  |                            | 507     |
|                                                                                         |                                                                                                                                             |                                                                                  |                                                       | Net cash provided by operating activities                     |         | 96,385                     |         | 13,394                     |
| Cash flows from investing activities:                                    |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Capital expenditures, including interest capitalized                                                                         |                                                                                  | (17,996)                                                   |                                                                                   | (25,510)     |
|                                                                                         | Termination Fee                                                                                                                             |                                                                                  | 14,572                                                |                                                                                   | -       |
|                                                                                         | Proceeds from sale of property, plant, and equipment                                                          |                                                                                  | 894                                                   |                                                                                   | 121     |
|                                                                                         | Proceeds from redemption of investment                                                                                       |                                                                                  | -                                                     |                                                                                   | 1,342   |
|                                                                                         |                                                                                                                                             |                                                                                  |                                                       | Net cash used in investing activities                         |         | (2,530)                         |         | (24,047)                        |
| Cash flows from financing activities:                                    |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Net receipts under revolving credit lines                                                                               |                                                                                  | 1,451                                                 |                                                                                   | 26,761  |
|                                                                                         | Repayments of other indebtedness                                                                                                  |                                                                                  | (4,200)                                                    |                                                                                   | (1,698)      |
|                                                                                         | Repayments of term notes payable                                                                                             |                                                                                  | (26,227)                                                   |                                                                                   | (515)        |
|                                                                                         | Change in overdraft balances                                                                                                      |                                                                                  | (17,383)                                                   |                                                                                   | (12,835)     |
|                                                                                         | Distributions to minority interest owners in National Beef Packing Company, LLC                |                                                                                  | (19,932)                                                   |                                                                                   | (3,278)      |
|                                                                                         | Member distributions                                                                                                                        |                                                                                  | (32,541)                                                   |                                                                                   | -       |
|                                                                                         |                                                                                                                                             |                                                                                  |                                                       | Net cash (used in) provided by financing activities |         | (98,832)                        |         | 8,435                      |
| Effect of exchange rate changes on cash                        |                                                                                                                                             | (74)                                                                                  |                                                       | 3                                                                                 |
|                                                                                         |                                                                                                                                             |                                                                                  |                                                       | Net decrease in cash                                                    |         | (5,051)                         |         | (2,215)                         |
| Cash and cash equivalents at beginning of the period |                                                                                                                                             | 77,399                                                                           |                                                       | 62,869                                                                            |
| Cash and cash equivalents at end of the period       |                                                                                                                                             | $                                                                                     | 72,348                                                |                                                                                   | $            | 60,654                     |
| Supplemental cash disclosures:                                                     |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Cash paid during the period for interest                                                                           |                                                                                  | $                                                          | 12,097                                                                            |         | $                               | 18,852  |
|                                                                                         | Cash (received) paid during the period for taxes, net of $925 and $0                 |                                                                                  |                                                       |                                                                                   |         |
|                                                                                         |                                                                                                                                             |                                                                                  | refunds, respectively                                 |                                                                                   | $            | (798)                           |         | $                               | 979  |
|                                                                                         |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |         |                            |         |                            |
| See accompanying notes to consolidated financial statements.   |                                                                                                                                             |                                                                                  |                                                       |                                                                                   |

** **

 

4

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**U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

** **

**(1)Interim Financial Statements**

**Basisof Presentation**

The accompanying unaudited Consolidated FinancialStatements have been prepared in accordance with U.S. generally acceptedaccounting principles (GAAP) for interim financial information; therefore, theydo not include all of the information and footnotes required by GAAP forcomplete financial statements. In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been included usingmanagement’s best estimates and judgments where appropriate.  These estimatesand judgments affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements.  The estimates and judgments will also affect the reported amountsfor certain revenues and expenses during the reporting period.  Actual resultscould differ materially from these estimates and judgments.  For furtherinformation, refer to the audited Consolidated Financial Statements and Notesto Consolidated Financial Statements, which are included in the Company’s AnnualReport on Form 10-K on file with the Securities and Exchange Commission (SEC)for the fiscal year ended August 30, 2008.  The results of operations for theinterim periods presented are not necessarily indicative of the results for afull fiscal year.  

NB Finance Corp., a wholly-owned finance subsidiary ofNBP, is a co-issuer on a joint and several basis with NBP of the Senior Notes,which are NBP’s senior unsecured obligations, ranking equal in right of paymentwith all of its other senior unsecured obligations.  NB Finance Corp. hasnominal assets and conducts no business or operations. There are no significantrestrictions on the ability of subsidiaries to transfer funds to NBP.

**(2)New Accounting Pronouncements**

In December 2007, the FASB issued SFAS No. 141R (SFAS141R), *Business Combinations. *This statement requires an acquirer torecognize the assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree at the acquisition date to be measured at their fairvalue as of that date.  An acquirer is required to recognize assets orliabilities arising from all other contingencies (contractual contingencies) asof the acquisition date, measured at their acquisition-date fair values, only ifit is more likely than not that they meet the definition of an asset or aliability in FASB Concepts Statement No. 6, *Elements of FinancialStatements.*  Any acquisition-related costs are to be expensed instead ofcapitalized.  This statement applies prospectively to business combinations forwhich the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008.  The impact to theCompany from the adoption of SFAS 141R in fiscal year 2010 will depend onacquisitions at the time.

In December 2007, the FASB issued SFAS No. 160 (SFAS160),*Noncontrolling Interests in Consolidated Financial Statements - anAmendment of ARB No. 51*.  SFAS 160 establishes accounting and reportingstandards for the noncontrolling interest (minority interest) in asubsidiary.  SFAS 160 requires noncontrolling interests held by partiesother than the parent in subsidiaries be clearly identified, labeled, andpresented in the consolidated balance sheet within equity, but separate fromthe parent's equity.   SFAS 160 is effective for fiscal yearsbeginning after December 15, 2008.  The Company is currently assessing theimpact SFAS 160 may have, if any, on its consolidated financial statements.

In February 2008, the Financial Accounting StandardsBoard (FASB) issued FASB Staff Position 157-2, which defers the effective dateof SFAS No. 157 (SFAS 157), *Fair Value Measurements* for nonfinancialassets and nonfinancial liabilities, except for items that are recognized ordisclosed at fair value in an entity’s financial statement on a recurring basis(at least annually).  FASB Staff Position 157-2 iseffective for fiscal years beginning after November 15, 2008.  Managementbelieves the adoption of Staff Position 157-2 will not have a material impacton the Company’s financial position or net earnings.

** **

 

5

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**(3)  Termination of MembershipInterest Purchase Agreement with JBS**

On February 29, 2008, JBS S.A. (JBS), NBP, USPB and the other holders of membership interests in NBP, including NBPCO Holdings, LLC and parties controlled by three executive officers, John R. Miller, Timothy M. Klein and Scott H. Smith (Sellers), entered into a Membership Interest Purchase Agreement (MIPA), as amended from time to time. Under the MIPA, if the closing of the transactions contemplated under the MIPA had not occurred for any reason on or before the date 360 days after the date of execution of the MIPA, either JBS or the Sellers could terminate the MIPA.  Accordingly, on February 19, 2009, the Sellers delivered a termination notice to JBS to terminate the MIPA effective as of February 23, 2009.  On February 23, 2009, JBS paid USPB a termination fee of $14.6 million, its share of the $19.9 million termination fee paid to the Sellers.  Subsequent to the termination of the MIPA, the Company wrote off approximately $1.5 million of legal fees related to the MIPA in February 2009, which are included in other, net.

**(4)Inventories**

 

Inventories at February 28, 2009 and August30, 2008 consisted of the following (in thousands):

 

| ** **                                          |   |         |          |                            |          |                          |   |          |
|-----------------------------------------------------|--------|--------------|---------------|---------------------------------|---------------|-------------------------------|--------|---------------|
|                                                |   |         |          | **February 28, 2009** |          | **August 30, 2008** |
|                                                |   |         |          |                            |          |                          |
| Dressed and boxed meat products |   | $            | 115,421  |                            | $             | 144,885                  |
| Beef by-products                               |   | 25,319  |          | 20,886                     |
| Supplies and other                        |   | 26,790  |          | 26,709                     |
|                                                |   |         |          | $                               | 167,530  |                          | $      | 192,480  |
|                                                |   |         |          |                            |          |                          |

** **

**(5)Comprehensive Income (Loss)**

Comprehensive income (loss), which consists of netincome (loss) and foreign currency translation adjustments, was as follows forthe periods indicated (in thousands): 

|                                                                             |                                  |   |         |         |   |                                                          |    |                                                          |         |                                                          |   |                                                          |     |   |   |   |
|----------------------------------------------------------------------------------|---------------------------------------|--------|--------------|--------------|--------|---------------------------------------------------------------|---------|---------------------------------------------------------------|--------------|---------------------------------------------------------------|--------|---------------------------------------------------------------|----------|--------|--------|--------|
|                                                                             |                                  |   |         |         |   | **13 weeks ended**

**February 28, 2009** |    | **13 weeks ended**

**February 23, 2008** |         | **26 weeks ended**

**February 28, 2009** |   | **26 weeks ended**

**February 23, 2008** |
| Net income (loss)                                                      |                                  | $      | 31,430  |         | $      | (7,550)                                                       |    | $                                                             | 28,185  |                                                          | $      | (21,262)                                                      |
| Other comprehensive (loss) income:                                |                                  |   |         |         |   |                                                          |    |                                                          |
|      Foreign currency translation adjustments | (8)                                   |   | (2)          |         | (74)   |                                                          | 3  |
|                                                                             | Comprehensive income (loss) |   | $            | 31,422  |   | $                                                             | (7,552) |                                                          | $            | 28,111                                                   |   | $                                                             | (21,259) |
|                                                                             |                                  |   |         |         |   |                                                          |    |                                                          |         |                                                          |   |                                                          |

** **

**(6)Minority Interest **

At any time after certain dates, the earliest beingJuly 31, 2008, the latest being July 31, 2011, certain members of NBP management and/or NBPCO Holdings, LLC have the right to request that NBP repurchase theirinterests, the value of which is to be determined by a mutually agreedappraisal process. If NBP is unable to effect the repurchase within a specifiedtime, the requesting member(s) have the right to cause a sale process tocommence.   On April 13, 2009, NBP entered into two Unit Redemption Agreements pursuant to Section 12.5 of its LimitedLiability Company Agreement, dated as of August 6, 2003 (as amended fromtime to time, the “LLC Agreement”) to redeem at agreed upon redemption pricesall of the membership interests in NBP that are owned or controlled by NBP’s Chief Executive Officer, John R. Miller, and an affiliate of NBP’s General Counsel,Scott H. Smith (referred to herein as “Mr. Smith”), as well as 25% of themembership interests in NBP that are owned by affiliates of NBP’s President and Chief Operating Officer, Timothy M. Klein.  As a result, Mr. Millerand his affiliate received approximately $91.3 million for their units and Mr.Smith’s affiliate received approximately $22.8 million for its units and they areno longer members of NBP although each retained their position with NBP.  Mr. Klein’s affiliates received approximately $11.4 million for their redeemed units,and he retained his position with NBP as well.

The Company accounts for changes in the redemptionvalue of these interests by accreting the change in value over the currentperiod through the earliest redemption date of the respective interests.  At February28, 2009, the value of the minority interest in National Beef was determined tobe $255.6 million, which was in excess of its carrying value.  Accordingly, thecarrying value of the minority interest in National Beef increased byapproximately $58.4 million through accretion during the twenty-six weeks endedFebruary 28, 2009, resulting in the $255.6 million carrying value, which isincluded in the accompanying consolidated balance sheet as of February 28, 2009.

 

6

----

Generallyaccepted accounting principles require the Company to determine the fair valueof the minority owners’ interest at the end of each reporting period.  To theextent that this value increases, this change in fair value is accreted overthe redemption period as discussed above.  In the past, NBP used Stern BrothersValuation Advisors to assist management in measuring fairvalue of the minority owners’ interest.  Effective February 28, 2009, management used the agreed upon redemption pricesthat were used in the Unit Redemption Agreements discussed above in measuringthe fair value of the minority interest.

The redemption value of the minority interest in NBPat February 28, 2009, increased by approximately $83.7 million compared to thevalue at August 30, 2008 primarily as a result of the Company’s improvedfinancial performance.  Offsettingthe change in the value of the minority interest is a corresponding change inmembers’ capital.    

**(7)Contingencies**

NBP’s wholly owned subsidiary, National Carriers,Inc., has various independent contractor drivers who are involved inaccidents from time to time, which in the aggregate could result in a materialliability for NBP.

NBP is a party to a number of other lawsuits andclaims arising out of the operation of its business. Management believes theultimate resolution of such matters should not have a material adverse effecton NBP’s financial condition, results of operations, or liquidity.

The U.S. Department of Justice, joined by stateattorneys general from seventeen states filed a civil antitrust suit againstJBS and NBP on October 20, 2008 in the U.S. District Court for the NorthernDistrict of Illinois, Eastern Division, seeking a permanent injunction against theproposed acquisition of NBP by JBS, along with an award in the amount of theircosts and attorneys’ fees.  On November 13, 2008, Ranchers Cattlemen ActionLegal Fund and United Stockgrowers of America and the Organization forCompetitive Markets filed a civil antitrust suit against JBS and NBP in theU.S. District Court for the Northern District of Illinois, Eastern Division,seeking a permanent injunction against the proposed acquisition of NBP by JBS. Subsequent to the termination of the proposed acquisition in February 2009,these suits have been dismissed.

**(8) Fair Value Measurements**

In September 2006, the FASB issued SFAS No. 157 (SFAS157), *Fair Value Measurements*.  This statement establishes a singleauthoritative definition of fair value to be used when accounting rules requirethe use of fair value, sets out a framework for measuring fair value andrequires additional disclosures about fair value measurement.  SFAS 157clarifies that fair value is an exit price, representing the amount that wouldbe received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants.  

On August 31, 2008, the Company adopted portions ofSFAS 157, *Fair Value Measurements*, except for the non-financial assetsand liabilities within the scope of the deferral provided by FASB StaffPosition 157-2 as discussed in Note 2.

SFAS 157 establishes a three-level fair valuehierarchy that prioritizes the inputs used to measure fair value.  The fairvalue hierarchy gives the highest priority to quoted market prices (Level 1)and the lowest priority to unobservable inputs (Level 3).  The three levels of inputsused to measure fair value are as follows:

•   Level 1 – quoted prices in active markets foridentical assets or liabilities accessible by the reporting entity.

 

7

----

•   Level 2 – observable inputs other than quoted pricesincluded in Level 1, such as quoted prices for similar assets and liabilitiesin active markets; quoted prices for identical or similar assets andliabilities in markets that are not active; or other inputs that are observableor can be corroborated by observable market data.

•   Level 3 – unobservable inputs for an asset orliability.  Unobservable inputs should only be used to the extent observableinputs are not available.

The following table details the assets and liabilitiesmeasured at fair value on a recurring basis as of February 28, 2009 and alsothe level within the fair value hierarchy used to measure each category ofassets.

|                                                                           |   |                            |          |                                                                                                            |   |                                                                       |   |                                                              |          |   |   |    |
|--------------------------------------------------------------------------------|--------|---------------------------------|---------------|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------------|--------|--------|---------|
| (in thousands)                                                            |   |                            |          |                                                                                                            |   |                                                                       |   |                                                              |
| **Description**                                                                |   | **February 28, 2009** |          | **Quoted Prices in**

**Active Markets for**

**Identical Assets**

**(Level 1)** |   | **Significant Other**

**Observable Inputs**

**(Level 2)** |   | **Significant**

**Unobservable**

**Inputs (Level 3)** |
|                                                                           |   |                            |          |                                                                                                            |   |                                                                       |   |                                                              |
| Other current assets -

derivatives                             |   | $                               | 10,007   |                                                                                                            | $      | 10,007                                                                |   | $                                                                 | -        |   | $      | -  |
|                                                                           |   |                            |          |                                                                                                            |   |                                                                       |   |                                                              |
| Other accrued expenses and

liabilities - derivatives |   | $                               | 20,799   |                                                                                                            | $      | 12,327                                                                |   | $                                                                 | 8,472    |   | $      | -  |
|                                                                           |   |                            |          |                                                                                                            |   |                                                                       |   |                                                              |
| Minority owners' interest                                            |   | $                               | 255,634  |                                                                                                            | $      | -                                                                     |   | $                                                                 | 255,634  |   | $      | -  |
|                                                                           |   |                            |          |                                                                                                            |   |                                                                       |   |                                                              |

 

Due to the fact the NBP’s equity is not traded, thereare typically significant unobservable inputs used in valuing redemption value of the minority interest in NBP.  With the appraisal election notices received onFebruary 2, 2009, and the subsequent agreement on price between certain redeemingNBP members and NBP, the agreed upon price was deemed to provide a significantobservable input to assist in the valuation of all interests subject to futureredemption.  For a more detailed discussion of minority owners’ interest andthe key inputs we use to value it, refer to Note 6.  The table below representsthe Company’s minority owners’ interest measured at fair value on a recurringbasis using significant unobservable inputs (Level 3) as defined in SFAS 157 andtransfer to Level 2 as of February 28, 2009.

|                                                                                                                |   |                                    |          |
|---------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------------|
| **Fair Value Measurements Using Significant Unobservable Inputs (Level 3)** |
|                                                                                                                |   |                                    |
| (in thousands)                                                                                                 |   | **Minority Owners'**

**Interest** |
|                                                                                                                |   |                                    |
| Balance at August 30, 2008                                                                      |   | $                                       | 186,533  |
|     Allocation of year-to-date net income                                        |   | 11,720                             |
|     Class A priority distribution                                                     |   | (1,051)                                 |
|     Valuation adjustment                                                                        |   | 58,433                             |
|     Transfers to Level 2                                                              |   | (255,635)                               |
| Balance at February 28, 2009                                                                    |   | $                                       | -        |
|                                                                                                                |   |                                    |

 

In February 2007, the FASB issued SFAS No. 159 (SFAS159), *The Fair Value Option for Financial Assets and Financial Liabilities*. This statement provides companies with an option to report selected financialassets and liabilities at fair value.  This statement was effective for theCompany as of August 31, 2008; however, the Company did not elect the option toreport any of the selected financial assets and liabilities at fair value.

**(9)Disclosure about Derivative Instruments and Hedging Activities**

As part of NBP’s ongoing operations, NBP is exposed tomarket risks such as changes in commodity prices.  To manage these risks, NBP mayenter into the following derivative transactions pursuant to its establishedpolicies:

 

8

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•  Forward purchase contracts for cattle for use in the beefplants

•  Exchange traded futures contracts for cattle

•  Exchange traded futures contracts for grain

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

NBPenters into certain commodity derivatives, primarily with a diversified groupof highly rated counterparties.  The maximum amount of loss due to the creditrisk of the counterparties, should the counterparties fail to perform accordingto the terms of the contracts, is deemed to be immaterial as of February 28,2009 as all derivatives in an asset position are exchange-traded contracts. The exchange-traded contracts have been entered into under a master nettingagreement.  None of the derivatives entered into have credit-related contingentfeatures.  NBP has $17.6 million in cash collateral posted on its derivativeliabilities.

    Thefollowing table presents the fair values as discussed in Note 8 and otherinformation regarding derivative instruments not designated as hedginginstruments as of February 28, 2009 (in thousands of dollars):

|                     |                                            |   |                                            |         |                                 |                                               |                |   |         |
|--------------------------|-------------------------------------------------|--------|-------------------------------------------------|--------------|--------------------------------------|----------------------------------------------------|---------------------|--------|--------------|
|                     | **Derivative Asset**                       |   | **Derivative Liability**                   |
|                     | **As of February 28, 2009** |   | **As of February 28, 2009** |
|                     | **Balance**

**Sheet**

**Location**            |   | **Fair Value**                             |         | **Balance**

**Sheet**

**Location** |                                               | **Fair Value** |
|                     |                                            |   |                                            |         |                                 |                                               |                |
| Commodity contracts | Other current

assets                      |   | $                                               | 10,007  |                                 | Accrued

expenses and

other liabilities |                | $      | 20,799  |
|    Total       |                                            |   | $                                               | 10,007  |                                 |                                               |                | $      | 20,799  |
|                     |                                            |   |                                            |         |                                 |                                               |                |

 

Thefollowing table presents the impact of derivative instruments on the ConsolidatedStatement of Operations for the thirteen and twenty-six week periods endedFebruary 28, 2009 (in thousands of dollars):

| ** **                                                                   |   |                                                                                                    |   |                                                                                                  |      |                                                  |   |     |
|------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|-----------|-------------------------------------------------------|--------|----------|
| **Derivatives Not Designated 			as Hedging**

**Instruments** |   | **Location of Gain (Loss)**

**Recognized in Income on**

**Derivatives** |   | **Amount of Gain (Loss) Recognized in**

**Income On Derivatives** |
|                                                                         |   |                                                                                                    |   | 13 weeks ended

February 28, 2009                                                 |      | 26 weeks ended

February 28, 2009 |
|                                                                         |   |                                                                                                    |   |                                                                                                  |      |                                                  |
| Commodity contracts                                                     |   | Net sales                                                                                          |   | $                                                                                                     | (6,025)   |                                                  | $      | (29,549) |
| Commodity contracts                                                     |   | Cost of sales                                                                                 |   | 6,850                                                                                            |      | 9,813                                            |
|    Total                                                           |   |                                                                                                    |   | $                                                                                                     | 825  |                                                  | $      | (19,736) |
|                                                                         |   |                                                                                                    |   |                                                                                                  |      |                                                  |

** **

** (10)Earnings Per Linked Unit**

Basic earnings perlinked unit (EPU) excludes dilution and is computed by dividing income or loss availableto unitholders by the weighted-average number of linked Class A and Class Bunits outstanding for the period.  Class A units and Class B units shall beissued, redeemed, and transferred together on a one for one basis until the Boardof Directors determines the extent and conditions under which Class A units andClass B units may be issued, redeemed, and transferred separately.

Diluted EPU reflects the potential dilution that couldoccur if potential unit purchase rights were exercised or contractualappreciation rights were converted into units.   Upon termination of the CEOemployment agreement, at the election of the CEO, or upon mutual agreement ofthe Board of the Company and the CEO, the CEO may purchase up to 20,000 Class Aand Class B units, or upon agreement of the CEO and the Board of Directors, theCEO may convert the contractual unit appreciation rights to up to 20,000 ClassA and Class B units.  The diluted EPU reflects the circumstances of terminationof the CEO employment agreement, and the election of CEO or agreement by theBoard of the Company and the CEO for the CEO to purchase or convert contractualrights to the maximum 20,000 units at $55 per linked Class A and Class B unitfor the periods as provided for in the CEO employment agreement. 

 

9

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The diluted loss per linked unit calculation in thefollowing table excludes the effect of the 20,000 unit purchase rights notedabove for the thirteen and twenty-six week periods ending February 23, 2008, asthe effect of including them would have been anti-dilutive to the loss perlinked unit calculation. 

| * *                                                                         |   |                                                          |         |                                                          |   |                                                          |   |                                                          |         |   |   |     |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------------|---------------------------------------------------------------|--------|---------------------------------------------------------------|--------|---------------------------------------------------------------|--------------|--------|--------|----------|
| **Income (Loss) Per Linked Unit Calculation**           |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
|                                                                             |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| (In thousands, except unit and per unit data) |   | **13 weeks ended**

**February 28, 2009** |         | **13 weeks ended**

**February 23, 2008** |   | **26 weeks ended**

**February 28, 2009** |   | **26 weeks ended**

**February 23, 2008** |
|                                                                             |   | (unaudited)                                                   |         | (unaudited)                                                   |   | (unaudited)                                                   |   | (unaudited)                                                   |
| **Basic income (loss) per linked unit**                 |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| Income (loss) available to unitholders (numerator)      |   | $                                                             | 31,430  |                                                          | $      | (7,550)                                                       |   | $                                                             | 28,185  |   | $      | (21,262) |
|                                                                             |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| Weighted average outstanding units (denominator)             |   | 735,385                                                  |         | 735,385                                                  |   | 735,385                                                  |   | 735,385                                                  |
|                                                                             |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| Per linked unit amount                                            |   | $                                                             | 42.74   |                                                          | $      | (10.27)                                                       |   | $                                                             | 38.33   |   | $      | (28.91)  |
|                                                                             |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| **Diluted income (loss) per linked unit**               |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| Income (loss) available to unitholders (numerator)      |   | $                                                             | 31,430  |                                                          | $      | (7,550)                                                       |   | $                                                             | 28,185  |   | $      | (21,262) |
|                                                                             |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| Weighted average outstanding units                                |   | 735,385                                                  |         | 735,385                                                  |   | 735,385                                                  |   | 735,385                                                  |
| Effect of dilutive securities - unit options       |   | 10,833                                                   |         | -                                                        |   | 10,833                                                   |   | -                                                        |
| Linked units (demoninator)                                             |   | 746,218                                                  |         | 735,385                                                  |   | 746,218                                                  |   | 735,385                                                  |
|                                                                             |   |                                                          |         |                                                          |   |                                                          |   |                                                          |
| Per linked unit amount                                            |   | $                                                             | 42.12   |                                                          | $      | (10.27)                                                       |   | $                                                             | 37.77   |   | $      | (28.91)  |
|                                                                             |   |                                                          |         |                                                          |   |                                                          |   |                                                          |

 

**(11)Subsequent Events**

OnMarch 9, 2009, the Company’s newly formed, wholly-owned subsidiary, NationalBeef Leathers, LLC, acquired certain assets and assumed certain liabilities ofPrime Tanning Corp. located in St. Joseph, Missouri.  This transaction expandsthe Company’s value-based marketing strategy into the quality wet blue hidecategory.

Effective April 13, 2009, USPB’s Credit Agreement was amended to provide for a $10 million revolving line of credit which willmature on April 30, 2011.  The Company will use the new facility for workingcapital and general corporate purposes.  Borrowings under the revolving line ofcredit will bear interest at LIBOR or the Base Rate, plus the applicable margin. The applicable margin will be the same as NBP’s Credit Facility for Line ofCredit Loans plus 25 basis points. 

On April 13, 2009, NBP entered into two UnitRedemption Agreements pursuant to Section 12.5 of its LLC Agreement toredeem at agreed upon redemption prices all of the membership interests in NBP that are owned or controlled by NBP’s Chief Executive Officer, John R. Miller, and Mr. Smith,as well as 25% of the membership interests in NBP that are owned by affiliatesof NBP’s President and Chief Operating Officer, Timothy M. Klein.  As aresult, Mr. Miller and his affiliate received approximately $91.3 million fortheir units and Mr. Smith’s affiliate received approximately $22.8 million forits units and they are no longer members of NBP although each retained theirposition with NBP.  Mr. Klein’s affiliates received approximately $11.4million for their redeemed units, and he retained his position with NBP as well.

In connection with these transactions, the NBP LLC Agreement was amended to provide that (i) the existing appraisal processfor the valuation of NBP to be used for the remaining units controlled byMr. Klein for his rights under Section 12.5 of the NBP LLC Agreement hasbeen replaced with an amount equal to a two-year average of NBP’s EBITDA (as defined in the NBP LLC Agreement) multiplied by six minus NBP’s outstanding debt; and (ii) for purposes of redemption or liquidation, the Class B unitscontrolled by Mr. Klein will be paid a non-dilution premium.

10

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In order to partially finance such redemptions, NBP created a new series of Class A units (referred to as “Class A1 Units”) that were issued to USPBand NBPCO Holdings, LLC for approximately $55.8 million and $19.6 million,respectively.  Class A1 Units are nonvoting and are entitled to a prioritydistribution of 7% per year on the face amount of the Class A1 Units payablewith payment in kind Class A1 Units in lieu of cash if NBP’s EBITDA does notmeet certain tests.  For purposes of determining Class B ownership forliquidation or redemption, the Class A1 Units will be deemed to be converted toClass B units at a ratio stated in the NBP LLC Agreement, but will remain ClassA1 Units after such determination.

As a result of these transactions, the ownership of NBP’s Class B voting interests is as follows:

 

|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   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| **Beneficial Owner**             |   | **Class B Interest  (1)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | **Percentage of**

**Class** |
|                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                              |
| U.S. Premium Beef, LLC |   | 12,537,001.0612 
69.3527%
NBPCo Holdings, LLC

 

4,468,723.0518

 

24.7203%

Timothy M. Klein Affiliates

 

1,071,429.0000

 

5.9270%

 

 

 

 

 

(1) For purposes of a redemption or liquidation event assuming no redemptions of any Class A1 Units.

 

 

 

 

 

 

NBP also financeda portion of the redemptions with $50.0 million of new borrowings under the revolvingline of credit of its existing credit facility (as amended, the"Credit Facility").  NBP’s Credit Facility was amended on April13, 2009 topermit these redemptions, increase the borrowings under the term loan by up to$75.0****million, increase the revolving line of credit by $25.0 million,increase the interest rates of the term loan and revolving line of credit, shortenthe maturity date of the term loan to July 2012 and revise the payment scheduleof the term loan, among other things.  The related financing charges, anupfront fee of approximately $0.7 million and an arrangement fee of approximately$0.5 million, will be amortized over the life of the loan.

 

 

11
****
**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

The following discussion shouldbe read in conjunction with our consolidated financial statements and relatednotes and other financial information appearing elsewhere in this report.

**DisclosureRegarding Forward-Looking Statements**

This report contains “forward-lookingstatements,” which are subject to a number of risks and uncertainties, many ofwhich are beyond our control. Forward-looking statements are typicallyidentified by the words “believe,” “expect,” “anticipate,” “intend,” “estimate,”and similar expressions. Actual results could differ materially from thosecontemplated by these forward-looking statements as a result of many factors,including economic conditions generally and in our principal markets, theavailability and prices of live cattle and commodities, food safety, livestockdisease, including the identification of cattle with BSE, competitive practicesand consolidation in the cattle production and processing industries, actionsof domestic or foreign governments, hedging risk, changes in interest rates andforeign currency exchange rates, consumer demand and preferences, the cost ofcompliance with environmental and health laws, loss of key customers orsuppliers, loss of key employees, labor relations, and consolidation among ourcustomers.  

In light of these risks anduncertainties, there can be no assurance that the results and eventscontemplated by the forward-looking information contained in this report willin fact transpire. Readers are cautioned not to place undue reliance on these forward-lookingstatements. We do not undertake any obligation to update or revise anyforward-looking statements. All subsequent written or oral forward-lookingstatements attributable to us or persons acting on our behalf are expresslyqualified in their entirety by these factors.  See also the *Risk Factors*in *Item 1A. Business* of the Company’s Annual Report for the yearended August 30, 2008 on Form 10-K filed with the Securities and ExchangeCommission for other important factors that could cause actual results todiffer materially from those in any such forward-looking statements, and whichshould be read in conjunction with this report.

**Industry Outlook**

Concern about consumer spendingand the demand for all proteins, specifically beef, will continue to dominatethe industry outlook over the coming months.  Declining cattle and competingmeat supplies have been well documented and should be supportive to prices,however, demand continues to take center stage.  The global economic concernsremain unchanged while the value of the U.S. dollar has declined and couldbegin to be supportive to beef exports while slowing the recent improvements inimport volume.  Beef by-products remain under severe pressure and it will takeseveral months before inventories become manageable on several key items. Boxed beef will continue to be required to carry a larger percentage of totalprocessing returns, particularly relative to the levels realized over the pasttwo years.

**RecentDevelopments**

Continued world financial instability and foreigncurrency deviations have decreased the demand and value of certain industryproducts and inventories.

On February 19, 2009, the Company and the otherholders of the NBP membership interests, including NBPCO Holdings and partiescontrolled by three executive officers, John R. Miller, Timothy M. Klein andScott H. Smith (Sellers), delivered a termination notice to JBS S.A. (JBS) toterminate the Membership Interest Purchase Agreement, as amended (MIPA)effective as of February 23, 2009.  On February 23, 2009, JBS paid to theSellers a termination fee in the amount of $19.9 million as per the terms ofthe MIPA.  Subsequent to the termination of the MIPA, the Company wrote offapproximately $1.5 million of legal fees related to the MIPA in February 2009,which are included in other, net.

Effective April 13, 2009, USPB’s Credit Agreement was amended to provide for a $10 million revolving line of credit which willmature on April 30, 2011.  The Company will use the new facility for workingcapital and general corporate purposes.  Borrowings under the revolving line ofcredit will bear interest at LIBOR or theBase Rate, plus the applicable margin.  The applicable margin will be the sameas NBP’s Credit Facility for Line of Credit Loans plus 25 basis points.

 

12
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On April 13, 2009, NBP entered into two UnitRedemption Agreements pursuant to Section 12.5 of its Limited LiabilityCompany Agreement, dated as of August 6, 2003 (as amended from time totime, the “LLC Agreement”) to redeem at agreed upon redemption prices all ofthe membership interests in NBP that are owned or controlled by NBP’s Chief Executive Officer, John R. Miller, and an affiliate of NBP’s General Counsel,Scott H. Smith (referred to herein as “Mr. Smith”), as well as 25% of themembership interests in NBP that are owned by affiliates of NBP’s President and Chief Operating Officer, Timothy M. Klein.  As a result, Mr. Millerand his affiliate received approximately $91.3 million for their units and Mr.Smith’s affiliate received approximately $22.8 million for its units and they areno longer members of NBP although each retained their position with NBP.  Mr. Klein’s affiliates received approximately $11.4 million for their redeemed units,and he retained his position with NBP as well.

In connection with these transactions, the NBP LLC Agreement was amended to provide that (i) the existing appraisal processfor the valuation of NBP to be used for the remaining units controlled byMr. Klein for his rights under Section 12.5 of the NBP LLC Agreement hasbeen replaced with an amount equal to a two-year average of NBP’s EBITDA (as defined in the NBP LLC Agreement) multiplied by six minus NBP’s outstanding debt; and (ii) for purposes of redemption or liquidation, the Class B unitscontrolled by Mr. Klein will be paid a non-dilution premium.

In order to partially finance such redemptions, NBP created a new series of Class A units (referred to as “Class A1 Units”) that were issued to USPBand NBPCO Holdings, LLC for approximately $55.8 million and $19.6 million,respectively.  Class A1 Units are nonvoting and are entitled to a prioritydistribution of 7% per year on the face amount of the Class A1 Units payablewith payment in kind Class A1 Units in lieu of cash if NBP’s EBITDA does notmeet certain tests.  For purposes of determining Class B ownership forliquidation or redemption, the Class A1 Units will be deemed to be converted toClass B units at a ratio stated in the NBP LLC Agreement, but will remain ClassA1 Units after such determination.

As a result of these transactions, the ownership of NBP’s Class B voting interests is as follows:

 

 

 

 

 

**Beneficial Owner**

 

**Class B Interest  (1)**

 

**Percentage of Class**

 

 

 

 

 
U.S. Premium Beef, LLC 
12,537,001.0612 
69.3527%
NBPCo Holdings, LLC

 

4,468,723.0518

 

24.7203%

Timothy M. Klein Affiliates

 

1,071,429.0000

 

5.9270%

 

 

 

 

 

(1) For purposes of a redemption or liquidation event assuming no redemptions of any Class A1 Units.

 

 

 

 

 

 

NBP alsofinanced a portion of the redemptions with $50.0 million of new borrowingsunder the revolving line of credit of its existing credit facility (as amended, the"Credit Facility").  NBP’s Credit Facility was amended on April 13, 2009 topermit these redemptions, increase the borrowings under the term loan by up to$75.0****million, increase the revolving line of credit by $25.0 million,increase the interest rates of the term loan and revolving line of credit, shortenthe maturity date of the term loan to July 2012 and revise the payment scheduleof the term loan, among other things.  The related financing charges, anupfront fee of approximately $0.7 million and an arrangement fee ofapproximately $0.5 million, will be amortized over the life of the loan.  For amore complete description of the material amendments to NBP’s Credit Facility,see “Liquidity and Capital Resources–Amended and Restated Senior CreditFacility.”  

 

 

 

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**BeefExport Markets**

Exportmarkets for U.S. beef products remain constrained since the discovery of a caseof BSE in the State of Washington in December 2003, as well as other isolatedcases.  In July 2006, Japan agreed to reopen its market to U.S. beef fromcattle aged 20 months and younger.  In April 2008, our Brawley facility wassuspended from shipping beef to Japan following the discovery of a short loin thatincluded a portion of a spinal column, a specified risk material, prohibited byJapan.  Our Brawley facility was subsequently cleared to resume shipments toJapan on September 19, 2008.  South Korea announced a provisional opening ofits border to U.S. beef from animals 30 months and younger in September 2006; however,its border was subsequently closed in October 2007.  South Korea reopened itsborder and started inspecting U.S. beef near the end of June 2008.  Our DodgeCity facility was removed from the eligible supplier list to Mexico on December23, 2008 for two days for an alleged ink issue in September 2008 which webelieve to be untrue and unfounded.  These constraints and uncertainties havehad a negative impact on beef margins.

We cannot presently assess the full economic impact ofthe consequences of BSE on the U.S. beef packing industry or on ouroperations.  Existing or new import restrictions or additional regulatoryrestrictions or disruptions in domestic consumer demand for beef may continueto have a material adverse affect on our revenues and net income.

**Resultsof Operations**

***Thirteen weeks ended February 28, 2009 compared to thirteen weeks endedFebruary 23, 2008***

*General.*  Netincome for the thirteen weeks ended February 28, 2009 was approximately $31.4 millioncompared to a net loss of $7.6 million for the thirteen weeks ended February23, 2008, an improvement of $39.0 million.  Total costs and expenses of approximately$1,257.6 million and $1,310.2 million for the thirteen weeks ended February 28,2009 and February 23, 2008, respectively, were 96.9% as a percent of sales forthe thirteen weeks ended February 28, 2009 compared to 100.3% for the thirteenweeks ended February 23, 2008.  A relatively stable demand for beef productsand a decline in cattle prices during the second quarter of fiscal year 2009 ascompared to the same period of fiscal year 2008 allowed the sales prices tocover the cost of the live cattle that we processed. 

*Net Sales*. Net sales were approximately $1,298.2 million for the thirteen weeks endedFebruary 28, 2009 compared to approximately $1,306.0 million for the thirteenweeks ended February 23, 2008, a decrease of approximately $7.8 million, or 0.6%. The slight decrease in net sales resulted primarily from an average decrease insales prices per head of 0.5% in the thirteen weeks ended February 28, 2009than the same period in the prior year while the volume of cattle processedremained relatively unchanged. 

*Cost of Sales*. Cost of sales was approximately $1,236.3 million for the thirteen weeks endedFebruary 28, 2009 compared to approximately $1,288.2 million for the thirteenweeks ended February 23, 2008, a decrease of approximately $51.9 million, or4.0%.   The decrease was primarily a result of decreased live cattle pricesthat were approximately 8.8% lower than the same period of last year.

*Selling, General, and Administrative Expenses*.  Selling, general, and administrative expenses were$10.0 million for the thirteen weeks ended February 28, 2009 compared to $13.2million for the thirteen weeks ended February 23, 2008, a decrease of $3.2million, or 24.2%.  The decrease reflects a decrease in legal expenses ofapproximately $3.4 million, which are lower primarily as a result of $2.1million in legal fees associated with the MIPA that were reclassed to other,net in the current quarter.  Also contributing to the decrease was a decrease in travel and related expenses ofapproximately $0.2 million and a decrease in consulting expense ofapproximately $0.2 million.  Offsetting these decreases was an increase in theprovision for bad debts of approximately $0.5 million and an increase in payroll, bonus, and related expenses of approximately $0.5 million.  

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses wereapproximately $11.3 million for the thirteen weeks ended February 28, 2009compared to approximately $8.8 million for the thirteen weeks ended February23, 2008, an increase of approximately $2.5 million, or 28.4%.  Depreciationexpense increased due to assets being placed into service, primarily at ourthree beef plants and two case ready plants, during fiscal year 2008 and toassets being placed into service, primarily at our two Kansas beef plants, latein the first quarter of fiscal year 2009.  

 

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*Operating Income/Loss*.  Operating income was approximately $40.6 millionfor the thirteen weeks ended February 28, 2009 compared to an operating loss ofapproximately $4.2 million for the thirteen weeks ended February 23, 2008, animprovement of approximately $44.8 million.  The increased operating income resultedfrom a relatively stable demand for beef products and lower cattle prices whichallowed the sales prices to cover the cost of the live cattle that we processedduring the second quarter of fiscal year 2009 as compared to the same period oflast year.  

*Minority Owners’ Interest in NBP.*  Minority interest in the net incomeof NBP for the thirteen weeks ended February28, 2009 was $13.2 million compared to a net loss for the thirteen weeks ended February 23, 2008 of $4.9 million, a change of $18.1 million. The minority interest inNBP represents the minority owners’ equity in NBP’s earnings.

*Interest Expense*.  Interest expense was approximately $5.6 million for the thirteenweeks ended February 28, 2009 compared to $9.2 million for the thirteen weeksended February 23, 2008, a decrease of $3.6 million, or 39.1%.  The decrease ininterest expense during the thirteen weeks ended February 28, 2009 as comparedto the same period last year was due primarily to the purchase and cancellationof our Senior Notes of approximately $30.6 million and $2.3 million during thefourth quarter of fiscal year 2008 and the first quarter of fiscal year 2009,respectively.  The repayment of approximately $25.7 million of our term note inDecember 2008 also contributed to the decline in interest expense for thecurrent quarter.  In addition, the weighted average principal amount of ourvariable rate debt decreased by approximately $20.1 million at February 28,2009 as compared to February 23, 2008.   Also contributing to the decrease ininterest expense was lower interest rates on our variable rate debt, a decreaseof approximately 347 basis points, during the thirteen weeks ended February 28,2009 as compared to the same period of last year. 

*Termination Fee*. A termination fee in the amount of $14.6million was received in the thirteen week period ending February 28, 2009 as aresult of the termination of the MIPA, discussed in further detail in Note 3 toour Consolidated Financial Statements included in Part I- *Item 1* ofthis Form 10-Q.  

*Other, net. *Other,net non-operating expense was approximately $4.2 million for the thirteen weeksended February 28, 2009 compared to other, net non-operating income ofapproximately $1.5 million for the thirteen weeks ended February 23, 2008, adecrease of approximately $5.7 million.  The decrease in other, netnon-operating income was primarily related to the reclass of approximately $2.1million in legal fees from selling, general, and administrative expenses andthe write-off of approximately $1.5 million of legal fees, both of which wererelated to the termination of the MIPA in February 2009.  Also contributing tothe decrease was the approximate $0.7 million write-off of obsolete parts atour case ready facilities during the current quarter.  In addition, we hadrecorded $1.3 million in proceeds received in redemption of an investmentinterest in which our basis had previously been written down to zero during thesecond quarter of fiscal year 2008 which did not recur in the current quarter. 

*Income Tax Expense*.  Income tax expense was $0.2 million for the thirteen weeks ended February28, 2009 compared to $0.5 million for the same period of fiscal year 2008, a decreaseof $0.3 million, or 60.0%.  Beginning in calendar year 2008, some states inwhich we conduct business, modified their business taxes, using net income, ora modification of net income, as the basis.  The modification of these statetaxes necessitated the inclusion of approximately $0.1 million of thesebusiness taxes in income tax expense during the thirteen weeks ended February 28,2009 as compared to the same period of fiscal year 2008.  A decrease in incometaxes for the period of approximately $0.4 million was related to oursubsidiary, National Carriers, Inc. (NCI).  Income tax expense is recorded onincome from NCI, which is organized as a C Corporation.

***Twenty-six weeks ended February 28, 2009 compared to twenty-six weeksended February 23, 2008***

*General.* Net income for the twenty-six weeks ended February 28, 2009 was approximately$28.2 million compared to a net loss of approximately $21.3 million for thetwenty-six weeks ended February 23, 2008, an improvement of approximately $49.5million.  Net sales were higher in the twenty-six weeks ended February 28, 2009compared to those of the prior period primarily due to an average increase insales prices per head of approximately 2.8%.  The number of cattle processedduring the current twenty-six week period was 1.6% less than the same period oflast year. 

 

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Total costs and expenses of approximately $2,684.5million and $2,724.3 million for the twenty-six weeks ended February 28, 2009and February 23, 2008, respectively, were 98.4% as a percent of sales for thetwenty-six weeks ended February 28, 2009 compared to 100.8% for the twenty-sixweeks ended February 23, 2008.  A relatively stable demand for beef products andlower cattle prices allowed for increased sales prices to cover the cost of thelive cattle that we processed during the twenty-six week period of fiscal year2009 as compared to the same period of fiscal year 2008.  

*Net Sales*. Net sales were approximately $2,727.2 million for the twenty-six weeks endedFebruary 28, 2009 compared to approximately $2,704.1 million for the twenty-sixweeks ended February 23, 2008, an increase of approximately $23.1 million, or 0.9%. The slight increase in net sales resulted primarily from an average increase insales prices per head of 2.8% in the twenty-six weeks ended February 28, 2009 ascompared to the same period in the prior year while the volume of cattleprocessed decreased by approximately 1.6%.  Partially offsetting the increasein average sales prices per head was an approximate $12.2 million loss on the fairvalue adjustment on cattle futures contracts that we entered into during thefirst quarter of fiscal year 2009 to offset the risk of fixed-price salescommitments.  This $12.2 million loss excludes the impact from related physicalpurchase and sales transactions which will impact future periods operatingresults.

*Cost of Sales*. Cost of sales was approximately $2,640.3 million for the twenty-six weeks endedFebruary 28, 2009 compared to approximately $2,681.9 million for the twenty-sixweeks ended February 23, 2008, a decrease of approximately $41.6 million, or1.6%.  The decrease was primarily a result of decreased live cattle prices thatwere approximately 3.5% lower than the twenty-six week period of last year. Also contributing to this decrease was decreased cattle processing ofapproximately 1.6% for the current twenty-six week period ended February 28, 2009as compared to the same period of fiscal year 2008.

*Selling, General, and Administrative Expenses*.  Selling, general, and administrative expenses were$22.9 million for the twenty-six weeks ended February 28, 2009 compared to $24.9million for the twenty-six weeks ended February 23, 2008, a decrease of $2.0million, or 8.0%.  The decrease for this period is primarily due to anapproximate $2.0 million decrease in legal fees, which are lower primarily as aresult of $2.1 million in legal fees associated with the MIPA that werereclassed to other, net.  Also contributing to the decrease was a decrease inadvertising expense of approximately $0.3 million, a decrease in travel andrelated expenses of approximately $0.3 million, and an approximate $0.2 milliondecrease in consulting expense.  Partially offsetting these decreases was anincrease in payroll, bonus, and benefit expenses of approximately $1.5 millionand an approximate $0.5 million increase in the provision for bad debts duringthe current period as compared to the same period of last year. 

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses wereapproximately $21.2 million for the twenty-six weeks ended February 28, 2009compared to approximately $17.6 million for the twenty-six weeks ended February23, 2008, an increase of approximately $3.6 million, or 20.5%.  Depreciationexpense increased due to assets being placed into service, primarily at ourthree beef plants and two case ready plants, during fiscal year 2008 and toassets being placed into service, primarily at our two Kansas beef plants, latein the first quarter of fiscal year 2009.

*Operating Income/Loss*.  Operating income was approximately $42.7 millionfor the twenty-six weeks ended February 28, 2009 compared to operating loss ofapproximately $20.3 million for the twenty-six weeks ended February 23, 2008,an improvement of approximately $63.0 million.  The improved operating incomeresulted from a relatively stable demand for beef products and lower cattleprices which allowed the sales prices to cover the cost of the live cattle thatwe processed in the current twenty-six week period as compared to the sameperiod of last year.

*Minority Owners’ Interest in NBP.*  Minority interest in the net income of NBP for the twenty-six weeks ended February 28, 2009 was $11.7million compared to a net loss for the twenty-six weeks ended February 23, 2008 of $16.3million, a change of $28.0 million. Theminority interest in NBP represents the minority owners’ equity in NBP’searnings.

 

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*Interest Expense*.  Interest expense was approximately $12.5 million for the twenty-sixweeks ended February 28, 2009 compared to $18.4 million for the twenty-sixweeks ended February 23, 2008, a decrease of approximately $5.9 million, or 32.1%. The decrease in interest expense during the twenty-six weeks ended February 28,2009 as compared to the same period last year was due primarily to the purchaseand cancellation of our Senior Notes of approximately $30.6 million and $2.3million during the fourth quarter of fiscal year 2008 and the first quarter offiscal year 2009, respectively.   The repayment of approximately $25.7 millionof our term note in December 2008 also contributed to the decline in interestexpense for the twenty-six week period.  In addition, the weighted averageprincipal amount of our variable rate debt decreased by approximately $19.9million at February 28, 2009, as compared to February 23, 2008.   Alsocontributing to the decrease in interest expense was lower interest rates onour variable rate debt, a decrease of approximately 290 basis points, duringthe twenty-six weeks ended February 28, 2009 as compared to the same period oflast year. 

*Termination Fee*. Atermination fee in the amount of $14.6 million was received in the twenty-sixweek period ending February 28, 2009 as a result of the termination of theMIPA, discussed in further detail in Note 3 to our Consolidated FinancialStatements included in Part I- *Item 1* of this Form 10-Q.

*Other, net.* Other, net non-operating expense was approximately $3.8 million for thetwenty-six weeks ended February 28, 2009 compared to other, net non-operatingincome of approximately $1.8 million for the twenty-six weeks ended February23, 2008, a decrease of approximately $5.6 million.  The decrease in other, netnon-operating income was primarily related to the reclass of approximately $2.1million in legal fees from selling, general, and administrative expenses andthe write-off of approximately $1.5 million of legal fees, both of which wererelated to the termination of the MIPA in February 2009.  Also contributing tothe decrease was the approximate $0.7 million write-off of obsolete parts atour case ready facilities during the current quarter.  In addition, we hadrecorded $1.3 million in proceeds received in redemption of an investmentinterest in which our basis had previously been written down to zero during thetwenty-six week period of fiscal year 2008 as compared to the same period offiscal year 2009.  

*Income Tax Expense*.  Income tax expense was $0.6 million for the twenty-six weeks endedFebruary 28, 2009 compared to $1.1 million for the same period of fiscal year2008, a decrease of $0.5 million, or 45.5%.  Beginning in calendar year 2008,some states in which we conduct business, modified their business taxes, usingnet income, or a modification of net income, as the basis.  The modification ofthese state taxes necessitated the inclusion of approximately $0.1 million ofthese business taxes in income tax expense during the twenty-six weeks ended February28, 2009 as compared to the same period of fiscal year 2008.  A decrease inincome taxes for the period of approximately $0.7 million was related to oursubsidiary, National Carriers, Inc. (NCI).  Income tax expense is recorded onincome from NCI, which is organized as a C Corporation.

**Liquidityand Capital Resources**

As of February 28, 2009, we had net working capital of$254.4 million, which included $0.4 million in distributions payable, and cashand cash equivalents of $72.3 million.  As of August 30, 2008, we had networking capital of $277.9 million, which included $19.2 million in distributionspayable, and cash and cash equivalents of $77.4 million.  Our primary sourcesof liquidity are cash flow from operations and available borrowings under the amendedand restated credit facility (Credit Facility).

As of February 28, 2009, we had $351.9 million oflong-term debt, $10.0 million of which was classified as a current liability.As of February 28, 2009, NBP’s Credit Facility consisted of a $176.9 millionterm loan, all of which was outstanding, and a $200.0 million revolving line ofcredit loan, which had outstanding borrowings of $12.8 million, outstandingletters of credit of $42.2 million and available borrowings of $145.0 million,based on the most restrictive financial covenant calculations.  Cash flows fromoperations and borrowings under NBP’s Credit Facility have funded its workingcapital requirements, acquisitions, capital expenditures, and other generalcorporate purposes.  NBP was in compliance with all of the financial covenantsunder its Credit Facility as of February 28, 2009.

Effective April 13, 2009, USPB’s Credit Agreement was amended to provide for a $10 million revolving line of credit which willmature on April 30, 2011.  The Company will use the new facility for workingcapital and general corporate purposes.  Borrowings under the revolving line ofcredit will bear interest at LIBOR or theBase Rate, plus the applicable margin.  The applicable margin will be the sameas NBP’s Credit Facility for Line of Credit Loans plus 25 basis points. 

 

 

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Effective April 13, 2009, NBP amended its Credit Facility to increase the available borrowings under the facility byincreasing the revolving line of credit by $25.0 million and the term loan byup to $75.0 million.  NBP used $50.0 million from the revolver and $75.5million from the issuance of Class A1 Units to finance the redemption of themembership interests from certain members of management and their affiliatespursuant to their rights under the NBP LLC Agreement.

In addition to outstanding borrowings under the CreditFacility, the Company had outstanding borrowings under industrial revenue bondsof $20.7 million, Senior Notes of $127.1 million, a term loan with CoBank, ofwhich approximately $2.5 million was outstanding, and capital lease and otherobligations of $11.9 million as of February 28, 2009.

NBP believes that available borrowings under its CreditFacility and cash provided by operating activities will be sufficient tosupport working capital, capital expenditures, and debt service requirementsfor the foreseeable future.  NBP is required to purchase or redeem $100.0million of its outstanding Senior Notes on ore before December 31, 2009.  NBP’sability to generate sufficient cash, however, is subject to certain generaleconomic, financial, industry, legislative, regulatory, and other factorsbeyond its control.  For a review of the obligations that affect liquidity,please see the*Cash Payment Obligations* table in Item 7. *Management’sDiscussion and Analysis of Financial Condition and Results of Operations* ofour Annual Report on Form 10-K for the year ended August 30, 2008.

*OperatingActivities*

Net cash provided by operating activities in thetwenty-six weeks ended February 28, 2009 was approximately $96.4 millioncompared to approximately $13.4 million in the twenty-six weeks ended February23, 2008.  The $83.0 million change was primarily due to a net income ofapproximately $28.2 million during the twenty-six week period of fiscal year2009 as compared to the net loss of $21.3 million during the same period offiscal year 2008.  Also contributing to the improvement was net cash beingprovided in operating activities through accounts receivable, inventory, andother accrued expenses and liabilities which was offset by net cash used inoperating activities through accrued compensation and benefits, accountspayable, and other assets in the current year.

*InvestingActivities*

Net cash used in investing activities wasapproximately $2.5 million in the twenty-six weeks ended February 28, 2009compared to approximately $24.0 million in the twenty-six weeks ended February23, 2008.  This decrease in cash used was primarily attributable to a reductionin expenditures for property, plant, and equipment and the receipt of thetermination fee discussed in further detail in Note 3 to our ConsolidatedFinancial Statements included in Part I- *Item 1* of this Form 10-Q.

*FinancingActivities*

Net cash used in financing activities wasapproximately $98.8 million in the twenty-six weeks ended February 28, 2009compared to net cash provided by financing activities of approximately $8.4million in the twenty-six weeks ended February 23, 2008.  The change wasprimarily attributed to an approximate $49.2 million increase in distributions paidof which $16.6 million was paid to the minority owners in NBP, an approximate $25.3million decrease in revolving credit borrowings, and approximately $25.7million in repayments on the term note during the current twenty-six weekperiod as compared to the same period of last year.

* *

 

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*Amendedand Restated Senior Credit Facility*

Effective April 13, 2009, USPB’s Credit Agreement was amended to provide for a $10 million revolving line of credit which willmature on April 30, 2011.  The Company will use the new facility for workingcapital and general corporate purposes.  Borrowings under the revolving line ofcredit will bear interest at LIBOR or theBase Rate, plus the applicable margin.  The applicable margin will be the sameas NBP’s Credit Facility for Line of Credit Loans plus 25 basis points. 

Effective April 13, 2009, NBP’s Credit Facility was amended to permit the redemption of its membership interests in theamount of $125.5 million, including the authorization and issuance of Class A1Units to help fund the redemption.  In addition, the terms of the CreditFacility were amended to:  (1) increase the borrowings under the CreditFacility by up to $100.0 million; (2) increase the applicable margin on therates of interest of the term loan and revolving line of credit; (3) revise thepayment schedule of the term loan; (4) shorten the maturity date of the termloan; (5) remove the restrictions on purchasing the Senior Notes and requirethe repurchase or redemption of $100 million of NBP’s Senior Notes; (6)increase the amount of capital expenditures NBP can make in any fiscal yearfrom $50 million to $60 million, or $65 million if NBP expends less than $55million in the immediately preceding fiscal year; and (7) add a financialcovenant requiring NBP to maintain a Funded Debt to EBITDA ratio.  The relatedfinancing charges, an upfront fee of approximately $0.8 million and anarrangement fee of approximately $0.5 million, will be amortized over the lifeof the loan. 

Once the applicable collateral provisions aresatisfied, the Credit Facility will consist of up to $251.9 million under a termloan that matures in July 2012 and a revolving line of credit loan of $225.0million that matures in July 2012 thatis subject to certain borrowing base limitations.     

Borrowings under the Credit Facility bear interest atLIBOR or the Base Rate, plus the applicable margin.  The applicable margin forthe revolving line of credit and the term loan will be based on borrowing baseavailability with grids greater than $150.0 million, $50.0 to $150.0 millionand less than $50.0 million.  As of April 14, 2009, the interest rates for the revolvingloan and the term loan were approximately 5.75% and 6.00%, respectively. 

Our funded debt to EBITDA ratio is not to be more than3.75 to 1.00 at the end of each fiscal quarter.  If the borrowing base availability is less than $50.0 million for fiveconsecutive business days or less than $35.0 million on any single business dayduring any fiscal quarter, a fixed charge ratio of 1:15 to 1:00 must bemaintained at the end of each subsequent fiscal quarter until the borrowingbase availability has been greater than or equal to $50.0 million for 90consecutive days.   The advance rates under the borrowing base are 90% oneligible accounts and 70% on eligible inventory.  As of April 14, 2009, theCompany had met the borrowing base availability requirements under its CreditFacility.

Theborrowings under the revolving loan are available for NBP’s working capitalrequirements, capital expenditures and other general corporate purposesincluding the purchase of $100.0 million of NBP’s Senior Notes on or beforeDecember 31, 2009.  The Credit Facility is secured by a first priority lien onsubstantially all of NBP’s assets.  The principal amount outstanding under theterm loan is due and payable in equal installments of approximately $2.5million on the last business day of each June and December commencing December2009 through December 2010 after which payments increase to approximately $4.8million.  All outstanding amounts of the term loan are due and payable on July25, 2012.  Prepayment is allowed at any time.

The CreditFacility contains customary affirmative covenants, including, withoutlimitation, conduct of business, the maintenance of insurance, compliance withlaws, maintenance of properties, keeping of books and records, and thefurnishing of financial statements.  The facility also contains customarynegative covenants, including without limitation, restrictions on thefollowing:  distributions, mergers, sale of assets, investments andacquisitions, encumbrances, indebtedness, affiliate transactions, and ERISAmatters.

 

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The Credit Facility contains customary events ofdefault, including without limitation, failure to make payment when due,materially incorrect representations and warranties, breach of covenants,events of bankruptcy, default of other indebtedness that would permitacceleration of such indebtedness, the occurrence of one or more unstayed or undischargedjudgments in excess of $3.0 million, changes in custody or control of NBP’sproperty, changes in control of NBP, the failure of any of the loan documentsto remain in full force, and NBP’s failure to properly fund its employeebenefit plans.  The facility also includes customary provisions protecting thelenders against increased cost or loss of yield resulting from changes in tax,reserve, capital adequacy, and other requirements of law.

** **

**Item3. Quantitative and Qualitative Disclosures about Market Risk.**

The principal market risks affecting our business areexposure to changes in prices for commodities, such as livestock and boxedbeef, and interest rate risk.

*Commodities.*NBPuses various raw materials, many of which are commodities. Raw materials aregenerally available from several different sources, and NBP presently believesthat it can obtain them as needed.  Commodities are subject to pricefluctuations that may create price risk. When appropriate, NBP may hedgecommodities in order to mitigate this price risk. While this may tend to limit NBP’sability to participate in gains from commodity price fluctuations, it alsotends to reduce the risk of loss from changes in commodity prices. NBP reflectscommodity contract gains and losses as adjustments to the basis of underlyingcommodities purchased; gains or losses are recognized in the statement ofoperations as a component of costs of sales.

NBP purchases cattle for use in its processingbusinesses. When appropriate, NBP enters into forward purchase contracts atprices determined prior to the delivery of the cattle. The commodity price riskassociated with these activities can be hedged by selling (or buying) theunderlying commodity, or by using an appropriate commodity derivative instrument.The particular hedging instrument NBP uses depends on a number of factors,including availability of appropriate derivative instruments.

NBP sells commodity beef products in its business.Commodity beef products are subject to price fluctuations that may create pricerisk. When appropriate, NBP enters into forward sales contracts at pricesdetermined prior to shipment. NBP may hedge the commodity price risk associatedwith these activities in order to mitigate this price risk. While this may tendto limit NBP’s ability to participate in gains from commodity pricefluctuations, it also tends to reduce the risk of loss from changes incommodity beef prices. NBP reflects commodity contract gains and losses asadjustments to the basis of underlying commodities sold; gains or losses arerecognized in the statement of operations as a component of net sales.

NBP may use futures contracts in order to reduceexposure associated with entering into firm commitments to purchase live cattleat prices determined prior to delivery of the cattle as well as firmcommitments to sell certain beef products at sales prices determined prior toshipment. In accordance with SFAS No. 133 (SFAS 133), *Accounting forDerivative Instruments and Hedging Activities*, as amended, NBP accounts forfutures contracts and their related firm purchase commitments at fair value.Certain firm commitments for live cattle purchases and all firm commitments forboxed beef sales are treated as “normal purchases and sales” and not marked tomarket.  SFAS 133 imposes extensive recordkeeping requirements in order totreat a derivative instrument as a hedge for accounting purposes. Derivativesqualify for treatment as hedges when there is a high correlation between thechange in fair value of the instrument and the related change in fair value ofthe underlying commitment. For derivatives that qualify as effective hedges,the change in fair value has no net effect on earnings until the hedgedtransaction affects earnings. For derivatives that are not designated ashedging instruments, or for the ineffective portion of a hedging instrument,the change in fair value does affect current period net earnings.

While management believes each of these instrumentshelp mitigate various market risks, they are not designated and accounted foras hedges under SFAS 133 as a result of the extensive recordkeepingrequirements of that statement. Accordingly, the gains and losses associatedwith the change in fair value of all futures contracts and the gains and lossesassociated with changes in the market value of certain of the firm commitments notdesignated as normal purchases are recorded to income and expense in the periodof change.

 

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NBP uses a sensitivity analysis to evaluate the effectthat changes in the market value of commodities will have on these commodityderivative instruments.  NBP believes that sensitivity analysis moreappropriately reflects the potential market value exposure associated with theuse of derivative instruments.  As of February 28, 2009, the potential changein the fair value of applicable commodity prices, assuming a hypothetical 10%decrease in the underlying commodity price in each year, was $17.1 million.  Asof August 30, 2008, the potential change in fair value of applicable commodityprices, assuming a hypothetical 10% decrease in the underlying commodity price,was $1.2 million.  This significant change was primarily due to the cattle futurescontracts that we entered into during the first quarter of fiscal year 2009 tooffset the risk of fixed-price sales commitments.

*Foreign Operations*.  Transactions denominated in a currency other than an entity’sfunctional currency may expose that entity to currency risk.  Although NBP operatesin international markets including Japan and South Korea, product sales arepredominately made in United States dollars, and therefore, currency risks arelimited.

*Interest Rates*.As a result of the Company’s normal borrowing and leasing activities, ouroperating results are exposed to fluctuations in interest rates, which wemanage primarily through our regular financing activities. We generallymaintain limited investments in cash and cash equivalents.  

We have long-term debt with variable interest rates.Short-term debt is primarily comprised of the current portion of long-term debtmaturing twelve months from the balance sheet date.  Our variable interestexpense is sensitive to changes in the general level of interest rates. As of February28, 2009, the weighted average interest rate on our $212.9 million of variablerate debt was approximately 2.1%.

We had total interest expense of approximately $12.5million during the twenty-six week period ending February 28, 2009.  Theestimated increase in interest expense from a hypothetical 200 basis pointincrease in applicable variable interest rates would have been approximately $2.5million in the twenty-six week period ending February 28, 2009. 

** **

**Item 4T.  Controls and Procedures.**

We maintain asystem of controls and procedures designed to provide reasonable assurance asto the reliability of the Consolidated Financial Statements and otherdisclosures included in this report, as well as to safeguard assets fromunauthorized use or disposition. We evaluated the effectiveness of the designand operation of our disclosure controls and procedures as defined in theSecurities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) undersupervision and with the participation of management, including our ChiefExecutive Officer and Chief Reporting and Compliance Officer. Based upon thatevaluation, as of the end of the period covered by this Quarterly Report onForm 10-Q, our Chief Executive Officer and Chief Reporting and ComplianceOfficer concluded that our disclosure controls and procedures were effective inalerting them, in a timely manner, to material information required to beincluded in our periodic Securities and Exchange Commission filings.  Therehave been no changes in our internal controls over financial reporting duringthe thirteen weeks ended February 28, 2009 that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.  The design of any system of controls and procedures is based inpart upon certain assumptions about the likelihood of future events. 

 

 

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**PARTII. OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

For informationregarding legal proceedings, see Note 7. *Contingencies* to our ConsolidatedFinancial Statements included in Part I- *Item 1* of this Form 10-Q.

** **

**Item 1A. Risk Factors.**

The risk factorsset forth in our Annual Report on Form 10-K for the fiscal year ended August30, 2008 have not materially changed.  Please refer to the Company’s report onForm 10-K for the fiscal year ended August 30, 2008 to consider those riskfactors.

** **

**Item 2. Unregistered Salesof EquitySecurities and Use of Proceeds.**

None.

** **

**Item 3. Defaults Upon Senior Securities.**

None. 

** **

**Item 4. Submission of Matters to a Vote ofSecurity Holders.**

None.

** **

**Item 5. Other Information.**

None.        

 

**Item 6. Exhibits.**

(A)     

Exhibits

 

** **
3.1(a)
Amendment of a portion of  Section 6.6 of National Beef Packing Company, LLC Agreement (incorporated herein by reference to Exhibit 3.1(a)  to Form 10-Q (File No. 333-111407) filed with the SEC on April 15, 2009).
			 			 3.1(b)
	Amendment of a portion of Section 12.5 of National Beef Packing Company, LLC Agreement (incorporated herein by reference to Exhibit 3.1(b)  to Form 10-Q (File No. 333-111407) filed with the SEC on April 15, 2009).
			 			 3.1(c)Summary of Class A1 Units (incorporated  herein by reference to Exhibit 3.1(c) to Form 10-Q (File No. 333-111407)  filed with the SEC on April 15, 2009).			 			 			 			 
 

 

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10.1 Fourth Amendment to Membership  Interest Purchase Agreement dated as of February 19, 2009, among JBS, S.A.;  National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin Land  and Cattle Co., LLC; TKK Investments, LLC; S-B Enterprises V, LLC; TMKCO,  LLC; John R. Miller; Timothy M. Klein and NBPCO Holdings, LLC (filed  herewith).			  			 10.2 Eighth Amendment to Credit  Agreement, dated April 13, 2009, effective as of May 30, 2006, by and among  U.S. Premium Beef, LLC and CoBank, ACB, as agent for the benefit of the  syndication parties (filed herewith).			  			 10.3 Unit Redemption Agreement  dated as of April 13, 2009, among National Beef Packing Company, LLC and  Timothy M. Klein, TKK Investments, LLC and TMKCo, LLC (incorporated herein by reference to Exhibit 10.2  to Form 10-Q (File No. 333-111407) filed with the SEC on April 15, 2009).            10.4 Unit Redemption Agreement  dated as of April 13, 2009, among National Beef Packing Company, LLC and John  R. Miller, French Basin Land and Cattle Co., LLC, and S-B Enterprises V, LLC (incorporated herein by reference to Exhibit 10.3 to  Form 10-Q (File No. 333-111407) filed with the SEC on April 15, 2009).    10.5 Second Amendment to the Sixth  Amended and Restated Credit Agreement dated as of April 13, 2009 by and among NBP and certain agents, lenders and issuers (incorporated herein by reference to Exhibit 10.4 to Form 10-Q (File  No. 333-111407) filed with the SEC on April 15, 2009).    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 

 

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).

 

 

 

 

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf 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 Reporting and Compliance Officer*

*(Principal Financial and Accounting Officer)*

 

 

 

Date: April 15, 2009

 

 

 

 

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