----

 

 **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 November 27, 2010**

**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 theregistrant was 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 “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” inRule 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 December 25, 2010,there were 735,385 Class A units and 755,385 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.                                  | 16           |
|                  |                                                                                         |         |
| Item 4.               | Controls and Procedures.                                                                     | 17           |
|                  |                                                                                         |         |
|                  |                                                                                         |         |
| PART II.              | OTHER INFORMATION                                                                            |         |
|                  |                                                                                         |         |
| Item 1.               | Legal Proceedings.                                                                           | 18           |
|                  |                                                                                         |         |
|    Item 1A. | Risk Factors.                                                                                | 18           |
|                  |                                                                                         |         |
| Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds.                                 | 18           |
|                  |                                                                                         |         |
| Item 3.               | Defaults Upon Senior Securities.                                                             | 18           |
|                  |                                                                                         |         |
| Item 4.               | Submission of Matters to a Vote of Security Holders.                                         | 18           |
|                  |                                                                                         |         |
| Item 5.               | Other Information.                                                                           | 18           |
|                  |                                                                                         |         |
| Item 6.               | Exhibits.                                                                               | 18           |
|                  |                                                                                         |         |
|                  | Signatures.                                                                                  | 19           |

 

 

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 |
|----|

 

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**PART I.  FINANCIAL INFORMATION**

** **

**Item 1.  Financial Statements (unaudited).**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

| 1 |
|---|

 

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| ** **                                                                             |                                                                                                                |                                                                                                                                |          |            |          |          |                  |          |                |          |   |
|----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|---------------|-----------------|---------------|---------------|-----------------------|---------------|---------------------|---------------|--------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                   |
| **Consolidated Balance Sheets**                                              |
| (thousands of dollars, except unit data)                      |
|                                                                                   |                                                                                                                |                                                                                                                                |          |            |          |          | **November 27,** |          | **August 28,** |
| **Assets**                                                                             | **2010**                                                                                                            |                                                                                                                                | **2010**      |
|                                                                                   |                                                                                                                |                                                                                                                                |          |            |          |          |                  |          |                |
| Current assets:                                                                   |                                                                                                                |                                                                                                                                |          |            |          |          |                  |
|                                                                                   | Cash and cash equivalents                                                                            |                                                                                                                                |          |            | $             | 48,315   |                  | $             | 35,439         |
|                                                                                   | Accounts receivable, less allowance for returns and doubtful accounts       |                                                                                                                                |          |            |
|                                                                                   |                                                                                                                | of $2,971 and $2,891, respectively                                                                              |          | 177,470    |          | 182,237  |
|                                                                                   | Due from affiliates                                                                                       |                                                                                                                                |          |            | 4,914    |          | 5,089            |
|                                                                                   | Other receivables                                                                                              |                                                                                                                                |          |            | 7,860    |          | 7,399            |
|                                                                                   | Inventories                                                                                                         |                                                                                                                                |          |            |          | 240,811  |                  | 232,943  |
|                                                                                   | Other current assets                                                                                      |                                                                                                                                |          |            | 68,431   |          | 45,999           |
|                                                                                   |                                                                                                                | Total current assets                                                                                                      |          |            |          | 547,801  |                  | 509,106  |
| Property, plant, and equipment, at cost                       |                                                                                                                |                                                                                                                                | 558,967  |            | 546,756  |
|                                                                                   | Less accumulated depreciation                                                                             |                                                                                                                                |          | 234,431    |          | 222,677  |
|                                                                                   |                                                                                                                | Net property, plant, and equipment                                                                              |          | 324,536    |          | 324,079  |
| Goodwill                                                                               |                                                                                                                |                                                                                                                                |          |            | 86,251   |          | 86,251           |
| Other intangible assets, net of accumulated amortization |                                                                                                                |                                                                                                                                |          |
|                                                                                   | of $16,650 and $16,128, respectively                                                            |                                                                                                                                | 58,094   |            | 58,606   |
| Other assets                                                                      |                                                                                                                |                                                                                                                                |          |            | 8,085    |          | 8,695            |
|                                                                                   |                                                                                                                | Total assets                                                                                                                   |          |            |          | $             | 1,024,767        |          | $                   | 986,737  |
|                                                                                   |                                                                                                                |                                                                                                                                |          |            |          |          |                  |          |                |
| **Liabilities and Capital Shares and Equities**               |                                                                                                                |                                                                                                                                |          |
| Current liabilities:                                                              |                                                                                                                |                                                                                                                                |          |            |          |          |                  |
|                                                                                   | Current installments of long-term debt                                                          |                                                                                                                                | $             | 22,185     |          | $             | 22,412           |
|                                                                                   | Cattle purchases payable                                                                                  |                                                                                                                                |          |            | 88,713   |          | 70,208           |
|                                                                                   | Accounts payable - trade                                                                             |                                                                                                                                |          |            | 69,553   |          | 73,562           |
|                                                                                   | Due to affiliates                                                                                         |                                                                                                                                |          |            | 942      |          | 738              |
|                                                                                   | Patronage notices payable in cash                                                               |                                                                                                                                |          | 6,552      |          | -        |
|                                                                                   | Accrued compensation and benefits                                                                    |                                                                                                                                |          | 34,043     |          | 82,474   |
|                                                                                   | Accrued insurance                                                                                              |                                                                                                                                |          |            | 17,841   |          | 15,048           |
|                                                                                   | Other accrued expenses and liabilities                                                          |                                                                                                                                | 35,701   |            | 27,747   |
|                                                                                   | Distributions payable                                                                                          |                                                                                                                                |          |            | 149,903  |          | 8,350            |
|                                                                                   |                                                                                                                | Total current liabilities                                                                                                 |          |            |          | 425,433  |                  | 300,539  |
| Long-term liabilities:                                                            |                                                                                                                |                                                                                                                                |          |            |          |          |
|                                                                                   | Long-term debt, excluding current installments                                                  | 257,771                                                                                                                        |          | 225,090    |
|                                                                                   | Other liabilities                                                                                              |                                                                                                                                |          |            | 2,482    |          | 2,443            |
|                                                                                   |                                                                                                                | Total long-term liabilities                                                                                               |          |            | 260,253  |          | 227,533          |
|                                                                                   |                                                                                                                | Total liabilities                                                                                                              |          |            |          | 685,686  |                  | 528,072  |
|                                                                                   | Noncontrolling interest in NBP                                                                       |                                                                                                                                |          | 268,291    |          | 291,746  |
| Capital shares and equities:                                            |                                                                                                                |                                                                                                                                |          |            |          |          |
|                                                                                   | Members' capital, 735,385 Class A units and 755,385 Class B units |                                                                                                                                |          |            |
|                                                                                   |                                                                                                                | authorized, issued and outstanding                                                                                   |          | 25,803     |          | 115,452  |
|                                                                                   | Patronage notices                                                                                              |                                                                                                                                |          |            | 42,130   |          | 48,682           |
|                                                                                   | Accumulated other comprehensive income (loss) attributable to USPB               | 33                                                                                                                             |          | 23         |
|                                                                                   |                                                                                                                | Total capital shares and equities attributable to USPB                                           | 67,966   |            | 164,157  |
|                                                                                   | Noncontrolling interest in Kansas City Steak Company, LLC                        | 2,824                                                                                                                          |          | 2,762      |
|                                                                                   |                                                                                                                | Total Capital Shares and Equities                                                                               |          |            | 70,790   |          | 166,919          |
| Commitments and contingencies                                                |                                                                                                                |                                                                                                                                | -        |            | -        |
|                                                                                   |                                                                                                                | Total liabilities, noncontrolling interest in NBP and capital shares and equities | $             | 1,024,767  |          | $             | 986,737          |
|                                                                                   |                                                                                                                |                                                                                                                                |          |            |          |          |                  |          |                |
|                                                                                   |                                                                                                                |                                                                                                                                |          |            |          |          |                  |          |                |

** **

** **

| 2 |
|---|

                                                                                                

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|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |         |   |
|--------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|-----------------------------------------|-------------------------------|-----------------|--------------|-----------------|---------------------------------|-----------------|---------------------------------|-----------------|--------------|--------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                                   |
| **Consolidated Statements of Operations**                                               |
| (thousands of dollars, except per unit and per unit data) |
|                                                                                                   |                                                              |                                    |                          |            |         |            | **13 weeks ended**    |            | **13 weeks ended**    |
|                                                                                                   |                                                              |                                    |                          |            |         |            | **November 27, 2010** |            | **November 28, 2009** |
|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |
| Net sales                                                                                         |                                                              |                                    |                          |            |         | $               | 1,587,320                  |            | $                               | 1,342,610  |
|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |
| Costs and expenses:                                                                          |                                                              |                                    |                          |            |         |            |
|                                                                                                   | Cost of sales                                           |                                    |                          |            |         | 1,505,439  |                            | 1,273,312  |
|                                                                                                   | Selling, general, and administrative expenses |                                    | 14,421                   |            | 13,189  |
|                                                                                                   | Depreciation and amortization                           |                                    | 13,062                   |            | 12,758  |
|                                                                                                   |                                                              | Total costs and expenses |                          | 1,532,922  |         | 1,299,259  |
|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |
|                                                                                                   |                                                              |                                    | Operating income         |            | 54,398  |            | 43,351                     |
|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |
| Other income (expense):                                                                      |                                                              |                                    |                          |            |         |            |
|                                                                                                   | Interest income                                              |                                    |                          |            |         | 12         |                            | 31         |
|                                                                                                   | Interest expense                                             |                                    |                          |            |         | (2,609)         |                            | (4,563)         |
|                                                                                                   | Other, net                                                   |                                    |                          |            |         | 592        |                            | 4          |
|                                                                                                   |                                                              |                                    | Income before taxes |            | 52,393  |            | 38,823                     |
|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |
| Income tax expense                                                                           |                                                              |                                    |                          |            | (334)        |            | (400)                           |
|                                                                                                   |                                                              |                                    | Net income               |            |         |            |                            | 52,059     |                            |            | 38,423  |
| Less: Net income attributable to noncontrolling interest in:        |                                                              |                                    |                          |            |
|                                                                                                   | Kansas City Steak Company, LLC                |                                    | (62)                          |            | (223)        |
|                                                                                                   | National Beef Packing Company, LLC            |                                    | (16,548)                      |            | (12,735)     |
| Net income attributable to U.S. Premium Beef, LLC                   |                                                              | $                                       | 35,449                   |            | $            | 25,465     |
| Earnings per unit:                                                                           |                                                              |                                    |                          |            |         |            |                            |
|                                                                                                   | Basic                                                             |                                    |                          |            |         |            |                            |            |                            |
|                                                                                                   |                                                              | Class A units                 |                          |            |         |            | $                               | 4.82       |                            | $               | 9.06    |
|                                                                                                   |                                                              | Class B units                 |                          |            |         |            | $                               | 42.24      |                            | $               | 24.89   |
|                                                                                                   | Diluted                                                           |                                    |                          |            |         |            |                            |            |                            |
|                                                                                                   |                                                              | Class A units                 |                          |            |         |            | $                               | 4.75       |                            | $               | 8.92    |
|                                                                                                   |                                                              | Class B units                 |                          |            |         |            | $                               | 42.24      |                            | $               | 24.89   |
|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |
| Outstanding weighted-average Class A and Class B units:             |                                                              |                                    |                          |            |
|                                                                                                   | Basic                                                             |                                    |                          |            |         |            |                            |            |                            |
|                                                                                                   |                                                              | Class A units                 |                          |            |         |            | 735,385                    |            | 735,385                    |
|                                                                                                   |                                                              | Class B units                 |                          |            |         |            | 755,385                    |            | 755,385                    |
|                                                                                                   | Diluted                                                           |                                    |                          |            |         |            |                            |            |                            |
|                                                                                                   |                                                              | Class A units                 |                          |            |         |            | 746,063                    |            | 747,471                    |
|                                                                                                   |                                                              | Class B units                 |                          |            |         |            | 755,385                    |            | 755,385                    |
| See accompanying notes to consolidated financial statements.             |                                                              |                                    |                          |            |
|                                                                                                   |                                                              |                                    |                          |            |         |            |                            |            |                            |            |

** **

| 3 |
|---|

                                                                                                

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** **

| ** **                                                                                                  |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |         |         |                            |        |                            |   |   |
|-------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|------------------------------------------------------------|----------------------------------------------------------------------------------------|--------------|--------------|--------------|---------------------------------|-------------|---------------------------------|--------|--------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                                        |
| **Consolidated Statements of Cash Flows**                                               |
| (thousands of dollars)                                                                            |
|                                                                                                        |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |         |         | **13 weeks ended**    |        | **13 weeks ended**    |
|                                                                                                        |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |         |         | **November 27, 2010** |        | **November 28, 2009** |
|                                                                                                        |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |         |         |                            |        |                            |
| Cash flows from operating activities:                                                   |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |
|                                                                                                        | Net income                                                                                                              |                                                                                  |                                                       |                                                                                   |         | $            | 52,059  |                            | $           | 38,423                     |
|                                                                                                        | Adjustments to reconcile net income (loss) to net cash provided by         |                                                                                  |                                                       |                                                                                   |
|                                                                                                        |                                                                                                                         | operating activities:                                                            |                                                       |                                                                                   |         |         |         |                            |
|                                                                                                        |                                                                                                                         | Depreciation and amortization                                               |                                                       |                                                                                   | 13,062  |         | 12,758  |
|                                                                                                        |                                                                                                                         | Gain on disposal of property, plant, and equipment |                                                       | (365)                                                                                  |         | (128)        |
|                                                                                                        |                                                                                                                         | Amortizaton of debt issuance costs                                |                                                       | 345                                                                               |         | 195     |
|                                                                                                        |                                                                                                                         | Changes in assets and liabilities:                                |                                                       |                                                                                   |         |         |         |
|                                                                                                        |                                                                                                                         |                                                                                  | Accounts receivable                                   |                                                                                   |         |         | 4,767   |                            | 7,574  |
|                                                                                                        |                                                                                                                         |                                                                                  | Due from affiliates                              |                                                                                   |         |         | 177     |                            | 990    |
|                                                                                                        |                                                                                                                         |                                                                                  | Other receivables                                     |                                                                                   |         |         | (461)        |                            | (2,491)     |
|                                                                                                        |                                                                                                                         |                                                                                  | Inventories                                                |                                                                                   |         |         | (7,868)      |                            | (12,020)    |
|                                                                                                        |                                                                                                                         |                                                                                  | Other assets                                          |                                                                                   |         |         | (22,177)     |                            | (638)       |
|                                                                                                        |                                                                                                                         |                                                                                  | Cattle purchases payable                         |                                                                                   |         | 15,986  |         | 8,713                      |
|                                                                                                        |                                                                                                                         |                                                                                  | Accounts payable                                      |                                                                                   |         |         | (608)        |                            | (1,938)     |
|                                                                                                        |                                                                                                                         |                                                                                  | Due to affiliates                                |                                                                                   |         |         | 202     |                            | 64     |
|                                                                                                        |                                                                                                                         |                                                                                  | Accrued compensation and benefits           |                                                                                   | (48,431)     |         | (26,178)     |
|                                                                                                        |                                                                                                                         |                                                                                  | Accrued insurance                                     |                                                                                   |         |         | 2,793   |                            | (569)       |
|                                                                                                        |                                                                                                                         |                                                                                  | Other accrued expenses and liabilities |                                                                                   | 7,993   |         | (242)        |
|                                                                                                        |                                                                                                                         |                                                                                  |                                                       | Net cash provided by operating activities                     |         | 17,474  |         | 24,513                     |
| Cash flows from investing activities:                                                   |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |
|                                                                                                        | Capital expenditures, including interest capitalized                                                     |                                                                                  | (13,407)                                                   |                                                                                   | (9,532)      |
|                                                                                                        | Proceeds from sale of property, plant, and equipment                                      |                                                                                  | 776                                                   |                                                                                   | 484     |
|                                                                                                        |                                                                                                                         | Net cash used in investing activities                        |                                                       | (12,631)                                                                               |         | (9,048)      |
| Cash flows from financing activities:                                                   |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |
|                                                                                                        | Net (payments) receipts under revolving credit lines                                           |                                                                                  | 37,991                                                |                                                                                   | (34,168)     |
|                                                                                                        | Borrowings under term note payable                                                                       |                                                                                  |                                                       | -                                                                                 |         | 75,000  |
|                                                                                                        | Payments of term notes payable                                                                           |                                                                                  |                                                       |                                                                                   | (5,258)      |         | (258)        |
|                                                                                                        | Repayments of other indebtedness / capital leases                                              |                                                                                  | (279)                                                      |                                                                                   | (4,576)      |
|                                                                                                        | Purchase and cancellation of senior notes                                                           |                                                                                  | -                                                     |                                                                                   | (39,798)     |
|                                                                                                        | Cash paid for financing costs                                                                            |                                                                                  |                                                       |                                                                                   | -       |         | (1,018)      |
|                                                                                                        | Change in overdraft balances                                                                                  |                                                                                  |                                                       |                                                                                   | (882)        |         | 12,705  |
|                                                                                                        | Distributions to noncontrolling interests in National Beef Packing Company, LLC | (10,132)                                                                              |                                                       | (11,179)                                                                               |
|                                                                                                        | Member distributions                                                                                                    |                                                                                  |                                                       |                                                                                   | (13,417)     |         | (12,184)     |
|                                                                                                        |                                                                                                                         |                                                                                  |                                                       | Net cash provided by (used in) financing activities | 8,023   |         | (15,476)     |
|                                                                                                        | Effect of exchange rate changes on cash                                                        |                                                                                  | 10                                                    |                                                                                   | 22      |
|                                                                                                        |                                                                                                                         |                                                                                  |                                                       | Net increase in cash                                                    |         |         | 12,876  |                            | 11     |
| Cash and cash equivalents at beginning of the period                |                                                                                                                         | 35,439                                                                           |                                                       | 18,853                                                                            |
| Cash and cash equivalents at end of the period                      |                                                                                                                         | $                                                                                     | 48,315                                                |                                                                                   | $            | 18,864  |
| Supplemental cash disclosures:                                                                    |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |         |
|                                                                                                        | Cash paid during the period for interest                                                       |                                                                                  | $                                                          | 2,450                                                                             |         | $            | 3,552   |
|                                                                                                        | Cash paid during the period for taxes, net of refunds                           |                                                                                  | $                                                          | 14                                                                                |         | $            | 79      |
| Supplemental non-cash disclosures of investing and financing activities: |                                                                                                                         |                                                                                  |                                                       |
|                                                                                                        | Assets acquired through capital lease                                                                    |                                                                                  | $                                                          | 52                                                                                |         | $            | 55      |
|                                                                                                        |                                                                                                                         |                                                                                  |                                                       |                                                                                   |         |         |         |                            |        |                            |
| 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, or GAAP, for interim financial information; therefore,they do 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 financial statements. The estimates and judgments will also affect the reported amounts for certainrevenues and expenses during the reporting period.  Actual results could differmaterially from these estimates and judgments.  For further information, referto the audited Consolidated Financial Statements and Notes to ConsolidatedFinancial Statements, which are included in the Company’s Annual Report on Form 10-K on file with the Securities and Exchange Commission, or SEC,for the fiscal year ended August 28, 2010.  The results of operations for theinterim periods presented are not necessarily indicative of the results for afull fiscal year. 

**(2)New Accounting Pronouncements**

In January 2010, the Financial Accounting StandardsBoard (FASB) issued Accounting Standards Update (ASU) No. 2010-06, *FairValue Measurements and Disclosures*.  The ASU issued guidance to amend thedisclosure requirements related to recurring and nonrecurring fair valuemeasurements.  The guidance requires additional disclosures about the differentclasses of assets and liabilities measured at fair value, the valuationtechniques and inputs used the activity in Level 3 fair value measurements, andthe transfers between Levels 1, 2, and 3 of the fair value measurementhierarchy.  This guidance will become effective for the Company’s year endingin fiscal year 2012.  The adoption of ASU No. 2010-06 should not significantlyimpact the Company’s consolidated financial position or results of operations.

**(3)Inventories**

Inventories consist primarily of meat products andsupplies.  Product inventories are considered commodities and are recordedbased on quoted commodity prices, which approximate net realizable value. Supply and other inventories are valued on the basis of first-in, first-out,specific or average cost methods.  Product inventories are relieved frominventory utilizing the first-in, first-out method.  Inventories at November 27, 2010 and August 28, 2010 consistedof the following (thousands of dollars):
|                                                | **November 27, 2010** |         | **August 28, 2010** |
|-----------------------------------------------------|---------------------------------|--------------|-------------------------------|
|                                                |                            |         |                          |   |
| Dressed and boxed meat products |                            | $            | 157,490                  |   | $ | 154,927  |
| Beef by-products                               |                            | 45,863  |                          | 46,891  |
| Supplies and other                        |                            | 37,458  |                          | 31,125  |
|                                                |                            | $            | 240,811                  |   | $ | 232,943  |
|                                                |                            |         |                          |   |

**(4)Comprehensive Income Attributable to USPB**

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

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|                                                                                          |                                                    |                      | **13 weeks ended**    |   | **13 weeks ended**    |
|-----------------------------------------------------------------------------------------------|---------------------------------------------------------|---------------------------|---------------------------------|--------|---------------------------------|
|                                                                                          |                                                    |                      | **November 27, 2010** |   | **November 28, 2009** |
| Net income                                                                               |                                                    | $                         | 52,059                     |   | $                               | 38,423  |
| Other comprehensive (loss) income:                                             |                                                    |                      |                            |   |
|                                                                                          | Foreign currency translation adjustments |                      | 10                         |   | 22                         |
|                                                                                          |                                                    | Comprehensive income |                            | $      | 52,069                     |   | $ | 38,445  |
| Comprehensive income attibutable to noncontrolling interest in: |                                                    |                      |                            |   |
|                                                                                          | Kansas City Steak Company, LLC      |                      | (62)                            |   | (223)                           |
|                                                                                          | National Beef Packing Company, LLC  |                      | (16,548)                        |   | (12,735)                        |
| Comprehensive income attributable to USPB                                 |                                                    | $                         | 35,459                     |   | $                               | 25,487  |
|                                                                                          |                                                    |                      |                            |   |                            |   |

**(5)Noncontrolling Interests In NBP**

At any time after certaindates, the earliest being July 31, 2010 in the case of NBPCo Holdings, thelatest being July 31, 2011 in the case of certain affiliates of NBP’s ChiefExecutive officer, Timothy M. Klein, or the Klein Affiliates, NBPCo Holdingsand the Klein Affiliates have the right to request that NBP repurchase theirinterests, the value of which is to be determined by a mutually agreedappraisal process or a specified formula.  If NBP is unable to effect therepurchase within a specified time, the requesting member(s) have the right tocause a sale process to commence. 

Generallyaccepted accounting principles require the Company to determine the fair valueof the noncontrolling interest in NBP at the end of each reporting period.  Tothe extent this value increases, this change in fair value is accreted over theredemption period.  In determining the fair value of the noncontrollinginterest in NBP held by NBPCo Holdings as of November 27, 2010, management hasconsidered previous redemption prices, valuations of peer companies and otherfactors.  The noncontrolling interest in NBP held by the Klein Affiliates as ofNovember 27, 2010 was valued based upon a contractually stipulated valuationformula. 

TheCompany accounts for changes in the redemption value of these interests byaccreting the change in value from the date of change through the earliestredemption date of the respective interests.  At November 27, 2010, the valueof the noncontrolling interest in NBP**was determined to be $273.9million, which was in excess of its carrying value.  The total value of the noncontrollinginterest in NBP at November 27, 2010, decreased by approximately $23.3 millioncompared to the value at August 28, 2010, primarily related to distributionsoffset by net income.  The carrying value of the noncontrolling interest in NBPincreased by approximately $14.2 million through accretion during the threemonths ended November 27, 2010, resulting in the $268.3 million carrying value,as reflected in the accompanying consolidated balance sheet as of November 27,2010.  Offsetting the change in value of noncontrolling interest in NBP is acorresponding change in members’ capital.     

**(6)Contingencies**

National Beef Leathers, LLC, or NBL, awholly-owned subsidiary of NBP, has been a named defendant in two purported classactions involving NBL's tannery located in St. Joseph, Missouri, which NBLpurchased in March 2009.  These lawsuits were filed on July 22, 2009 inthe U.S. District Court for the Western District of Missouri. The lawsuitsalleged that NBL spread wastewater sludge containing hexavalent chromium infour counties in northwest Missouri. The plaintiffs were seeking an unspecifiedamount of damages for economic damages, punitive damages, diminished propertyvalues and medical monitoring. The claims against NBL in these lawsuits weredismissed on December 2, 2010 and December 10, 2010.  As a result of thesedismissals, NBL is no longer a party to these lawsuits.

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 the Company’s financial condition, results of operations or liquidity.

**(7) Fair Value Measurements**

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The Company determines fair value utilizing a three-levelfair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy gives the highest priority to quoted market prices(Level 1) and the lowest priority to unobservable inputs (Level 3).  The threelevels of inputs used to measure fair value are as follows:
    -  Level 1 – quoted prices in active markets foridentical assets or liabilities accessible by the reporting entity. 
    -  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 November 27, 2010 and alsothe level within the fair value hierarchy used to measure each category ofassets (thousands of dollars).
|                                              |   |                            |          | **Quoted Prices in**   |   |                       |   |                           |
|---------------------------------------------------|--------|---------------------------------|---------------|----------------------------------|--------|----------------------------|--------|--------------------------------|
|                                              |   |                            |          | **Active Markets for** |   | **Significant Other** |   | **Significant**                |
|                                              |   |                            |          | **Identical Assets**        |   | **Observable Inputs** |   | **Unobservable**               |
| **Description**                                   |   | **November 27, 2010** |          | **(Level 1)**               |   | **(Level 2)**         |   | **Inputs (Level 3)** |
|                                              |   |                            |          |                             |   |                       |   |                           |
| Other current assets - derivatives |   | $                               | 27,639   |                             | $      | 4,966                 |   | $                              | 22,673  |   | $ | -  |
|                                              |   |                            |          |                             |   |                       |   |                           |
| Other accrued expenses and         |   |                            |          |                             |   |                       |   |                           |
| liabilities - derivatives               |   | $                               | 22,925   |                             | $      | 22,925                |   | $                              | -  |   | $ | -  |
|                                              |   |                            |          |                             |   |                       |   |                           |
| Noncontrolling interests in NBP    |   | $                               | 268,291  |                             | $      | -                     |   | $                              | 56,720  |   | $ | 211,571  |
|                                              |   |                            |          |                             |   |                       |   |                           |
|                                              |   |                            |          | **Quoted Prices in**   |   |                       |   |                           |
|                                              |   |                            |          | **Active Markets for** |   | **Significant Other** |   | **Significant**                |
|                                              |   |                            |          | **Identical Assets**        |   | **Observable Inputs** |   | **Unobservable**               |
| **Description**                                   |   | **August 28, 2010**   |          | **(Level 1)**               |   | **(Level 2)**         |   | **Inputs (Level 3)** |
|                                              |   |                            |          |                             |   |                       |   |                           |
|                                              |   |                            |          |                             |   |                       |   |                           |
| Other current assets -derivatives  |   | $                               | 15,563   |                             | $      | 61                    |   | $                              | 15,502  |   | $ | -  |
|                                              |   |                            |          |                             |   |                       |   |                           |
| Other accrued expenses and         |   |                            |          |                             |   |                       |   |                           |
| liabilities - derivatives               |   | $                               | 14,672   |                             | $      | 14,672                |   | $                              | -  |   | $ | -  |
|                                              |   |                            |          |                             |   |                       |   |                           |
| Noncontrolling interests in NBP    |   | $                               | 291,746  |                             | $      | -                     |   | $                              | 61,854  |   | $ | 229,892  |
|                                              |   |                            |          |                             |   |                       |   |                           |

Management has used certain contractual redemptionprices in measuring the fair value of the Klein Affiliates share of thenoncontrolling interest in NBP, which is included in level 2 as of November 27,2010 and August 28, 2010.  NBPCo Holdings share of the noncontrolling interestin NBP is based upon unobservable inputs, thus included in level 3 as of November27, 2010 and August 28, 2010.

The following table presents a reconciliation of noncontrollinginterests measured at fair value on a recurring basis using significantunobservable inputs (Level 3) during the three months ended November 27, 2010(thousands of dollars). ** **

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| **Fair Value Measurements Using Significant Unobservable Inputs (Level 3)** |
|---------------------------------------------------------------------------------------------------------------------|
|                                                                                                                |   | **Minority Owners'** |
|                                                                                                                |   | **Interest** |
|                                                                                                                |   |   |
| Balance at August 28, 2010                                                                      | $ | 229,892  |
|                                                                                                                | Allocation of year-to-date net income | 13,486  |
|                                                                                                                | Class A priority distribution | (736) |
|                                                                                                                | Class B distributions | (6,021) |
|                                                                                                                | Equity distributions | (37,156) |
|                                                                                                                | Appraisal valuation adjustment | 12,106  |
| Balance at November 27, 2010                                                                    | $ | 211,571  |
|                                                                                                                |   |   |

** **

**(8)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, NBPmay enter into the following derivative instruments pursuant to its establishedpolicies:
    -  Forward purchase contracts forcattle for use in the beef plants
    -  Exchange traded futures contractsfor cattle 
    -  Exchange traded futures contractsfor grain 

While management believes each of these instrumentshelps 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 ofgoods sold in the period of change.  Certain firm commitments for live cattlepurchases and all firm commitments for boxed beef sales are treated as normalpurchases and sales 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 November 27, 2010as all derivatives in an asset position are exchange-traded contracts.  Theexchange-traded contracts have been entered into under a master nettingagreement.  None of the derivatives entered into have credit-related contingentfeatures.  NBP has $27.9 million in cash collateral posted on its derivativeliabilities.   

Thefollowing table presents the fair values as discussed in Note 6 and otherinformation regarding derivative instruments not designated as hedginginstruments as of November 27, 2010, and August 28, 2010 (thousands of dollars):
| **November 27, 2010** | **Derivative Asset** |                   | **Derivative Liability** |
|---------------------------------|---------------------------|------------------------|-------------------------------|
|                            |                      | **Balance Sheet** |                          |   |   | **Balance Sheet** |   |   |
|                            |                      | **Location**           |                          | **Fair Value** |   | **Location** |   | **Fair Value** |
|                            |                      |                   |                          |   |   |   |   |   |   |   |
|                            |                      |                   |                          |   |   |   |   | Accrued |   |   |
|                            |                      | Other current     |                          |   |   | expenses and |   |   |
| Commodity contracts        | assets                    |                   | $                             | 27,639  |   | other liabilities |   | $ | 22,925  |
|                            | Total                     |                   |                          |   |   | $ | 27,639  |   |   |   | $ | 22,925  |
| **August 28, 2010**   | **Derivative Asset** |                   | **Derivative Liability** |
|                            |                      | **Balance Sheet** |                          |   |   | **Balance Sheet** |   |   |
|                            |                      | **Location**           |                          | **Fair Value** |   | **Location** |   | **Fair Value** |
|                            |                      |                   |                          |   |   |   |   |   |   |   |
|                            |                      |                   |                          |   |   |   |   | Accrued |   |   |
|                            |                      | Other current     |                          |   |   | expenses and |   |   |
| Commodity contracts        | assets                    |                   | $                             | 15,563  |   | other liabilities |   | $ | 14,672  |
|                            | Total                     |                   |                          |   |   | $ | 15,563  |   |   |   | $ | 14,672  |

|  

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Thefollowing table presents the impact of derivative instruments on the ConsolidatedStatement of Operations for the thirteen week period ended November 27, 2010(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 |   | 13 weeks ended |
|                                |   |                                       |   |   |                                                             |        |        | November 27, 2010 |   | November 28, 2009 |
|                                |   |                                       |   |   |                                                             |        |        |   |   |   |   |
| Commodity contracts            |   | Net sales                             |   |   | $                                                                | 6,970  |        | $ | (6,757) |
| Commodity contracts            |   | Cost of sales                    |   |   | (6,489)                                                          |        | 3,543  |
|                                |   | Total                                      |   |   |                                                             |        | $           | 481  |   | $ | (3,214) |
|                                |   |                                       |   |   |                                                             |        |        |   |   |   |   |

** **

**(9)Income Attributable to USPB Per Unit**

Under the LLC structure, earnings of the Company areto be distributed to unitholders based on their proportionate share ofunderlying equity, and, as a result, income attributable to USPB per unit (EPU)has been presented in the accompanying Consolidated Statement of Operations andin the table that follows.

Basic EPU excludesdilution and is computed by first allocating a portion of net income (loss) attributableto USPB to Class A units and the remainder is allocated to Class B units. OnNovember 2, 2009, the Company’s members approved changing the allocation ofincome from 33% to the Class A’s and 67% to the Class B’s to 10% to the ClassA’s and 90% to the Class B’s.  Accordingly, for the thirteen week period ended November28, 2009, the pro-rata share of income earned through November 1, 2009 wasallocated 33% to the Class A’s and 67% to the Class B’s and the remainder ofthe income for the quarter was allocated 10% to the Class A’s and 90% to theClass B’s.  For the thirteen week period ended November 27, 2010 income wasallocated 10% to the Class A’s and 90% to the Class B’s.  Income (loss) allocatedto the Class A and Class B units is then divided by the weighted-average numberof Class A and Class B units outstanding for the period to determine the basicEPU for each respective class of unit.  Class A units and Class B units shallbe issued, redeemed, and transferred together on a one for one basis until theboard of directors determines the extent and conditions under which Class Aunits and Class B units may be issued, redeemed, and transferred separately.

Diluted EPU reflects the potential dilution that couldoccur if potential Class A unit purchase rights were exercised or contractualappreciation rights were converted into units.   Upon termination of the CEOemployment agreement and until eighteen months after the 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 Aunits, or upon agreement of the CEO and the Board of the Company, the CEO mayconvert the contractual unit appreciation rights to up to 20,000 Class A units. The diluted EPU reflects the circumstances of termination of the CEO employmentagreement, and the election of CEO or agreement by the Board of the Company andthe CEO for the CEO to purchase or convert contractual rights to the maximum20,000 Class A units at $55 per unit for the periods as provided in the CEOemployment agreement.  

 

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| **Income Per Unit Calculation**                                                |                            |          |                            |
|-----------------------------------------------------------------------------------------------|---------------------------------|---------------|---------------------------------|
|                                                                                          |                            |          | **13 weeks ended**    |   | **13 weeks ended** |
| (thousands of dollars, except unit and per unit data) | **November 27, 2010** |          | **November 28, 2009** |
|                                                                                          | (unaudited)                     |          | (unaudited)                     |
| **Basic income per unit**                                                      |                            |          |                            |
| Income attributable to USPB available to                             |                            |          |                            |
|                                                                                          | unitholders (numerator)    |          |                            |   |
|                                                                                          |                            | Class A  | $                               | 3,545  |   | $ | 6,663  |
|                                                                                          |                            | Class B  | $                               | 31,904  |   | $ | 18,802  |
|                                                                                          |                            |          |                            |   |   |
| Weighted average outstanding units (denominator)                          |                            |          |                            |
|                                                                                          | Class A                    | 735,385  |                            | 735,385  |
|                                                                                          | Class B                    | 755,385  |                            | 755,385  |
|                                                                                          |                            |          |                            |   |   |
| Per unit amount                                                                     |                            |          |                            |
|                                                                                          | Class A                    | $             | 4.82                       |   | $ | 9.06  |
|                                                                                          | Class B                    | $             | 42.24                      |   | $ | 24.89  |
|                                                                                          |                            |          |                            |   |   |
| **Diluted income per unit:**                                                   |                            |          |                            |
| Income attributable to USPB available to                             |                            |          |                            |
|                                                                                          | unitholders (numerator)    |          |                            |   |
|                                                                                          |                            | Class A  | $                               | 3,545  |   | $ | 6,663  |
|                                                                                          |                            | Class B  | $                               | 31,904  |   | $ | 18,802  |
|                                                                                          |                            |          |                            |   |   |
| Weighted average outstanding Class A units                           | 735,385                    |          | 735,385                    |
| Effect of dilutive securities - Class A unit options  | 10,678                     |          | 12,086                     |
|                                                                                          | Units (denominator)        | 746,063  |                            | 747,471  |
|                                                                                          |                            |          |                            |   |   |
| Weighted average outstanding Class B units                           | 755,385                    |          | 755,385                    |
| Effect of dilutive securities - Class B unit options  | -                          |          | -                          |
|                                                                                          | Units (denominator)        | 755,385  |                            | 755,385  |
|                                                                                          |                            |          |                            |   |   |
| Per unit amount                                                                     |                            |          |                            |
|                                                                                          | Class A                    | $             | 4.75                       |   | $ | 8.92  |
|                                                                                          | Class B                    | $             | 42.24                      |   | $ | 24.89  |

 

**(10)Subsequent Events**

OnNovember 29, 2010, NBP drew $175 million under its Amended and Restated CreditAgreement.  The draw was made to fund distributions to NBP’s members and forgeneral corporate purposes.  The draw constitutes the last of a series of termloans under the Credit Facility not to exceed $375 million in the aggregate. The total amount of term loans outstanding under the Credit Facilityimmediately following the draw was approximately $370 million.  

OnNovember 29, 2010, NBP paid an approximately $141.2 million cash distributionto certain members based on approval by NBP’s Board of Managers on October 27,2010 of a $150 million cash distribution.  USPB received approximately $104million of the cash distribution.  The remaining $8.8 million was paid to certainmembers on January 3, 2011.

 On December 17, 2010, USPB distributed approximately $9.7 million to theholders of USPB’s Class A units and approximately $87.7 million to holders ofClass B units.  USPB used the remaining proceeds of approximately $6.6 millionto redeem fiscal year 1999 patronage notices.

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| On December 17, 2010, NBP entered into a series of  agreements with the City of St. Joseph, Missouri to provide Missouri Chapter  100 bonds in the amount of $14.5 million.  NBP agreed to purchase the bonds  which would effectively provide property tax abatement on certain equipment,  which will be leased to NBP by the City of St. Joseph under a capital lease,  located at NBP’s hide processing facilities in St. Joseph, Missouri.   Additionally, NBP entered into a Payment in Lieu of Taxes Agreement related to		the abatement.  As a result of the legal right of offset, the		capital lease obligation and corresponding bond investment will be		eliminated in consolidation.  

 

 

 

 

 

 

 

 

 

 

 

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11

                                                                                                

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**Item 2. 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-lookingstatements are typically identified by the words “believe,” “expect,”“anticipate,” “intend,” “estimate” and similar expressions.  Actual resultscould differ materially from those contemplated by these forward-lookingstatements as a result of many factors, including economic conditions generallyand in our principal markets, the availability and prices of live cattle andcommodities, food safety issues, livestock disease, including theidentification of cattle with Bovine Spongiform Encephalopathy, or BSE, productcontamination and recall concerns, competitive practices and consolidation inthe cattle production and processing industries and among our customers,actions of domestic or foreign governments, hedging risk, changes in interestrates and foreign currency exchange rates, trade barriers and exchangecontrols, consumer demand and preferences, the cost of compliance withenvironmental and health laws, loss of key customers, loss of key employees,labor relations, 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 oralforward-looking statements attributable to us or persons acting on our behalfare expressly qualified in their entirety by these factors.  Please review PartII. Item 1A, *Risk Factors*, included in this report, for other importantfactors that could cause actual results to differ materially from those in anysuch forward-looking statements.

**IndustryOutlook**

We anticipate fed cattle supplies to remain above prioryear levels through the winter quarter following active late summer placementsand very favorable cattle feeding conditions through the fall.  The anticipatedgreater supplies and heavier weights should contribute to gains in beefproduction compared to the prior year.  Beyond the first calendar quarter of2011, we expect fed cattle supplies to tighten following placement of cattlewith more diverse placement weights and the continuing calf crop decline. Larger cow and bull slaughter during 2010 continues to imply herd liquidationand the trend of smaller cattle supplies into the coming years.  While thecattle supply may appear negative to NBP’s operations, recent beef demand,supported by beef export tonnage near that of pre-BSE (2003) levels and encouragingdomestic economic conditions, appears positive.  Absent significantdeterioration in domestic and global economic conditions, we expect cattle andbeef prices to remain strong throughout 2011.

**BeefExport Markets**

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

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 beef mayhave a material adverse effect on our revenues and net income.

 

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InDecember 2010, the United States Department of Agriculture (USDA) announcedthat China has agreed to resume talks with the Unites States regarding beefmarket access and that technical talks will resume with the goal of re-openingChina’s market for U.S. beef under the age of 30 months in early 2011.  Wecannot presently assess the full economic impact of the re-opening of China’smarket to age verified beef on the U.S. beef packing industry or our operationsand there can be no assurance that such talks will occur or result inre-opening of China’s market to U.S. beef products.  

**RecentEvents**

On June 22, 2010, the Grain Inspection and Packers andStockyards Administration published a proposed rule adding new regulationsunder the Packers and Stockyards Act.  If adopted as currently proposed, thenew regulations could have a significant impact on marketing and procurementpractices in the beef processing industry and could affect how we procurecattle for our value-added programs and how we process and market value-addedbeef products. We cannot presently assess the full economic impact of theproposed rule on the beef processing industry or on our operations.

**Resultsof Operations**

***Thirteen weeks ended November 27, 2010 compared to thirteen weeks endedNovember 29, 2008***

*General.*  Netincome for the thirteen weeks ended November 27, 2010 was approximately $52.1million compared to net income of approximately $38.4 million for the thirteenweeks ended November 28, 2009, an increase of $13.7 million.  Sales were higherin the thirteen weeks ended November 27, 2010 compared to the thirteen weeksended November 28, 2009 due in part to an approximate 4.0% increase in thevolume of cattle processed and increase in the average sales price per head ofapproximately14.3% during the current reporting period.  

Total costs and expenses of $1,532.9 million for the thirteenweeks ended November 27, 2010 were 96.6% of sales compared to approximately$1,299.3 million for the thirteen weeks ended November 28, 2009, or 96.8% ofsales.  An increase in the volume of cattle processed, and a decrease in totalcosts as a percentage of sales resulted in increased operating income ofapproximately $11.0 million for the thirteen weeks ended November 27, 2010compared to the thirteen weeks ended November 28, 2009.  

*Net Sales*. Net sales were $1,587.3 million for the thirteen weeks ended November 27, 2010compared to $1,342.6 million for the thirteen weeks ended November 28, 2009, anincrease of $244.7 million, or 18.2%.  The increase in net sales primarily resultedfrom an approximately 14.3% increase in the average sales price per head duringthe thirteen weeks ended November 27, 2010 as the demand for beef products was strongeras compared to the thirteen weeks ended November 28, 2009.  Also contributingto the increase in net sales was an approximately 4.0% increase in the volumeof cattle processed.  

*Cost of Sales*. Cost of sales was $1,505.4 million for the thirteen weeks ended November 27, 2010compared to $1,273.3 million for the thirteen weeks ended November 28, 2009, anincrease of $232.1 million, or 18.2%.  The increase was primarily a result ofan approximate 15.3% increase in cattle prices for the comparable periods. Also contributing to the increase was an increase in the volume of cattleprocessed of approximately 4.0% during the thirteen weeks ended November 27,2010 compared to the thirteen weeks ended November 28, 2009.  

*Selling, General and Administrative Expenses*.  Selling, general and administrative expenses were $14.4million for the thirteen weeks ended November 27, 2010 compared to $13.2 millionfor the thirteen weeks ended November 28, 2009, an increase of approximately$1.2 million, or 9.1%.  The increase primarily reflects an increase ofapproximately $0.5 million in both consulting and salaries expense for theperiod.  

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses were $13.1million for the thirteen weeks ended November 27, 2010 compared to $12.8million for the thirteen weeks ended November 28, 2009, an increase of $0.3million, or 2.3%.  The slight increase in depreciation expense was primarilyrelated to fixed assets being placed into service during fiscal year 2011.                

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*Operating Income.*  Operating income was approximately $54.4 million for the thirteenweeks ended November 27, 2010 compared to operating income of approximately $43.4million for the thirteen weeks ended November 28, 2009, an increase of $11.0million, or 25.3%. The improvement inoperating income during the first quarter of fiscal year 2010 resultedprimarily from an increase in the sales per head of approximately 14.3% andincrease in the volume of cattle processed of approximately 4.0% during the thirteenweeks ended November 27, 2010.  These increases were offset by an increase inaverage live cattle prices of approximately 15.3% during the period.  

*Interest Expense*.  Interest expense was $2.6 million for the thirteen weeks endedNovember 27, 2010 compared to $4.6 million for the thirteen weeks endedNovember 28, 2009, a decrease of $2.0 million, or 43.5%.  The decrease ininterest expense during the thirteen weeks ended November 27, 2010 as comparedto the thirteen weeks ended November 28, 2009 was due primarily to a decreasein the average borrowings during the period of approximately12.3%, and adecrease of approximately 226 basis points on the average daily interest rateduring each of the respective reporting periods.  These decreases are primarilydue to the purchase and cancellation of the remaining approximately $66.9million of NBP’s senior notes.  Portions of these notes were outstanding duringthe thirteen weeks ended November 28, 2009, but were retired and cancelled intheir entirety prior to the beginning of the thirteen weeks ending November 27,2010.  

*Income Tax Expense*.  Income tax expense was $0.3 million and $0.4 million for thethirteen weeks ended November 27, 2010 and November 28, 2009, respectively.  Incometax expense is recorded on taxable income from National Carriers, which isorganized as a C Corporation and the apportioned taxable income of NBP bycertain states which impose privilege taxes.  

*Net Income.* As a result of the factors described above, net income for the thirteen-weekperiod ended November 27, 2010 was approximately $52.1 million compared tonet income of approximately $38.4 million for the thirteen-week periodended November 28, 2009, an increase of approximately $13.7 million, or 35.7%.

*Net Income Attributable to Noncontrolling Interest in NBP.*  Noncontrolling interest in the net income of NBP for the thirteen weeks ended November 27, 2010 was $16.5million compared to noncontrollinginterest in the net income for the thirteenweeks ended November 28, 2009 of $12.7 million, a change of $3.8 million. The noncontrolling interest in NBP represents the minority owners’ interest in NBP’s earnings.

**Liquidityand Capital Resources**

As of November 27, 2010, we had net working capital ofapproximately $122.4 million, which included $149.9 million in distributionspayable, and cash and cash equivalents of$48.3 million.  As of August 28, 2010, we had net working capital ofapproximately $208.6 million, which included cash and cash equivalents of $35.4million, with $8.4 million in distributions payable.  NBP’s primary sources of liquidity are cash flow fromoperations and available borrowings under its amended and restated creditfacility (Credit Facility).

As of November 27, 2010, we had $280.0 million of long-term debt, $22.2 million of which wasclassified as a current liability. As of November 27, 2010, NBP’s CreditFacility originally consisted of a $375.0 million term loan, of which $195.0million was outstanding and a $250.0 million revolving line of credit loan, which had outstanding borrowings of $65.0 million,outstanding letters of credit of $24.1 million and available borrowings of $159.6million, based on the most restrictive financial covenant calculations.  Wealso had a term loan with CoBank of which $0.8 million was outstanding and a$10.0 million revolving line of credit with CoBank all of which was available. Cash flows from operations and borrowings under NBP’s Credit Facility havefunded its working capital requirements, acquisitions, capital expenditures andother general corporate purposes.  USPB and NBP were in compliance with all of thefinancial covenants under the Credit Facilities as of November 27, 2010.

In addition to outstanding borrowings under NBP CreditFacility, NBP had outstanding borrowings under industrial revenue bonds of $12.2million and capital lease and other obligations of $7.0 million as of November 27,2010.

 

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We believe that available borrowings under NBP’s CreditFacility and cash provided by operating activities will be sufficient tosupport its working capital, capital expenditures and debt service requirementsfor the foreseeable future.  NBP’sability to generate sufficient cash, however, is subject to certain general economic, financial, industry, legislative, regulatoryand other factors beyond its control.  For a review of our obligations thataffect liquidity, please see the “Cash Payment Obligations” table in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” of our Annual Report on Form 10-K for the fiscal year ended August 28,2010.

*OperatingActivities*

Net cash provided through operating activities in thethirteen weeks ended November 27, 2010 was $17.5 million compared to net cash providedthrough operating activities of $24.5 million in the thirteen weeks endedNovember 28, 2009.  The $7.0 million decrease in operating activities wasprimarily related a decrease in working capital changes during the period,primarily related to an increase in cash paid in fiscal year 2011 for bonusesearned in fiscal year 2010 and an increase in cash collateral posted onderivatives liabilities.  These decreases are partially offset by an increasein net income of approximately $13.7 million during the thirteen weeks endedNovember 27, 2010 as compared to the thirteen weeks ended November 28, 2009.  

*InvestingActivities*

Net cash used in investing activities was $12.6million in the thirteen weeks ended November 27, 2010 compared to $9.0 millionin the thirteen weeks ended November 28, 2009.  This increase in cash used wasprimarily attributable to an approximate $3.9 million increase in expendituresfor property, plant and equipment during the thirteen weeks ended November 27,2010 as compared to the thirteen weeks ended November 28, 2009.

*FinancingActivities*

Net cash provided by financing activities was $8.0million during the thirteen weeks ended November 27, 2010 compared to net cash usedin financing activities of $15.5 million during the thirteen weeks ended November 28, 2009.  The change was primarilyattributed to an approximately $72.2 million increase in net receipts under ourrevolving credit lines during the thirteen weeks ended November 27, 2010compared to the thirteen weeks ended November 28, 2009, and the purchase andcancellation of approximately $39.8 million of NBP’s senior notes during thethirteen weeks ended November 28, 2009.  These increases in cash provided by financingactivities was partially offset by an approximate $75.0 million in borrowingsunder NBP’s term note payable during the thirteen weeks ended November 28, 2009and an approximate $13.6 million change in the overdraft balances during theperiod.  

*Amendedand Restated Senior Credit Facility*

Effective as of June 4,2010, NBP’s Credit Facility was amended and restated to: (1) increase theborrowings under the Credit Facility by providing for a term loan facility ofup to $375 million and a revolving line of credit of up to $250 million; (2)reduce the applicable margin on the rates of interest of the term loan and revolvingline of credit; (3) revise the payment schedule of the term loan; (4) extendthe maturity date of the Credit Facility to June 4, 2015; (5) removelimitations on capital expenditures; (6) add new financial covenants regardingadjusted net worth and a fixed charge coverage ratio; and (7) add two whollyowned subsidiaries, National Beef California, LP and National Carriers, Inc.,as loan parties and guarantors. The lender financing charges for the amendedand restated Credit Facility of approximately $4.2 million are being amortizedover the life of the loan.

The borrowings under theCredit Facility bear interest at LIBOR or the Base Rate, plus the applicablemargin. The applicable margin for the revolving line of credit and the termloan will be as set forth on a grid  based on different ratios of funded debtto EBITDA. As of November 27, 2010, the interest rates for the term loan andrevolving loan were approximately 2.76% and 3.53%, respectively.

The borrowings under therevolving loan are available for NBP’s working capital requirements, capitalexpenditures and other general corporate purposes. The advance rates under theborrowing base are 90% on eligible accounts and 70% on eligible inventory. TheCredit Facility is secured by a first priority lien on substantially all of NBP’sassets and the assets of its subsidiaries.

 

 

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The principal amountoutstanding under the term loan is due and payable in equal quarterlyinstallments beginning in October 2010, based on a 10-year level amortizationof the remaining amount of the term loan. All outstanding loan amounts are dueand payable on June 4, 2015. Prepayment of the loans is allowed at any time.

The Credit Facilitycontains customary affirmative covenants relating to NBP and its subsidiaries,including, without limitation, conduct of business, maintenance of insurance,compliance with laws, maintenance of properties, keeping of books and records,and the furnishing of financial statements.  The facility also containscustomary negative covenants relating to NBP and its subsidiaries, including,without limitation, restrictions on: distributions, mergers, asset sales,investments and acquisitions, encumbrances, affiliate transactions, and ERISAmatters. The ability of NBP and its subsidiaries to engage in other business,incur debt or grant liens is also restricted.

The Credit Facilitycontains customary events of default, including, without limitation, failure tomake payment when due, materially incorrect representations and warranties,breach of covenants, events of bankruptcy, default of other indebtedness thatwould permit acceleration of such indebtedness, the occurrence of one or moreunstayed or undischarged judgments in excess of $3.0 million, changes incustody or control of NBP’s property, changes in control of NBP, failure of anyof the loan documents to remain in full force, and NBP’s failure to properlyfund its employee benefit plans. The Credit Facility also includes customaryprovisions protecting the lenders against increased costs or loss of yieldresulting from changes in tax, reserve, capital adequacy and other requirementsof law.

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

The principalmarket risks affecting NBP’s 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. From time to time, 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. From time to time, 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 derivativeinstrument. The particular hedging instrument NBP uses depends on a number offactors, 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. From time to time, 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 maytend to limit its 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, NBP reflects commodity contract gains and losses as adjustmentsto the basis of underlying commodities sold; gains or losses are recognized inthe statement of operations as a component of net sales. 

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From time to time, NBP purchases cattle futures andoptions contracts.  Its primary use of these contracts is to partially determineits future input costs when NBP has committed forward sales purchase ordersfrom customers at a specified fixed price.  The longest duration futurescontract owned is sixteen months.  In accordance with ASC 815, *Derivativesand Hedging*, as amended, NBP accounts for futures contracts and theirrelated firm purchase commitments at fair value.  Certain firm commitments forlive cattle purchases and all firm commitments for boxed beef sales are treatedas “normal purchases and sales” and not marked to market.  ASC 815 imposesextensive recordkeeping requirements in order to treat a derivative instrumentas a hedge for accounting purposes. Derivatives qualify for treatment as hedgeswhen there is a high correlation between the change in fair value of theinstrument and the related change in fair value of the underlying commitment.For derivatives that qualify as effective hedges, the change in fair value hasno net effect on earnings until the hedged transaction affects earnings. Forderivatives that are not designated as hedging instruments, or for theineffective portion of a hedging instrument, the change in fair value doesaffect current period net earnings.

While management believes each of these instrumentshelps mitigate various market risks, they are not designated and accounted foras hedges as a result of the extensive recordkeeping requirements of thisstatement. Accordingly, the gains and losses associated with the change in fairvalue of the instrument and the offsetting gains and losses associated withchanges in the market value of certain of the firm purchase commitments relatedto the futures contracts are recorded to income and expense in the period ofchange.

NBPuses a sensitivity analysis to evaluate the effect that changes in the marketvalue of commodities will have on these commodity derivative instruments.  NBPfeels that sensitivity analysis more appropriately reflects the potentialmarket value exposure associated with the use of derivative instruments.  As ofNovember 27, 2010 and August 28, 2010, the potential change in the fair valueof the derivative instruments NBP holds that are not designated as normalpurchases or sales, assuming a hypothetical 10% decrease in the underlyingcommodity price in each year, was $9.3 million and $0.3 million, respectively. 

*Interest Rates.*  As a result of our normal borrowing andleasing activities, our operating results are exposed to fluctuations ininterest rates, which we manage primarily through our regular financingactivities. We generally maintain limited investments in cash and cashequivalents.

We have long-termdebt with variable interest rates. Short-term debt is primarily comprised ofthe current portion of long-term debt maturing twelve months from the balancesheet date.  Our variable interest expense is sensitive to changes in thegeneral level of interest rates.   As of November 27, 2010, the weightedaverage interest rate on our $273.0 million of variable interest debt wasapproximately 2.84%.  As of August 28, 2010, the weighted average interest rateon our $240.2 million of variable interest debt was approximately 2.77%.  

We had totalinterest expense of approximately $2.6 million during the thirteen weeks endedNovember 27, 2010.  The estimated increase in interest expense from ahypothetical 200 basis point increase in applicable variable interest rateswould have been approximately $1.3 million during the thirteen weeks endedNovember 27, 2010.

*ForeignOperations.*  Transactionsdenominated in a currency other than an entity’s functional currency may exposethat entity to currency risk. Although we operate in international marketsincluding Japan, South Korea and China, product sales are predominately made inUnited States dollars, and therefore, currency risks are limited.

**Item4.  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 Financial Officer. Based upon that evaluation, asof the end of the period covered by this Quarterly Report on Form 10-Q, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective in alerting them, in a timelymanner, to material information required to be included in our periodicSecurities and Exchange Commission filings.  There have been no changes in ourinternal controls over financial reporting during the thirteen weeks ended November27, 2010 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.  The design of anysystem of controls and procedures is based in part upon certain assumptionsabout the likelihood of future events. 

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**PARTII. OTHER INFORMATION**

** **

**Item 1. Legal Proceedings.**

For informationregarding legal proceedings, see Note 6. *Contingencies* to our ConsolidatedFinancial Statements included in Part I- *Item 1* of this Form 10-Q,which is incorporated herein by reference. 

**Item 1A. Risk Factors.**

The risk factors setforth in our Annual Report on Form 10-K for the fiscal year ended August 28,2010 have not materially changed.  Please refer to the Company’s report on Form10-K for the fiscal year ended August 28, 2010 to consider those risk factors.

**Item 2. UnregisteredSales of Equity Securities and Use of Proceeds.**

None.

**Item 3. Defaults UponSenior Securities.**

None. 

**Item4. Submission of Matters to a Vote of Security Holders.**

None

**Item 5. Other Information.**

None.         

**Item 6. Exhibits.**
|   |   | (A) |   | Exhibits |
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|   |  

3.0 |   |  

Redemption of 1999  Patronage Notices and Distribution by U.S. Premium Beef, LLC (incorporated  herein by reference to Company’s Current Report on Form 8-K (File No.  333-111407) filed with the SEC on December 20, 2010). |                  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 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 Financial Officer*

*(Principal Financial and Accounting Officer)*

 

 

 

Date:January 7, 2011

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