----

 

 **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 May 30, 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           .** |
| ** **                                                                                                                                                        |

**Commission file number 333-115164**

 

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

 

| **DELAWARE**                                                        |   | **20-1576986**                            |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| **(State  or other jurisdiction of incorporation or organization)** |   | **(I.R.S.  Employer Identification No.)** |

 

**12200  North Ambassador Drive Kansas  City, MO 64163**(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 No o

 Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).   Yes o No o

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 Filer o
		Non-Accelerated Filer þ
Small Reporting Company o
Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

The registrant’s unitsare not traded on an exchange or in any public market.  As of June 27, 2009,there were 735,385 Class A units and 735,385 Class B unitsoutstanding.     

 

 

 

 

 

 

 

 

 

 

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.

20

 

 

 

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“National Beef” refer to National Beef Packing Company, LLC (formerly known asFarmland National Beef Packing Company, LP), a Delaware limited liabilitycompany, and “USPB” refers to U.S. Premium Beef, LLC (formerly known U.S.Premium Beef, Ltd.) prior to consolidation. 

**                                                                                               **

ii

 

 

 

 

 

 

 

**PART I.  FINANCIAL INFORMATION**

** **

**Item 1.  Financial Statements.**

1

                                                                                                

 

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

**Consolidated Balance Sheets**

(in thousands, except unit data)

 

** **

 

 

 

 

 

 

 

 

**May 30,**

 

**August 30,**

**Assets**

**2009**

 

**2008**

 

 

 

 

 

 

 

 

**(unaudited)**

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

14,945 

 

$

77,399 

 

Accounts receivable, less allowance for returns and doubtful accounts

 

 

 

 

 

of $1,872 and $1,665, respectively

 

 

188,831 

 

218,023 

 

Due from affiliates

 

 

 

 

3,311 

 

5,827 

 

Other receivables

 

 

 

 

7,708 

 

5,392 

 

Inventories

 

 

 

 

 

180,778 

 

192,480 

 

Other current assets

 

 

 

 

15,245 

 

12,765 

 

 

Total current assets

 

 

 

 

410,818 

 

511,886 

Property, plant, and equipment, at cost

 

 

 

478,363 

 

431,584 

 

Less accumulated depreciation

 

 

 

(163,707)

 

(133,436)

 

 

Net property, plant, and equipment

 

 

314,656 

 

298,148 

Goodwill

 

 

 

 

 

89,127 

 

80,642 

Other intangible assets, net of accumulated amortization

 

 

 

 

of $10,925 and $9,347, respectively

 

 

 

65,757 

 

26,690 

Other assets

 

 

 

 

 

9,740 

 

9,710 

 

 

Total assets

 

 

 

 

$

890,098 

 

$

927,076 

**Liabilities and Capital Shares and Equities**

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current installments of long-term debt

 

 

$

12,299 

 

$

4,620 

 

Cattle purchases payable

 

 

 

 

73,771 

 

65,378 

 

Accounts payable - trade

 

 

 

 

64,403 

 

71,321 

 

Due to affiliates

 

 

 

 

907 

 

1,004 

 

Accrued compensation and benefits

 

 

 

38,877 

 

49,320 

 

Accrued insurance

 

 

 

 

12,831 

 

12,918 

 

Other accrued expenses and liabilities

 

 

19,186 

 

10,152 

 

Distributions payable

 

 

 

 

5,798 

 

19,245 

 

 

Total current liabilities

 

 

 

 

228,072 

 

233,958 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, excluding current installments

356,274 

 

376,298 

 

Other liabilities

 

 

 

 

2,137 

 

2,327 

 

 

Total long-term liabilities

 

 

 

358,411 

 

378,625 

 

 

Total liabilities

 

 

 

 

586,483 

 

612,583 

Minority interest in National Beef Packing Company, LLC and Kansas City Steak Company, LLC

164,567 

 

187,997 

Capital shares and equities:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

authorized, issued and outstanding

 

 

90,375 

 

75,831 

 

Patronage notices

 

 

 

 

48,682 

 

50,642 

 

Accumulated other comprehensive (loss) income

(9)

 

23 

 

 

Total capital shares and equities

 

 

 

139,048 

 

126,496 

Commitments and contingencies

 

 

 

- 

 

- 

 

 

Total liabilities and capital shares and equities

$

890,098 

 

$

927,076 

See accompanying notes to consolidated financial statements.

 

 

 

** **

** **

2

 

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

**Consolidated Statements of Operations**

(in thousands, except unit and per unit data)

 

 

 

 

 

 

 

 

 

**13 weeks ended**

 

**14 weeks ended**

 

**39 weeks ended**

 

**40 weeks ended**

 

 

 

 

 

 

 

**May 30, 2009**

 

**May 31, 2008**

 

**May 30, 2009**

 

**May 31, 2008**

 

 

 

 

 

 

 

**(unaudited)**

 

**(unaudited)**

 

**(unaudited)**

 

**(unaudited)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

$

1,318,020 

 

$

1,529,624 

 

$

4,045,215 

 

$

4,233,676 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

1,242,304 

 

1,428,059 

 

3,882,639 

 

4,109,947 

 

Selling, general, and administrative expenses

 

 

12,426 

 

13,844 

 

35,333 

 

38,713 

 

Depreciation and amortization

 

 

 

11,948 

 

9,819 

 

33,186 

 

27,403 

 

 

Total costs and expenses

 

 

 

1,266,678 

 

1,451,722 

 

3,951,158 

 

4,176,063 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

51,342 

 

77,902 

 

94,057 

 

57,613 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

47 

 

217 

 

291 

 

1,159 

 

Interest expense

 

 

 

(5,884)

 

(8,737)

 

(18,337)

 

(27,147)

 

Minority owners' interest in net income of

 

 

 

 

 

 

 

 

 

 

 

National Beef Packing Company, LLC

 

 

(16,608)

 

(33,265)

 

(28,327)

 

(17,002)

 

Minority owners' interest in net income of

 

 

 

 

 

 

 

 

 

              Kansas City Steak Company, LLC

 

 

(232)

 

(162)

 

(950)

 

(608)

 

Equity in loss of aLF Ventures, LLC

 

 

 

(8)

 

(26)

 

(57)

 

(76)

 

Termination fee

 

 

 

- 

 

- 

 

14,572 

 

- 

 

Other, net

 

 

 

(585)

 

4,331 

 

(4,431)

 

6,138 

 

 

 

Income before taxes

 

 

 

28,072 

 

40,260 

 

56,818 

 

20,077 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

(380)

 

(978)

 

(941)

 

(2,057)

 

 

 

Net income

 

 

 

$

27,692 

 

$

39,282 

 

$

55,877 

 

$

18,020 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per linked unit:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

$

37.66 

 

$

53.42 

 

$

75.98 

 

$

24.50 

 

Diluted

 

 

 

 

$

37.08 

 

$

52.64 

 

$

74.86 

 

$

24.15 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding weighted-average Class A and Class B units:

 

 

 

 

 

 

 

 

Basic

 

 

 

 

735,385 

 

735,385 

 

735,385 

 

735,385 

 

Diluted

 

 

 

 

746,838 

 

746,218 

 

746,435 

 

746,161 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

** **

3

 

**U.S. PREMIUM BEEF, LLC AND SUBSIDIARIESConsolidated Statements of Cash Flows**(in thousands)

 

 

 

 

 

 

 

**39 weeks ended**

 

**40 weeks ended**

 

 

 

 

 

**May 30, 2009**

 

**May 31, 2008**

 

 

 

 

 

**(unaudited)**

 

**(unaudited)**

Cash flows from operating activities:

 

 

 

 

Net income

 

$

55,877 

 

$

18,020 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

33,186 

 

27,403 

 

 

Termination fee

(14,572)

 

- 

 

 

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

119 

 

(1)

 

 

Gain on disposal of investment

- 

 

(1,342)

 

 

Minority interest

28,887 

 

17,419 

 

 

Write-off of debt issuance costs

1,317 

 

- 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

29,192 

 

(9,512)

 

 

 

Due from affiliates

3,771 

 

(132)

 

 

 

Other receivables

(2,316)

 

2,248 

 

 

 

Inventories

11,702 

 

(20,811)

 

 

 

Other assets

(3,990)

 

(5,759)

 

 

 

Cattle purchases payable

7,767 

 

9,216 

 

 

 

Accounts payable

(4,542)

 

9,250 

 

 

 

Due to affiliates

(99)

 

(762)

 

 

 

Accrued compensation and benefits

(10,443)

 

10,138 

 

 

 

Accrued insurance

(87)

 

(1,696)

 

 

 

Other accrued expenses and liabilities

7,591 

 

5,238 

 

 

 

 

Net cash provided by operating activities

143,360 

 

58,917 

Cash flows from investing activities:

 

 

 

 

Capital expenditures, including interest capitalized

(35,600)

 

(40,058)

 

Termination fee

14,572 

 

- 

 

Proceeds from sale of property, plant, and equipment

1,240 

 

175 

 

Proceeds from redemption of investment

- 

 

1,342 

 

 

 

 

Net cash used in investing activities

(19,788)

 

(38,541)

Cash flows from financing activities:

 

 

 

 

Net receipts (payments) under revolving credit lines

62,723 

 

(22,368)

 

Repayments of term note payable

(26,485)

 

(772)

 

Purchase and cancellation of senior notes

(45,479)

 

- 

 

Repayments of other indebtedness / capital leases

(3,104)

 

(2,862)

 

Member capital redeemed

(125,484)

 

- 

 

Payments of patronage notices

(1,960)

 

- 

 

Minority owner capital contribution

19,643 

 

- 

 

Change in overdraft balances

(1,750)

 

7,910 

 

Distributions to minority interest owners in National Beef Packing Company, LLC

(22,005)

 

(3,692)

 

Member distributions

(42,093)

 

- 

 

 

 

 

Net cash used in financing activities

(185,994)

 

(21,784)

Effect of exchange rate changes on cash

(32)

 

(23)

 

 

 

 

Net decrease in cash

(62,454)

 

(1,431)

Cash and cash equivalents at beginning of the period

77,399 

 

62,869 

Cash and cash equivalents at end of the period

$

14,945 

 

$

61,438 

Supplemental cash disclosures:

 

 

 

 

Cash paid during the period for interest

$

15,916 

 

$

23,561 

 

Cash paid during the period for taxes, net of refunds

$

(729)

 

$

1,082 

Supplemental non-cash disclosures of investing and financing activities:

 

 

 

 

Assets acquired through capital lease

$

44 

 

$

- 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

** **

4

                                                                                                

 

 

**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.

The Company’s fiscal year ends on the last Saturday inAugust.  For financial reporting purposes, fiscal year 2009 will consist of 52weeks, whereas fiscal year 2008 consisted of 53 weeks.  The additional week isincluded in the third quarter of fiscal year 2008.  As a result, the quarterlyand nine-month periods ended May 31, 2008 consisted of fourteen weeks and fortyweeks, respectively, as compared to the quarterly and nine-month periods endedMay 30, 2009 which consisted of thirteen weeks and thirty-nine weeks,respectively.

**(2)New Accounting Pronouncements**

In December 2007, the Financial Accounting StandardsBoard (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141R(SFAS 141R), *Business Combinations. *This statement requires an acquirerto recognize the assets acquired, the liabilities assumed, and anynoncontrolling interest in the acquiree at the acquisition date to be measuredat their fair value as of that date.  An acquirer is required to recognizeassets or liabilities arising from all other contingencies (contractualcontingencies) as of the acquisition date, measured at their acquisition-datefair values, only if it is more likely than not that they meet the definitionof an asset or a liability in FASB Concepts Statement No. 6, *Elements ofFinancial Statements.*  Any acquisition-related costs are to be expensedinstead of capitalized.  This statement applies prospectively to businesscombinations for which the acquisition date is on or after the beginning of thefirst annual reporting period beginning on or after December 15, 2008.  The impact to the Company from the adoption of SFAS 141R in fiscal year 2010 willdepend on acquisitions 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.

5

                                                                                                

 

 

 

 

 

In February 2008, the FASB issued FASB Staff Position157-2, which defers the effective date of SFAS No. 157 (SFAS 157), *FairValue Measurements* for nonfinancial assets and nonfinancial liabilities,except for items that are recognized or disclosed at fair value in an entity’sfinancial statement on a recurring basis, at least annually.  The Company willbe required to adopt for these nonfinancial assets and nonfinancial liabilitiesas of August 30, 2009.  The Company believes the adoption of SFAS 157 deferralprovisions will not have a material impact on the Company’s financial positionor net earnings.

**(3)Acquisition**

On April 14, 2009, NBP, USPB’s majority ownedsubsidiary, redeemed all of the membership interests in NBP that were owned orcontrolled by its Chief Executive Officer, John R. Miller, and anaffiliate of its General Counsel, Scott H. Smith, as well as 25% of themembership interests in NBP that were owned by affiliates of its President andChief Operating Officer, Timothy M. Klein.

In order to partially finance such redemptions, NBP created a new series of Class A units (referred to as “Class A1Units”), a portion of whichwere issued to USPB for approximately $55.8 million.  Class A1 Units arenonvoting and are entitled to a priority distribution of 7% per year on the faceamount of the Class A1 Units.  For purposes of determining Class B ownershipfor liquidation or redemption, the Class A1 Units will be deemed to beconverted to Class B units, but will remain Class A1 Units after suchdetermination.  As a result, USPB’s ownershipof NBP’s Class B voting interests is 69.3527%.  

In addition to the $55.8 million cash considerationprovided by USPB, NBP also borrowed $50million to finance a portion of the redemptions.  Of these borrowings,$34.3 million is deemed additional purchase price for USPB, which brings theCompany’s share of the total purchase price to $90.1 million.

The acquisition was accounted for by USPB using thepurchase method.  As part of the purchase price allocation, the value of the Company’sintangible assets was estimated by completing a discounted cash flow analysis. The Company is also in the process of finalizing the valuation of its property,plant, and equipment.  The purchase price allocation has been prepared on apreliminary basis, and changes are expected as the final values of bothtangible and intangible assets are determined and additional informationbecomes available.  The following table summarizes the estimated fair values ofthe net assets acquired at the date of the acquisition.

 

 

(in thousands)

Current assets

$

52,342 

Investments

95 

Property, plant, and equipment

55,514 

Intangibles

44,237 

Goodwill

8,485 

Other assets

1,215 

Current liabilities

(24,524)

Debt

(46,924)

Other liabilities

(300)

 

Total estimated fair value

$

90,141 

 

   

Had the acquisition of the membership interestsoccurred at the beginning of fiscal year 2008, pro forma income for thefourteen weeks ended May 31, 2008 and the 40 weeks ended May 31, 2008 wouldhave been $49.4 million and $23.0 million, respectively, and for the thirteenweeks ended May 30, 2009 and the 39 weeks ended May 30, 2009 would have been $29.9million and $61.7 million, respectively.

** **

** **

6

                                                                                                

 

 

 

**(4)Inventories**

Inventories at May 30, 2009 and August 30, 2008 consistedof the following (in thousands):

 

**May 30, 2009**

 

**August 30, 2008**

 

 

 

 

 

Dressed and boxed meat products

 

$

133,958 

 

$

144,885 

Beef by-products

 

18,934 

 

20,886 

Supplies and other

 

27,886 

 

26,709 

 

 

$

180,778 

 

$

192,480 

 

 

 

 

 

** **

**(5)Comprehensive Income**

Comprehensive income, which consists of net income andforeign currency translation adjustments, was as follows for the periodsindicated (in thousands): 

 

 

 

**13 weeks ended**

 

**14 weeks ended**

 

**39 weeks ended**

 

**40 weeks ended**

 

 

 

**May 30, 2009**

 

**May 31, 2008**

 

**May 30, 2009**

 

**May 31, 2008**

Net income

$

27,692 

 

$

39,282 

 

$

55,877 

 

$

18,020 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

     Foreign currency translation adjustments

42 

 

(26)

 

(32)

 

(23)

 

 

Comprehensive income

$

27,734 

 

$

39,256 

 

$

55,845 

 

$

17,997 

 

 

 

 

 

 

 

 

 

 

** **

**(6)Minority Interest **

At any time after certain dates, the earliest beingJuly 31, 2010, the latest being July 31, 2011, affiliates of a certain memberof NBP management and/or NBPCO Holdings, LLC have the right to request that NBP repurchase their interests, the value of which is to be determined by a specified formula ora mutually agreed process. If NBP is unable to effect the repurchase within aspecified time, the requesting member(s) have the right to cause a sale processto commence.   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 were then 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 were then 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 theyare no 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 May30, 2009, the value of the minority interest in NBP was determined to be $215.6million, which was in excess of its carrying value.  Accordingly, after givingeffect to the redemption of interests in April 2009, the carrying value of theminority interest in NBP increased by approximately $3.6 million throughaccretion during the thirty-nine weeks ended May 30, 2009, resulting in the $162.5million carrying value, which is included in the accompanying consolidated balancesheet as of May 30, 2009.

 

 

7

                                                                                                

 

 

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 fair value of the minorityowners’ interest.  At February 28, 2009 and May 30, 2009, management used theagreed upon redemption prices that were used in the Unit Redemption Agreementsdiscussed above in measuring the fair value of the minority interest. The UnitRedemption Agreement between NBP and Timothy Klein and affiliates provides fora formula-based method of calculating their interest once an appraisal electionhas been given.  This formula-based method was used in valuing the interest ofTimothy Klein and affiliates at May 30, 2009.

The redemption value of the minority interest in NBP at May 30, 2009, decreasedby approximately $4.7 million compared to the value at August 30, 2008.  The decrease in the value of the minority owners’interest reflects the increase in the unit value represented by the RedemptionAgreements, offset by the purchase of those interests.  Offsetting the changein the value of the minority interest is a corresponding change in members’capital.    

**(7)Contingencies**

National Beef Leathers, LLC ("NBL"), awholly-owned subsidiary of NBP, has been named as a defendant in ninelawsuits involving NBL's tannery located in St. Joseph, Missouri.  NBLpurchased the assets of the tannery from Prime Tanning Corp.("Prime") in March 2009.  The lawsuits have been filed in theCircuit Courts of Clinton County and DeKalb County, Missouri between April 22,2009 and June 8**,** 2009. The lawsuits claim that Prime and NBLspread tanning sludge containing hexavalent chromium in four counties innorthwest Missouri.  The lawsuits include six actions filed by individualsand three purported class actions.  The plaintiffs are seeking an unspecifiedamount of damages for wrongful death, personal injury, pain and suffering,economic damages, punitive damages, diminished property values and medicalmonitoring.  NBL is vigorously defending the cases.   Inaddition, NBL is cooperating with various governmental inquiries.

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 numberof other lawsuits and claims arising out of the operation of its business.Management believes the ultimate resolution of such matters should not have amaterial adverse effect on NBP’s financial condition, results of operations, orliquidity.

** (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 30, 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 ofinputs used to measure fair value are as follows:
-  Level 1 – quoted prices in active markets foridentical assets or liabilities accessible by the reporting entity. 

8

                                                                                                

 

 

 

 

 
-  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 May 30, 2009 and also thelevel within the fair value hierarchy used to measure each category of assets.

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

**Quoted Prices in**

 

 

 

 

 

 

 

**Active Markets for**

 

**Significant Other**

 

**Significant**

 

 

 

**Identical Assets**

 

**Observable Inputs**

 

**Unobservable**

**Description**

**May 30, 2009**

 

**(Level 1)**

 

**(Level 2)**

 

**Inputs (Level 3)**

 

 

 

 

 

 

 

 

Other current assets -

 

 

 

 

 

 

 

derivatives

$

5,748 

 

$

5,748 

 

$

- 

 

$

- 

 

 

 

 

 

 

 

 

Other accrued expenses and

 

 

 

 

 

 

 

liabilities - derivatives

$

7,494 

 

$

2,958 

 

$

4,536 

 

$

- 

 

 

 

 

 

 

 

 

Minority owners' interest

$

162,543 

 

$

- 

 

$

162,543 

 

$

- 

 

 

 

 

 

 

 

 

 

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 30, 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 to market risks such as changes in commodity prices.  To manage these risks, NBP may enter into the following derivative transactions pursuant to its established policies:

•   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 salesin the period of change.  Certain firm commitments for live cattle purchasesand all firm commitments for boxed beef sales are treated as normal purchasesand sales and not recorded at fair value.

NBP enters into certain commodity derivatives, primarilywith a diversified group of highly rated counterparties.  The maximum amount ofloss due to the credit risk of the counterparties, should the counterpartiesfail to perform according to the terms of the contracts, is deemed to beimmaterial as of May 30, 2009 as all derivatives in an asset position areexchange-traded contracts.  The exchange-traded contracts have been enteredinto under a master netting agreement.  None of the derivatives entered intohave credit-related contingent features.  NBP has $7.1 million in cash collateralposted on its derivative liabilities.

9

                                                                                                

 

 

Thefollowing table presents the fair values as discussed in Note 8 and otherinformation regarding derivative instruments not designated as hedginginstruments as of May 30, 2009 (in thousands of dollars):

 

 

 

**Derivative Asset**

 

**Derivative Liability**

 

 

**As of May 30, 2009**

 

**As of May 30, 2009**

 

 

**Balance**

 

 

 

**Balance**

 

 

 

 

**Sheet**

 

 

 

**Sheet**

 

 

 

 

**Location**

 

**Fair Value**

 

**Location**

 

**Fair Value**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued

 

 

 

 

Other current

 

 

 

expenses and

 

 

Commodity contracts

assets

 

 

 

$

5,748 

 

other liabilities

 

$

7,494 

 

Total

 

 

 

 

 

 

$

5,748 

 

 

 

$

7,494 

 

Thefollowing table presents the impact of derivative instruments on the ConsolidatedStatement of Operations for the thirteen and thirty-nine week periods ended May30, 2009 (in thousands of dollars):

** **

 

 

 

 

 

 

 

 

 

 

**Derivatives Not**

**Location of Gain (Loss)**

 

 

 

 

**Designated as Hedging**

**Recognized in Income on**

 

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

**Instruments**

**Derivatives**

 

**Income On Derivatives**

 

 

 

 

 

 

13 weeks ended

 

39 weeks ended

 

 

 

 

 

 

May 30, 2009

 

May 30, 2009

 

 

 

 

 

 

 

 

 

Commodity contracts

Net sales

 

$

(29,203)

 

$

(35,228)

Commodity contracts

Cost of sales

 

10,733 

 

17,593 

 

Total

 

 

$

(18,470)

 

$

(17,635)

 

 

 

 

 

 

 

 

 

** **

** (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. 

 

**Income Per Linked Unit Calculation**

 

 

 

 

 

 

 

 

 

**13 weeks ended**

 

**14 weeks ended**

 

**39 weeks ended**

 

**40 weeks ended**

(In thousands, except unit and per unit data)

**May 30, 2009**

 

**May 31, 2008**

 

**May 30, 2009**

 

**May 31, 2008**

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

**Basic income per linked unit**

 

 

 

 

 

 

 

Income available to unitholders (numerator)

$

27,692 

 

$

39,282 

 

$

55,877 

 

$

18,020 

 

 

 

 

 

 

 

 

 

Weighted average outstanding units (denominator)

735,385 

 

735,385 

 

735,385 

 

735,385 

 

 

 

 

 

 

 

 

 

 

Per linked unit amount

$

37.66 

 

$

53.42 

 

$

75.98 

 

$

24.50 

 

 

 

 

 

 

 

 

 

**Diluted income per linked unit**

 

 

 

 

 

 

 

Income available to unitholders (numerator)

$

27,692 

 

$

39,282 

 

$

55,877 

 

$

18,020 

 

 

 

 

 

 

 

 

 

Weighted average outstanding units

735,385 

 

735,385 

 

735,385 

 

735,385 

Effect of dilutive securities - unit options

11,453 

 

10,833 

 

11,050 

 

10,776 

 

Linked units (denominator)

746,838 

 

746,218 

 

746,435 

 

746,161 

 

 

 

 

 

 

 

 

 

 

Per linked unit amount

$

37.08 

 

$

52.64 

 

$

74.86 

 

$

24.15 

 

10

                                                                                                

 

 

 

 

 

 

 

**(11)Subsequent Events**

OnJuly 10, 2009, the Company and Steven D. Hunt entered into a new employmentagreement.  The new employment agreement is effective September 1, 2009 andexpires August 29, 2015, unless otherwise terminated. 

On June 22, 2009, the Company entered into an Amended and  Restated Credit Agreement and Security Agreement (Agreement).  The Agreement  updates the Company’s Credit Agreement entered into on November 25, 1997,  with the First through Ninth amendments which occurred from time to time.  In  connection with the Agreement, the Company also entered into a Pledge Agreement.   Under the Pledge Agreement, the Company grants a continuing security interest  in its ownership interests in its majority owned subsidiary, NBP, to CoBank,  ACB.  The security interest is provided by the Company to secure its  obligations to CoBank. 11
 
 

 

 

 

 

 

 

                                                                                                

 

11

 

 

 

 

 

 

**Item2.  Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

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-looking statements,” which are subject to a number of risks anduncertainties, many of which are beyond our control. Forward-looking statementsare typically identified by the words “believe,” “expect,” “anticipate,”“intend,” “estimate,” and similar expressions. Actual results could differmaterially from those contemplated by these forward-looking statements as aresult of many factors, including economic conditions generally and in ourprincipal markets, the availability and prices of live cattle and commodities,food safety, livestock disease, including the identification of cattle withBSE, competitive practices and consolidation in the cattle production andprocessing industries, actions of domestic or foreign governments, hedgingrisk, changes in interest rates and foreign currency exchange rates, consumerdemand and preferences, the cost of compliance with environmental and healthlaws, loss of key customers or suppliers, loss of key employees, laborrelations, and consolidation among our customers.  

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 theseforward-looking statements. We do not undertake any obligation to update orrevise any forward-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.*of the Company’s Annual Report for the year ended August30, 2008 on Form 10-K filed with the Securities and Exchange Commission forother important factors that could cause actual results to differ materiallyfrom those in any such forward-looking statements, and which should be read inconjunction with this report.

**Industry Outlook**

Domestic and global economicconditions continue to dominate the cattle and beef market outlook.  Economicpressure in the cattle production sector continues to realize reduced cattleplacements on feed while milk production losses have resulted in another roundof industry-based dairy cow liquidation.  Adequate summer fed cattle supplies areexpected to transition to much smaller fall fed cattle availability leading to anticipatedhigher cattle and beef prices amidst continued expectations for very cautiousconsumer spending.  The volume of beef exports has seen slight gains led by theweaker U.S. dollar; however, lagging global economic activity has limited thepositive responses historically realized.  Sales prices of beef by-productsappear to have bottomed and are also beginning to trend higher, but areexpected to remain significantly below calendar year 2008 levels through theend of calendar year 2009.

**RecentDevelopments**

OnJuly 10, 2009, the Company and Steven D. Hunt entered into a new employmentagreement.  The new employment agreement is effective September 1, 2009 andexpires August 29, 2015, unless otherwise terminated. 

OnJune 22, 2009, the Company entered into an Amended and Restated CreditAgreement and Security Agreement (Agreement).  The Agreement updates the Company’sCredit Agreement entered into on November 25, 1997, with the First throughNinth amendments which occurred from time to time.  In connection with theAgreement, the Company also entered into a Pledge Agreement.  Under the PledgeAgreement, the Company grants a continuing security interest in its ownershipinterests in NBP to CoBank, ACB.  The security interest is provided by theCompany to secure its obligations to CoBank. 

12

                                                                                                

 

 

 

 

 

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 were then owned or controlled by NBP’s Chief Executive Officer, John R. Miller, andMr. Smith, as well as 25% of the membership interests in NBP that were then owned by affiliates of NBP’s President and Chief Operating Officer,Timothy M. Klein.  As a result, Mr. Miller and his affiliate receivedapproximately $91.3 million for their units and Mr. Smith’s affiliate receivedapproximately $22.8 million for its units and they are no longer members of NBP although each retained their position with NBP.  Mr. Klein’s affiliates receivedapproximately $11.4 million for their redeemed units, and he retained hisposition 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 may be paid a non-dilution premium, which was at amaximum value of $4.3 million as of May 30, 2009.

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 also financed a portion of the redemptions with $50.0million of new borrowings under the revolving line of credit of its existingcredit 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, increasethe interest rates of the term loan and revolving line of credit, shorten thematurity date of the term loan to July 2012 and revise the payment schedule ofthe term loan, among other things.  For amore complete description of the material amendments to NBP’s Credit Facility,see “Liquidity and Capital Resources–Amended and Restated Senior CreditFacility.”

**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 from cattle 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 to Japan on September 19, 2008.  South Korea announced a provisional opening of its border to U.S. beef from animals 30 months and younger in September 2006; however, its border wassubsequently closed in October 2007.  South Korea reopened its border andstarted inspecting U.S. beef near the end of June 2008.  Our Dodge Cityfacility was removed from the eligible supplier list to Mexico on December 23, 2008 for two days for an alleged ink issue in September 2008 whichwe believe to be untrue and unfounded.  These constraints and uncertaintieshave had a negative impact on beef margins.

13

                                                                                                

 

 

 

 

 

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 and foreign consumer demand for beefmay continue to have a material adverse affect on our revenues and net income.

**Resultsof Operations**

***Thirteen weeks ended May 30, 2009 compared to fourteen weeks ended May 31,2008***

*General.*  Netincome for the thirteen weeks ended May 30, 2009 was approximately $27.7 millioncompared to net income of $39.3 million for the fourteen weeks ended May 31,2008, a decrease of $11.6 million.  Sales were lower in the thirteen weeksended May 30, 2009 compared to the fourteen weeks ended May 31, 2008 due inpart to an approximate 4.5% decrease in the average volume of cattle processedper week and due to the extra week in the prior reporting period as compared tothe current year.  The average sales prices per head decreased approximately2.6% during the current period as the demand for beef products during the quarterwas not as strong compared to the same quarter of last year.

Total costs and expenses of approximately $1,266.7million for the thirteen weeks ended May 30, 2009 were 96.1% as a percent ofsales compared to approximately $1,451.7 million for the fourteen weeks endedMay 31, 2008, or 94.9% as a percent of sales.  A drop in volume of cattleprocessed and in average sales prices per head more than offset the lower livecattle prices, approximately 7.4% lower, resulting in decreased operating incomeof approximately $26.2 million for this thirteen week period of fiscal year 2009as compared to the fourteen week period of fiscal year 2008.

*Net Sales*. Net sales were approximately $1,318.0 million for the thirteen weeks ended May30, 2009 compared to approximately $1,529.6 million for the fourteen weeksended May 31, 2008, a decrease of approximately $211.6 million, or 13.8%.  The decreasein net sales resulted from an approximate 4.5% decrease in the average volumeof cattle processed per week and from an extra week of sales activity last yearas compared to the same period of the current year.  Also contributing to thedecrease in sales was a decrease in average sales prices per head of about 2.6%during the current thirteen week period of fiscal year 2009 as compared to thefourteen week period of fiscal year 2008.

*Cost of Sales*. Cost of sales was approximately $1,242.3 million for the thirteen weeks endedMay 30, 2009 compared to approximately $1,428.1 million for the fourteen weeksended May 31, 2008, a decrease of approximately $185.8 million, or 13.0%.  The decreaseresulted partially from an approximate 4.5% decrease in the number of livecattle purchased on a per week basis in addition to the additional week  in thesame period of last year. Also contributing to this decrease was an approximate7.4% decrease in live cattle prices.  Partially offsetting these decreases wasan increase in the average cattle weights by approximately 2.0% during thisthirteen week period of fiscal year 2009 as compared to the fourteen weekperiod of fiscal year 2008.

*Selling, General, and Administrative Expenses*.  Selling, general, and administrative expenses wereapproximately $12.4 million for the thirteen weeks ended May 30, 2009 comparedto approximately $13.8 million for the fourteen weeks ended May 31, 2008, adecrease of approximately $1.4 million, or 10.1%.  The decrease in selling,general, and administrative expenses reflects an extra week of expense in theprior year as compared to the same period of the current year.  The decreasereflects a decrease in payroll and related expenses of approximately $0.6million and a decrease in the provision for bad debts of approximately $0.4million.  Partially offsetting these decreases was an increase in legalexpenses of approximately $1.4 million.    

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses wereapproximately $11.9 million for the thirteen weeks ended May 30, 2009 comparedto approximately $9.8 million for the fourteen weeks ended May 31, 2008, anincrease of approximately $2.1 million, or 21.4%.  Depreciation expense increaseddue to assets being placed into service, primarily at our three beef plants andtwo case ready plants, during fiscal year 2008 and to assets being placed intoservice, primarily at our two Kansas beef plants, late in the first quarter offiscal year 2009.  Partially offsetting this increase, the prior reportingperiod reflects an extra week of expense as compared to the same period of thecurrent year.

 

 

 

14

                                                                                                

 

 

 

 

 

*Operating Income*.  Operating income was approximately $51.3 million for the thirteenweeks ended May 30, 2009 compared to approximately $77.9 million for thefourteen weeks ended May 31, 2008, a decrease of approximately $26.6 million.  Thedecline in operating income resulted primarily from a somewhat weaker beefdemand as reflected in a drop in volume of cattle processed and in averagesales prices per head during the thirteen week period ended May 30, 2009, ascompared to the fourteen week period ended May 31, 2008.  In addition, theprior reporting period reflects an extra week of operating income as comparedto the same period of the current year.  

*Minority Owners’ Interest in NBP.*  Minority interest in the net incomeof NBP for the thirteen weeks ended May30, 2009 was $16.6 million compared to minority interest in the net income for the fourteen weeks ended May 31, 2008 of $33.3million, a change of $16.7 million. Theminority interest in NBP represents the minority owners’ equity in NBP’s earnings.

*Interest Expense*.  Interest expense was approximately $5.9 million for the thirteenweeks ended May 30, 2009 compared to approximately $8.7 million for thefourteen weeks ended May 31, 2008, a decrease of approximately $2.8 million, or32.2%.  The decrease in interest expense was due primarily to the purchase andcancellation of an aggregate principal amount of NBP’s Senior Notes ofapproximately $30.6 million, $2.3 million, and $43.2 million during the fourthquarter of fiscal year 2008, and the first and third quarters of fiscal year 2009,respectively.  The repayment of approximately $25.7 million of NBP’s term notein December 2008 also contributed to the decline in interest expense for thecurrent quarter.  Also contributing to the decrease in interest expense was lowerinterest rates on our variable rate debt, which decreased approximately 291basis points from the same period in the prior year.  Also contributing to thedecrease was an extra week of interest expense in the prior year as compared tothe same period of the current year.  Partially offsetting the decrease ininterest expense was an approximate $27.2 million increase in the weightedaverage principal amount of our variable rate debt at May 30, 2009 as comparedto May 31, 2008.

*Other, net. *Other,net non-operating expense was approximately $0.6 million for the thirteen weeksended May 30, 2009 compared to net non-operating income of approximately $4.3million for the fourteen weeks ended May 31, 2008, a decrease of approximately$4.9 million.  The decrease in other, net non-operating income was primarilyrelated to an approximate $3.4 million in income for a settlement of a lawsuitrelated to corrugated packaging materials that was received in the prior year period. In addition, approximately $0.9 million of debt issuance costs were written offduring the current quarter related to the refinancing of our debt in April2009.

*Income Tax Expense*.  Income tax expense was approximately $0.4 million for the thirteenweeks ended May 30, 2009 compared to income tax expense of approximately $1.0million for the fourteen weeks ended May 31, 2008, a decrease in expense ofapproximately $0.6 million.  A decreasein income taxes for the period of approximately $0.5 million was related to oursubsidiary, National Carriers, Inc. (NCI).  Income tax expense is recorded onincome from NCI, which is organized as a C Corporation.

***Thirty-nine weeks ended May 30, 2009 compared to forty weeks ended May31, 2008***

*General.* Net income for the thirty-nine weeks ended May 30, 2009 was approximately $55.9million compared to net income of approximately $18.0 million for the fortyweeks ended May 31, 2008, an increase of approximately $37.9 million.  Saleswere lower in the thirty-nine week period ended May 30, 2009 compared to theforty week period ended May 31, 2008 primarily due in part to an approximate2.7% decrease in the average volume of cattle processed per week and due to an extraweek in the prior reporting period as compared to this year.  Partiallyoffsetting these decreases was a slight increase in the average sales price perhead, about 1.0%, during the first thirty-nine weeks of fiscal year 2009 ascompared to the first forty weeks of fiscal year 2008.  An overall improveddemand for boxed beef drove an increase in our operating income for thisreporting period. 

Total costs and expenses of approximately $3,951.2million for the thirty-nine weeks ended May 30, 2009 were 97.7% as a percent ofsales compared to approximately $4,176.1 million for the forty weeks ended May31, 2008, or 98.6% as a percent of sales.  A relatively stable demand for beefproducts and lower cattle prices allowed for slightly higher sales prices,about 1.0% higher, to cover the cost of the live cattle that we processedduring this thirty-nine week period of fiscal year 2009 as compared to theforty week period of fiscal year 2008. 

15

                                                                                                

 

 

 

 

 

*Net Sales*. Net sales were approximately $4,045.2 million for the thirty-nine weeks endedMay 30, 2009 compared to approximately $4,233.7 million for the forty weeksended May 31, 2008, a decrease of approximately $188.5 million, or 4.5%.  Netsales decreased primarily due in part to an approximate 2.7% decrease in theaverage volume of cattle processed per week and in part to the extra week inthe prior reporting period as compared to this year.  Partially offsettingthese decreases was a slight increase in the average sales price per head,about 1.0%, during the first thirty-nine weeks of fiscal year 2009 as comparedto the first forty weeks of fiscal year 2008.

*Cost of Sales*. Cost of sales was approximately $3,882.6 million for the thirty-nine weeksended May 30, 2009 compared to approximately $4,109.9 million for the fortyweeks ended May 31, 2008, a decrease of approximately $227.3 million, or 5.5%. The decrease resulted partially from an approximate 2.7% decrease in the numberof live cattle purchased on a per week basis in addition to the additional weekin the same period of last year.  Also contributing to this decrease was anapproximate 4.8% decrease in live cattle prices.   Partially offsetting thesedecreases was an increase in the average cattle weights by approximately 0.9%during this thirty-nine week period of fiscal year 2009 as compared to theforty week period of fiscal year 2008.    

*Selling, General and Administrative Expenses*.  Selling, general and administrative expenses were approximately$35.3 million for the thirty-nine weeks ended May 30, 2009 compared to approximately$38.7 million for the forty weeks ended May 31, 2008, a decrease of approximately$3.4 million, or 8.8%.  The decrease for this period is primarily due to a decreasein legal fees of approximately $3.8 million and a decrease in marketing expenseof approximately $0.6 million.  The prior reporting period reflects an extraweek of expense as compared to the same period of this year which contributedto the decreases in the marketing expenses discussed above as well as theselling, general and administrative expenses in general.  Partially offsettingthese decreases was an increase in payroll and benefits of approximately $1.0million and in bank charges of approximately $0.2 million.

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses were approximately$33.2 million for the thirty-nine weeks ended May 30, 2009 compared to approximately$27.4 million for the forty weeks ended May 31, 2008, an increase of approximately$5.8 million, or 21.2%.  Depreciation expense increased due to assets beingplaced into service, primarily at our three beef plants and two case readyplants, during fiscal year 2008 and to assets being placed into service,primarily at our two Kansas beef plants, late in the first quarter of fiscal year2009.  Partially offsetting this increase, the prior reporting period reflectsan extra week of expense as compared to the same period of this year.

*Operating Income*.  Operating income was approximately $94.1 million for the thirty-nineweeks ended May 30, 2009 compared to approximately $57.6 million for the fortyweeks ended May 31, 2008, an increase of approximately $36.5 million.  The improvementin operating income during the thirty-nine week period ended May 30, 2009resulted primarily from an overall improved demand for boxed beef as comparedto the forty week period ended May 31, 2008.

*Minority Owners’ Interest in NBP.*  Minority interest in the net income of NBP for the thirty-nine weeks ended May 30, 2009 was $28.3million compared to minority interest innet income for the forty weeks ended May31, 2008 of $17.0 million, a change of $11.3million. The minority interest in NBP represents the minority owners’ equity in NBP’s earnings.

16

                                                                                                

 

 

 

 

 

*Interest Expense*.  Interest expense was approximately $18.3 million for the thirty-nineweeks ended May 30, 2009 compared to approximately $27.1 million for the forty weeksended May 31, 2008, a decrease of approximately $8.8 million, or 32.5%.  Thedecrease in interest expense during the thirty-nine weeks ended May 30, 2009 ascompared to the forty week period ended May 31, 2008 was due primarily to thepurchase and cancellation of an aggregate principal amountof our Senior Notesof approximately $30.6 million, $2.3 million, and $43.1 million during thefourth quarter of fiscal year 2008, and the first and third quarters of fiscalyear 2009, respectively.  The repayment of approximately $25.7 million of ourterm note in December 2008 also contributed to the decline in interest expensefor the reporting period.  Also contributing to the decrease in interestexpense was lower interest rates on our variable rate debt, a decrease ofapproximately 291 basis points, during the comparable periods.  Alsocontributing to these decreases was an extra week of interest expense in theprior reporting period as compared to the same period of this year.  Partiallyoffsetting these decreases in interest expense was an approximate $15.0 millionincrease in the weighted average principal amount of our variable rate debt atMay 30, 2009 as compared to May 31, 2008. 

*Termination Fee*. Atermination fee in the amount of $14.6 million was received in the thirty-nineweek period ending May 30, 2009 as a result of the termination of the MembershipInterest Purchase Agreement dated February 29,2008, between and among USPB, NBP, JBS S.A. (JBS), and the other holders ofmembership interests in  NBP (MIPA)..

*Other, net.* Other, net non-operating expense was approximately $4.4 million for the thirty-nineweeks ended May 30, 2009 compared to other, net non-operating income of approximately$6.1 million for the forty weeks ended May 31, 2008, a decrease of approximately$10.5 million.  The decrease in other, net was primarily related to thewrite-off of approximately $3.6 million of legal fees related to thetermination of the MIPA in February 2009.  Also contributing to the decreasewas the approximate $0.7 million write-off of obsolete parts at our case readyfacilities during the second quarter of fiscal year 2009 and to an approximate$1.3 million write-off of debt issuance costs in both the first and thirdquarters of fiscal year 2009.   The forty weeks ended May 31, 2008 includedapproximately $3.4 million in income for a settlement of a lawsuit related tocorrugated packaging materials and about $1.3 million in income related toproceeds received in redemption of an investment interest in which our basishad previously been written down to zero, both of which did not recur duringthe comparable period of this year.  

*Income Tax Expense*.  Income tax expense was approximately $0.9 million for the thirty-nineweeks ended May 30, 2009 compared to approximately $2.1 million for the fortyweeks ended May 31, 2008, a decrease of approximately $1.2 million, or 57.1%.  This decrease in income taxes for the period ofapproximately $1.2 million was related NCI.

**Liquidityand Capital Resources**

As of May 30, 2009, we had net working capital ofapproximately $182.7 million, which included $5.8 million in distributionspayable and cash and cash equivalents of $14.9 million.  As of August 30, 2008,we had net working capital of approximately $277.9 million, which included $19.2million in distributions payable and cash and cash equivalents of $77.4million.  Our primary sources of liquidity are cash flows from operations andavailable borrowings under NBP’s amended and restated credit facility (CreditFacility).

As of May 30, 2009, we had $368.6 million of long-termdebt, of which $12.3 million was classified as a current liability.  As of May30, 2009, NBP’s Credit Facility consisted of a $176.9 million term loan (whichmay be increased by as much as $75.0 million subject to the completion of thevaluation of certain collateral, which is expected to be completed during NBP’sfourth quarter of fiscal year 2009), all of which was outstanding, and a $225.0million revolving line of credit loan, which had outstanding borrowings of $63.8million, outstanding letters of credit of $42.2 million and availableborrowings of $119.0 million, based on the most restrictive financial covenantcalculations.  Cash flows from operations and borrowings under NBP’s Credit Facilityhave funded its working capital requirements, acquisitions, capitalexpenditures and other general corporate purposes.  NBP was in compliance withall of its financial covenants under the Credit Facility as of May 30, 2009.

OnJune 22, 2009, the Company entered into an Amended and Restated CreditAgreement and Security Agreement (Agreement).  The Agreement updates the Company’sCredit Agreement entered into on November 25, 1997, with the First throughNinth amendments which occurred from time to time.  In connection with theAgreement, the Company also entered into a Pledge Agreement.  Under the PledgeAgreement, the Company grants a continuing security interest in its ownershipinterests in NBP to CoBank, ACB.  The security interest is provided by theCompany to secure its obligations to CoBank. 

17

                                                                                                

 

 

 

 

 

Effective May 14, 2009, USPB’s Credit Agreement wasamended to provide for a $13 million revolving line of credit, an increase of$3 million.  The revolving line of credit will reduce to $10 million on May 31,2010.  The maturity date of the remaining $10 million revolving line of credit wasextended from April 30, 2011 to July 1, 2011.  The Company will use theincreased facility for working capital and general corporate purposes. Borrowings under the revolving line of credit will bear interest at LIBOR or the Base Rate, plus the applicable margin.  Theapplicable margin will be the same as NBP’s Credit Facility for Line of CreditLoans plus 25 basis points.

Effective April 13, 2009, NBP amended its CreditFacility to increase the available borrowings under the facility by increasingthe revolving line of credit by $25.0 million and the term loan by up to $75.0million.  NBP used $50.0 million from the revolver and $75.5 million from theissuance of Class A1 Units to finance the redemption of the membershipinterests from certain members of management and their affiliates pursuant totheir rights under the LLC Agreement.

In addition to outstanding borrowings under its CreditFacility, NBP had outstanding borrowings under industrial revenue bonds of$20.7 million, senior notes of $83.9 million, a term loan and revolving line ofcredit with CoBank, of which approximately $2.3 million and $10.3 million,respectively, were outstanding and capital leases and other obligations of $10.7million as of May 30, 2009.  

NBP believes that available borrowings under its CreditFacility and cash provided by operating activities will be sufficient tosupport its working capital, capital expenditures and debt service requirementsfor the foreseeable future.  Under the April 13, 2009 amendment to its CreditFacility, NBP is required to purchase or redeem $100.0 million aggregateprincipal amount of its outstanding Senior Notes on or before December 31, 2009,which NBP intends to finance with the increased available line of credit of$25.0 million and upon the increase in the available term borrowings of up to $75.0million.  As of May 30, 2009, NBP has purchased approximately $43.2 million ofthe $100.0 million aggregate principal amount of Senior Notes to be purchased. NBP’s ability to generate sufficient cash, however, is subject to certaingeneral economic, financial, industry, legislative, regulatory and otherfactors beyond its control.  For a review of the obligations that affectliquidity, 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 thethirty-nine weeks ended May 30, 2009 was $143.4 million compared to $58.9million in the forty weeks ended May 31, 2008.  The $84.5 million change wasprimarily due to an increase in net income of approximately $38.2 million duringthe current year-to-date period as compared to the same period in the prioryear.  Also contributing to the increase in cash provided by operatingactivities were reductions in accounts receivable and inventory which werepartially offset by net cash used in operating activities through accruedcompensation and benefits in the current year.

*InvestingActivities*

Net cash used in investing activities was $19.8 millionin the thirty-nine weeks ended May 30, 2009 compared to $38.5 million in theforty weeks ended May 31, 2008.  This decrease in cash used was primarilyattributable to the receipt of the $14.6 million termination fee received bythe Company related to the termination of the MIPA.

*FinancingActivities*

Net cash used in financing activities was approximately$186.0 million in the thirty-nine weeks ended May 30, 2009 compared to $21.8million in the forty weeks ended May 31, 2008.  The change was primarilyattributed to an approximate $125.5 million redemption of member capital, anapproximate $60.4 million increase in member and minority owners distributions paid,the purchase and cancellation of approximately $45.5 million aggregateprincipal amount of NBP’s Senior Notes, and approximately $26.5 million inrepayments on term notes during the current thirty-nine week period as comparedto the forty-week period of the prior year.  These changes were partiallyoffset by an approximate $62.7 million increase in net revolver creditborrowings and by an approximate $19.6 million member capital contribution duringthe current period.

 

18

                                                                                                

 

 

 

*Amendedand Restated Senior Credit Facility*

OnJune 22, 2009, the Company entered into an Amended and Restated CreditAgreement and Security Agreement (Agreement).  The Agreement updates the Company’sCredit Agreement entered into on November 25, 1997, with the First throughNinth amendments which occurred from time to time.  In connection with theAgreement, the Company also entered into a Pledge Agreement.  Under the PledgeAgreement, the Company grants a continuing security interest in its ownershipinterests in NBP to CoBank, ACB.  The security interest is provided by theCompany to secure its obligations to CoBank. 

Effective May 14, 2009, USPB’s Credit Agreement wasamended to provide for a $13 million revolving line of credit, an increase of$3 million.  The revolving line of credit will reduce to $10 million on May 31,2010.  The maturity date of the remaining $10 million revolving line of creditwas extended from April 30, 2011 to July 1, 2011.  The Company will use the increasedfacility for working capital and general corporate purposes.  Borrowings underthe revolving line of credit will bear interest at LIBOR or the Base Rate, plus the applicable margin.  Theapplicable margin will be the same as NBP’s Credit Facility for Line of CreditLoans plus 25 basis points. 

EffectiveApril 13, 2009, NBP’s Credit Facility was amended to permit the redemption of itsmembership interests in the amount of $125.5 million, including theauthorization and issuance of Class A1 Units to help fund the redemption.  Inaddition, the terms of NBP’s Credit Facility were amended to:  (1) increase theborrowings under the Credit Facility by up to $100.0 million, of which up to$75.0 million is under NBP’s term loan and $25.0 million is under NBP’srevolving line of credit; (2) increase the applicable margin on the rates ofinterest of the term loan and revolving line of credit; (3) revise the paymentschedule of the term loan; (4) shorten the maturity date of the term loan; (5)remove the restrictions on purchasing the Senior Notes and require therepurchase or redemption of $100 million aggregate principal amount of theSenior Notes; (6) increase the amount of capital expenditures NBP can make inany fiscal year from $50 million to $60 million, or $65 million if NBP expends lessthan $55 million in the immediately preceding fiscal year; and (7) add afinancial covenant requiring NBP to maintain a Funded Debt to EBITDA ratio.  Therelated financing 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 requirements aresatisfied, which NBP expects to occur during the fourth quarter, the Credit Facilitywill consist of up to $251.9 million under a term loan that matures in July 2012and a revolving line of credit loan of $225.0 million that matures in July 2012that is subject to certain borrowing base limitations. 

The borrowings under the Credit Facility bear interestat LIBOR or the Base Rate, plus the applicable margin.  The applicable marginfor the revolving line of credit and the term loan will be based on borrowingbase availability with grids greater than $150.0 million, $50.0 to $150.0million and less than $50.0 million.  As of May 30, 2009, the interest ratesfor the revolving loan and the term loan were approximately 3.48% and 3.57%,respectively.

NBP 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 May 30, 2009, NBP had metthe borrowing base availability requirements under its Credit Facility.

Theborrowings under the revolving loan are available for NBP’s working capitalrequirements, capital expenditures and other general corporate purposes,including the purchase of $100.0 million aggregate principal amount of SeniorNotes on or before December 31, 2009.  The Credit Facility is secured by afirst priority lien on substantially all of the NBP’s assets.  The principalamount outstanding under the term loan is due and payable in equal installmentsof approximately $2.5 million on the last business day of each June andDecember commencing December 2009 through December 2010 after which paymentsincrease to approximately $4.8 million.  All outstanding amounts of the termloan are due and payable on July 25, 2012.  Prepayment is allowed at any time.

19

                                                                                                

 

 

 

 

 

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.

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 orundischarged judgments in excess of $3.0 million, changes in custody or controlof the NBP’s property, changes in control of NBP, the failure of any of theloan documents to remain in full force, and NBP’s failure to properly fund itsemployee benefit plans.  The facility also includes customary provisionsprotecting the lenders against increased cost or loss of yield resulting fromchanges in tax, reserve, capital adequacy and other requirements of law.

** **

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

The principalmarket risks affecting our business are exposure to changes in prices forcommodities, such as livestock and boxed beef, 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 itsability to participate in gains from commodity price fluctuations, it alsotends to reduce the risk of loss from changes in commodity prices.  To theextent the contracts are not designated as normal purchases, 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 goods sold.

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.

We sell commodity beef products in our business.Commodity beef products are subject to price fluctuations that may create pricerisk. When appropriate, we enter into forward sales contracts at pricesdetermined prior to shipment. We may hedge the commodity price risk associatedwith these activities in order to mitigate this price risk.  While this maytend to limit our ability to participate in gains from commodity pricefluctuations, it also tends to reduce the risk of loss from changes incommodity beef prices.  To the extent the contracts are not designated asnormal sales, we reflect commodity contract gains and losses as adjustments tothe basis of underlying commodities sold; gains or losses are recognized in thestatement of operations as a component of net sales. 

20

                                                                                                

 

 

 

 

 

We 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, *Accounting for DerivativeInstruments and Hedging Activities*, as amended, we account for futurescontracts and their related firm purchase commitments at fair value. Certainfirm commitments for live cattle purchases and all firm commitments for boxedbeef sales are treated as “normal purchases and sales” and not marked tomarket.  SFAS No. 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 No. 133 as a result of the extensive recordkeepingrequirements of this statement. Accordingly, the gains and losses associatedwith the change in fair value of the instrument and the offsetting gains andlosses associated with changes in the market value of certain of the firmpurchase commitments related to the futures contracts are recorded to incomeand expense in the period of change.

We use a sensitivity analysis to evaluate the effectthat changes in the market value of commodities will have on these commodityderivative instruments.  We feel that sensitivity analysis more appropriatelyreflects the potential market value exposure associated with the use of derivativeinstruments.  As of May 30, 2009, the potential change in the fair value ofapplicable commodity prices, assuming a hypothetical 10% decrease in theunderlying commodity price in each year, was $15.7 million.  As of August 30,2008, the potential change in fair value of applicable commodity prices,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 weoperate in international markets including Japan and South Korea, product salesare predominately made in United States dollars, and therefore, currency risksare limited.

 *Interest Rates.*As a result of our normalborrowing and leasing activities, our operating results are exposed tofluctuations in interest rates, which we manage primarily through our regularfinancing activities. We generally maintain limited investments in cash andcash 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 ofMay 30, 2009, the weighted average interest rate on our $274.0 million ofvariable rate debt was approximately 3.3%.

We had total interest expense of approximately $18.3million during the thirty-nine week period ending May 30, 2009.  The estimatedincrease in interest expense from a hypothetical 200 basis point increase inapplicable variable interest rates would have been approximately $3.7 millionin the thirty-nine week period ending May 30, 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 design andoperation 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 May 30, 2009 that have materially affected, or arereasonably 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 August 30, 2008 have not materially changed.  Please refer to the Company’s report on Form10-K for the fiscal year ended August 30, 2008 to consider those risk factors.

** **

**Item 2. Unregistered Sales of 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

 
10.1   Ninth Amendment to Credit  Agreement, dated May 14, 2009, by and among U.S. Premium Beef, LLC and  CoBank, ACB, as agent and as the sole syndication party (filed herewith).         10.2   Amended and Restated Credit  Agreement and Security Agreement dated as of June 22, 2009 by and among U.S.  Premium Beef, LLC and CoBank, ACB, as agent on behalf of the syndication  parties (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File  No. 333-115164) filed with the SEC on June 25, 2009).         
10.3
   Pledge Agreement dated as  of June 22, 2009 by and among U.S. Premium Beef, LLC and CoBank, ACB, as  agent on behalf of the syndication parties (incorporated herein by reference  to Exhibit 10.2 to Form 8-K (File No. 333-115164) filed with the SEC on June  25, 2009). 
 

22

                                                                                                

 

 

 

 

 

 
10.4*   
CEO Employment Agreement by  and between Steven D. Hunt and U.S. Premium Beef, LLC dated July 10, 2009 (filed  herewith).
         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).

** **

_____________

* Management contract or compensatory plan orarrangement.

23

                                                                                                

 

 

 

 

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 

                                                                                                              

 
       U.S. Premium Beef, LLC         
 

 

 

By: 

 

/s/ Steven D. Hunt

 

 

 

 

 

Steven D. Hunt*Chief Executive Officer*

*(Principal Executive Officer)*

 

 

 

 

By: 

 

/s/ Scott J. Miller

 

 

 

 

 

Scott J. Miller* Chief Reporting and Compliance Officer*

*(Principal Financial and Accounting Officer)*

 

 

 

Date:July 10, 2009

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