NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Form 10-Q

0001003297-09-000158.txt : 20090710 0001003297-09-000158.hdr.sgml : 20090710 20090710163939 ACCESSION NUMBER: 0001003297-09-000158 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20090530 FILED AS OF DATE: 20090710 DATE AS OF CHANGE: 20090710 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U. S. Premium Beef, LLC CENTRAL INDEX KEY: 0001289237 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - LIVESTOCK & ANIMAL SPECIALTIES [0200] IRS NUMBER: 201576986 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-115164 FILM NUMBER: 09940449 BUSINESS ADDRESS: STREET 1: 12200 NORTH AMBASSADOR DRIVE, SUITE 501 CITY: KANSAS CITY STATE: MO ZIP: 64163 BUSINESS PHONE: 816-713-8800 MAIL ADDRESS: STREET 1: 12200 NORTH AMBASSADOR DRIVE, SUITE 501 CITY: KANSAS CITY STATE: MO ZIP: 64163 FORMER COMPANY: FORMER CONFORMED NAME: U. S. Premium Beef, Inc. DATE OF NAME CHANGE: 20040504 10-Q 1 esuspb10q.htm NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended May 30, 2009

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

For the transition period from to .

Commission file number 333-115164

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

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

12200 North Ambassador Drive
Kansas City, MO 64163
(Address of principal executive offices)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer þ

Small Reporting Company o

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

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

	TABLE OF CONTENTS
PART I.	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements.	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	20

Item 4T.	Controls and Procedures.	21


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.	22

Item 1A.	Risk Factors.	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22

Item 3.	Defaults Upon Senior Securities.	22

Item 4.	Submission of Matters to a Vote of Security Holders.	22

Item 5.	Other Information.	22

Item 6.	Exhibits.	22

	Signatures.	24

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except unit data)

			May 30,		August 30,
Assets			2009		2008
			(unaudited)
Current assets:
	Cash and cash equivalents		$	14,945	$	77,399
	Accounts receivable, less allowance for returns and doubtful accounts
		of $1,872 and $1,665, respectively	188,831		218,023
	Due from affiliates		3,311		5,827
	Other receivables		7,708		5,392
	Inventories		180,778		192,480
	Other current assets		15,245		12,765
		Total current assets	410,818		511,886
Property, plant, and equipment, at cost			478,363		431,584
	Less accumulated depreciation		(163,707)		(133,436)
		Net property, plant, and equipment	314,656		298,148
Goodwill			89,127		80,642
Other intangible assets, net of accumulated amortization
	of $10,925 and $9,347, respectively		65,757		26,690
Other assets			9,740		9,710
		Total assets	$	890,098	$	927,076
Liabilities and Capital Shares and Equities
Current liabilities:
	Current installments of long-term debt		$	12,299	$	4,620
	Cattle purchases payable		73,771		65,378
	Accounts payable - trade		64,403		71,321
	Due to affiliates		907		1,004
	Accrued compensation and benefits		38,877		49,320
	Accrued insurance		12,831		12,918
	Other accrued expenses and liabilities		19,186		10,152
	Distributions payable		5,798		19,245
		Total current liabilities	228,072		233,958
Long-term liabilities:
	Long-term debt, excluding current installments		356,274		376,298
	Other liabilities		2,137		2,327
		Total long-term liabilities	358,411		378,625
		Total liabilities	586,483		612,583
Minority interest in National Beef Packing Company, LLC and Kansas City Steak Company, LLC			164,567		187,997
Capital shares and equities:
	Members' capital, 735,385 Class A units and 735,385 Class B units
		authorized, issued and outstanding	90,375		75,831
	Patronage notices		48,682		50,642
	Accumulated other comprehensive (loss) income		(9)		23
		Total capital shares and equities	139,048		126,496
Commitments and contingencies			-		-
		Total liabilities and capital shares and equities	$	890,098	$	927,076
See accompanying notes to consolidated financial statements.

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except unit and per unit data)

				13 weeks ended		14 weeks ended		39 weeks ended		40 weeks ended
				May 30, 2009		May 31, 2008		May 30, 2009		May 31, 2008
				(unaudited)		(unaudited)		(unaudited)		(unaudited)

Net sales				$	1,318,020	$	1,529,624	$	4,045,215	$	4,233,676

Costs and expenses:
	Cost of sales			1,242,304		1,428,059		3,882,639		4,109,947
	Selling, general, and administrative expenses			12,426		13,844		35,333		38,713
	Depreciation and amortization			11,948		9,819		33,186		27,403
		Total costs and expenses		1,266,678		1,451,722		3,951,158		4,176,063

			Operating income	51,342		77,902		94,057		57,613

Other income (expense):
	Interest income			47		217		291		1,159
	Interest expense			(5,884)		(8,737)		(18,337)		(27,147)
	Minority owners' interest in net income of
		National Beef Packing Company, LLC		(16,608)		(33,265)		(28,327)		(17,002)
	Minority owners' interest in net income of
Kansas City Steak Company, LLC				(232)		(162)		(950)		(608)
	Equity in loss of aLF Ventures, LLC			(8)		(26)		(57)		(76)
	Termination fee			-		-		14,572		-
	Other, net			(585)		4,331		(4,431)		6,138
			Income before taxes	28,072		40,260		56,818		20,077

Income tax expense				(380)		(978)		(941)		(2,057)
			Net income	$	27,692	$	39,282	$	55,877	$	18,020

Net income per linked unit:
	Basic			$	37.66	$	53.42	$	75.98	$	24.50
	Diluted			$	37.08	$	52.64	$	74.86	$	24.15

Outstanding weighted-average Class A and Class B units:
	Basic			735,385		735,385		735,385		735,385
	Diluted			746,838		746,218		746,435		746,161
See accompanying notes to consolidated financial statements.

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

					39 weeks ended		40 weeks ended
					May 30, 2009		May 31, 2008
					(unaudited)		(unaudited)
Cash flows from operating activities:
	Net income				$	55,877	$	18,020
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			33,186		27,403
		Termination fee			(14,572)		-
		Loss (gain) on disposal of property, plant, and equipment			119		(1)
		Gain on disposal of investment			-		(1,342)
		Minority interest			28,887		17,419
		Write-off of debt issuance costs			1,317		-
		Changes in assets and liabilities:
			Accounts receivable		29,192		(9,512)
			Due from affiliates		3,771		(132)
			Other receivables		(2,316)		2,248
			Inventories		11,702		(20,811)
			Other assets		(3,990)		(5,759)
			Cattle purchases payable		7,767		9,216
			Accounts payable		(4,542)		9,250
			Due to affiliates		(99)		(762)
			Accrued compensation and benefits		(10,443)		10,138
			Accrued insurance		(87)		(1,696)
			Other accrued expenses and liabilities		7,591		5,238
				Net cash provided by operating activities	143,360		58,917
Cash flows from investing activities:
	Capital expenditures, including interest capitalized				(35,600)		(40,058)
	Termination fee				14,572		-
	Proceeds from sale of property, plant, and equipment				1,240		175
	Proceeds from redemption of investment				-		1,342
				Net cash used in investing activities	(19,788)		(38,541)
Cash flows from financing activities:
	Net receipts (payments) under revolving credit lines				62,723		(22,368)
	Repayments of term note payable				(26,485)		(772)
	Purchase and cancellation of senior notes				(45,479)		-
	Repayments of other indebtedness / capital leases				(3,104)		(2,862)
	Member capital redeemed				(125,484)		-
	Payments of patronage notices				(1,960)		-
	Minority owner capital contribution				19,643		-
	Change in overdraft balances				(1,750)		7,910
	Distributions to minority interest owners in National Beef Packing Company, LLC				(22,005)		(3,692)
	Member distributions				(42,093)		-
				Net cash used in financing activities	(185,994)		(21,784)
Effect of exchange rate changes on cash					(32)		(23)
				Net decrease in cash	(62,454)		(1,431)
Cash and cash equivalents at beginning of the period					77,399		62,869
Cash and cash equivalents at end of the period					$	14,945	$	61,438
Supplemental cash disclosures:
	Cash paid during the period for interest				$	15,916	$	23,561
	Cash paid during the period for taxes, net of refunds				$	(729)	$	1,082
Supplemental non-cash disclosures of investing and financing activities:
	Assets acquired through capital lease				$	44	$	-

See accompanying notes to consolidated financial statements.

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Interim Financial Statements

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information; therefore, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included using management’s best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments. For further information, refer to the audited Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are included in the Company’s Annual Report on Form 10-K on file with the Securities and Exchange Commission (SEC) for the fiscal year ended August 30, 2008. The results of operations for the interim periods presented are not necessarily indicative of the results for a full fiscal year.

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

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

(2) New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141R (SFAS 141R), Business Combinations. This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date to be measured at their fair value as of that date. An acquirer is required to recognize assets or liabilities arising from all other contingencies (contractual contingencies) as of the acquisition date, measured at their acquisition-date fair values, only if it is more likely than not that they meet the definition of an asset or a liability in FASB Concepts Statement No. 6, Elements of Financial Statements. Any acquisition-related costs are to be expensed instead of capitalized. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact to the Company from the adoption of SFAS 141R in fiscal year 2010 will depend on acquisitions at the time.

In December 2007, the FASB issued SFAS No. 160 (SFAS 160), Noncontrolling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary. SFAS 160 requires noncontrolling interests held by parties other than the parent in subsidiaries be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent's equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact SFAS 160 may have, if any, on its consolidated financial statements.

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

(3) Acquisition

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

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

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

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

		(in thousands)
Current assets		$	52,342
Investments		95
Property, plant, and equipment		55,514
Intangibles		44,237
Goodwill		8,485
Other assets		1,215
Current liabilities		(24,524)
Debt		(46,924)
Other liabilities		(300)
	Total estimated fair value	$	90,141

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

(4) Inventories

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

	May 30, 2009			August 30, 2008

Dressed and boxed meat products		$	133,958	$	144,885
Beef by-products		18,934		20,886
Supplies and other		27,886		26,709
		$	180,778	$	192,480

(5) Comprehensive Income

Comprehensive income, which consists of net income and foreign currency translation adjustments, was as follows for the periods indicated (in thousands):

		13 weeks ended		14 weeks ended		39 weeks ended		40 weeks ended
		May 30, 2009		May 31, 2008		May 30, 2009		May 31, 2008
Net income		$	27,692	$	39,282	$	55,877	$	18,020
Other comprehensive (loss) income:
Foreign currency translation adjustments		42		(26)		(32)		(23)
	Comprehensive income	$	27,734	$	39,256	$	55,845	$	17,997

(6) Minority Interest

At any time after certain dates, the earliest being July 31, 2010, the latest being July 31, 2011, affiliates of a certain member of NBP management and/or NBPCO Holdings, LLC have the right to request that NBP repurchase their interests, the value of which is to be determined by a specified formula or a mutually agreed process. If NBP is unable to effect the repurchase within a specified time, the requesting member(s) have the right to cause a sale process to commence. On April 13, 2009, NBP entered into two Unit Redemption Agreements pursuant to Section 12.5 of its Limited Liability Company Agreement, dated as of August 6, 2003 (as amended from time to time, the “LLC Agreement”) to redeem at agreed upon redemption prices all of the membership interests in NBP that were then owned or controlled by NBP’s Chief Executive Officer, John R. Miller, and an affiliate of NBP’s General Counsel, Scott H. Smith (referred to herein as “Mr. Smith”), as well as 25% of the membership interests in NBP that were then owned by affiliates of NBP’s President and Chief Operating Officer, Timothy M. Klein. As a result, Mr. Miller and his affiliate received approximately $91.3 million for their units and Mr. Smith’s affiliate received approximately $22.8 million for its units and they are no longer members of NBP although each retained their position with NBP. Mr. Klein’s affiliates received approximately $11.4 million for their redeemed units, and he retained his position with NBP as well.

The Company accounts for changes in the redemption value of these interests by accreting the change in value over the current period through the earliest redemption date of the respective interests. At May 30, 2009, the value of the minority interest in NBP was determined to be $215.6 million, which was in excess of its carrying value. Accordingly, after giving effect to the redemption of interests in April 2009, the carrying value of the minority interest in NBP increased by approximately $3.6 million through accretion during the thirty-nine weeks ended May 30, 2009, resulting in the $162.5 million carrying value, which is included in the accompanying consolidated balance sheet as of May 30, 2009.

Generally accepted accounting principles require the Company to determine the fair value of the minority owners’ interest at the end of each reporting period. To the extent that this value increases, this change in fair value is accreted over the redemption period as discussed above. In the past, NBP used Stern Brothers Valuation Advisors to assist management in measuring fair value of the minority owners’ interest. At February 28, 2009 and May 30, 2009, management used the agreed upon redemption prices that were used in the Unit Redemption Agreements discussed above in measuring the fair value of the minority interest. The Unit Redemption Agreement between NBP and Timothy Klein and affiliates provides for a formula-based method of calculating their interest once an appraisal election has been given. This formula-based method was used in valuing the interest of Timothy Klein and affiliates at May 30, 2009.

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

(7) Contingencies

National Beef Leathers, LLC ("NBL"), a wholly-owned subsidiary of NBP, has been named as a defendant in nine lawsuits involving NBL's tannery located in St. Joseph, Missouri. NBL purchased the assets of the tannery from Prime Tanning Corp. ("Prime") in March 2009. The lawsuits have been filed in the Circuit Courts of Clinton County and DeKalb County, Missouri between April 22, 2009 and June 8, 2009. The lawsuits claim that Prime and NBL spread tanning sludge containing hexavalent chromium in four counties in northwest Missouri. The lawsuits include six actions filed by individuals and three purported class actions. The plaintiffs are seeking an unspecified amount of damages for wrongful death, personal injury, pain and suffering, economic damages, punitive damages, diminished property values and medical monitoring. NBL is vigorously defending the cases. In addition, NBL is cooperating with various governmental inquiries.

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

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

(8) Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair Value Measurements. This statement establishes a single authoritative definition of fair value to be used when accounting rules require the use of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurement. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

On August 30, 2008, the Company adopted portions of SFAS 157, Fair Value Measurements, except for the non-financial assets and liabilities within the scope of the deferral provided by FASB Staff Position 157-2 as discussed in Note 2.

SFAS 157 establishes a three-level fair 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 three levels of inputs used to measure fair value are as follows:

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

Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – unobservable inputs for an asset or liability. Unobservable inputs should only be used to the extent observable inputs are not available.

The following table details the assets and liabilities measured at fair value on a recurring basis as of May 30, 2009 and also the level within the fair value hierarchy used to measure each category of assets.

(in thousands)
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable
Description	May 30, 2009		(Level 1)		(Level 2)		Inputs (Level 3)

Other current assets -
derivatives	$	5,748	$	5,748	$	-	$	-

Other accrued expenses and
liabilities - derivatives	$	7,494	$	2,958	$	4,536	$	-

Minority owners' interest	$	162,543	$	-	$	162,543	$	-

In February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities. This statement provides companies with an option to report selected financial assets and liabilities at fair value. This statement was effective for the Company as of August 30, 2008; however, the Company did not elect the option to report any of the selected financial assets and liabilities at fair value.

(9) Disclosure about Derivative Instruments and Hedging Activities

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

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

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

NBP enters into certain commodity derivatives, primarily with a diversified group of highly rated counterparties. The maximum amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is deemed to be immaterial as of May 30, 2009 as all derivatives in an asset position are exchange-traded contracts. The exchange-traded contracts have been entered into under a master netting agreement. None of the derivatives entered into have credit-related contingent features. NBP has $7.1 million in cash collateral posted on its derivative liabilities.

The following table presents the fair values as discussed in Note 8 and other information regarding derivative instruments not designated as hedging instruments as of May 30, 2009 (in thousands of dollars):

Derivative Asset

Derivative Liability

As of May 30, 2009

Balance

Sheet

Location

Fair Value

Location

Fair Value

Accrued

Other current

expenses and

Commodity contracts

assets

5,748

other liabilities

7,494

Total

5,748

7,494

The following table presents the impact of derivative instruments on the Consolidated Statement of Operations for the thirteen and thirty-nine week periods ended May 30, 2009 (in thousands of dollars):


Derivatives Not		Location of Gain (Loss)
Designated as Hedging		Recognized in Income on	Amount of Gain (Loss) Recognized in
Instruments		Derivatives	Income On Derivatives
			13 weeks ended		39 weeks ended
			May 30, 2009		May 30, 2009

Commodity contracts		Net sales	$	(29,203)	$	(35,228)
Commodity contracts		Cost of sales	10,733		17,593
	Total		$	(18,470)	$	(17,635)

(10) Earnings Per Linked Unit

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

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

Income Per Linked Unit Calculation
		13 weeks ended		14 weeks ended		39 weeks ended		40 weeks ended
(In thousands, except unit and per unit data)		May 30, 2009		May 31, 2008		May 30, 2009		May 31, 2008
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Basic income per linked unit
Income available to unitholders (numerator)		$	27,692	$	39,282	$	55,877	$	18,020

Weighted average outstanding units (denominator)		735,385		735,385		735,385		735,385

	Per linked unit amount	$	37.66	$	53.42	$	75.98	$	24.50

Diluted income per linked unit
Income available to unitholders (numerator)		$	27,692	$	39,282	$	55,877	$	18,020

Weighted average outstanding units		735,385		735,385		735,385		735,385
Effect of dilutive securities - unit options		11,453		10,833		11,050		10,776
	Linked units (denominator)	746,838		746,218		746,435		746,161

	Per linked unit amount	$	37.08	$	52.64	$	74.86	$	24.15

(11) Subsequent Events

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

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

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

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

Disclosure Regarding Forward-Looking Statements

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

In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this report will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. See also the Risk Factors in Item 1A.of the Company’s Annual Report for the year ended August 30, 2008 on Form 10-K filed with the Securities and Exchange Commission for other important factors that could cause actual results to differ materially from those in any such forward-looking statements, and which should be read in conjunction with this report.

Industry Outlook

Domestic and global economic conditions continue to dominate the cattle and beef market outlook. Economic pressure in the cattle production sector continues to realize reduced cattle placements on feed while milk production losses have resulted in another round of industry-based dairy cow liquidation. Adequate summer fed cattle supplies are expected to transition to much smaller fall fed cattle availability leading to anticipated higher cattle and beef prices amidst continued expectations for very cautious consumer spending. The volume of beef exports has seen slight gains led by the weaker U.S. dollar; however, lagging global economic activity has limited the positive responses historically realized. Sales prices of beef by-products appear to have bottomed and are also beginning to trend higher, but are expected to remain significantly below calendar year 2008 levels through the end of calendar year 2009.

Recent Developments

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

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

In connection with these transactions, the NBP LLC Agreement was amended to provide that (i) the existing appraisal process for the valuation of NBP to be used for the remaining units controlled by Mr. Klein for his rights under Section 12.5 of the NBP LLC Agreement has been replaced with an amount equal to a two-year average of NBP’s EBITDA (as defined in the NBP LLC Agreement) multiplied by six minus NBP’s outstanding debt; and (ii) for purposes of redemption or liquidation, the Class B units controlled by Mr. Klein may be paid a non-dilution premium, which was at a maximum value of $4.3 million as of May 30, 2009.

In order to partially finance such redemptions, NBP created a new series of Class A units (referred to as “Class A1 Units”) that were issued to USPB and NBPCO Holdings, LLC for approximately $55.8 million and $19.6 million, respectively. Class A1 Units are nonvoting and are entitled to a priority distribution of 7% per year on the face amount of the Class A1 Units payable with payment in kind Class A1 Units in lieu of cash if NBP’s EBITDA does not meet certain tests. For purposes of determining Class B ownership for liquidation or redemption, the Class A1 Units will be deemed to be converted to Class B units at a ratio stated in the NBP LLC Agreement, but will remain Class A1 Units after such determination.

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

Beneficial Owner	Class B Interest (1)	Percentage of Class

U.S. Premium Beef, LLC	12,537,001.0612	69.3527%
NBPCO Holdings, LLC	4,468,723.0518	24.7203%
Timothy M. Klein Affiliates	1,071,429.0000	5.9270%
(1) For purposes of a redemption or liquidation event assuming no redemptions
of any Class A1 Units.

NBP also financed a portion of the redemptions with $50.0 million of new borrowings under the revolving line of credit of its existing credit facility (as amended, the "Credit Facility"). NBP’s Credit Facility was amended on April 13, 2009 to permit these redemptions, increase the borrowings under the term loan by up to $75.0 million, increase the revolving line of credit by $25.0 million, increase the interest rates of the term loan and revolving line of credit, shorten the maturity date of the term loan to July 2012 and revise the payment schedule of the term loan, among other things. For a more complete description of the material amendments to NBP’s Credit Facility, see “Liquidity and Capital Resources–Amended and Restated Senior Credit Facility.”

Beef Export Markets

Export markets for U.S. beef products remain constrained since the discovery of a case of BSE in the State of Washington in December 2003, as well as other isolated cases. In July 2006, Japan agreed to reopen its market to U.S. beef from cattle aged 20 months and younger. In April 2008, our Brawley facility was suspended from shipping beef to Japan following the discovery of a short loin that included a portion of a spinal column, a specified risk material prohibited by Japan. Our Brawley facility was subsequently cleared to resume shipments to Japan on September 19, 2008. South Korea announced a provisional opening of its border to U.S. beef from animals 30 months and younger in September 2006; however, its border was subsequently closed in October 2007. South Korea reopened its border and started inspecting U.S. beef near the end of June 2008. Our Dodge City facility was removed from the eligible supplier list to Mexico on December 23, 2008 for two days for an alleged ink issue in September 2008 which we believe to be untrue and unfounded. These constraints and uncertainties have had a negative impact on beef margins.

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

Results of Operations

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

General. Net income for the thirteen weeks ended May 30, 2009 was approximately $27.7 million compared to net income of $39.3 million for the fourteen weeks ended May 31, 2008, a decrease of $11.6 million. Sales were lower in the thirteen weeks ended May 30, 2009 compared to the fourteen weeks ended May 31, 2008 due in part to an approximate 4.5% decrease in the average volume of cattle processed per week and due to the extra week in the prior reporting period as compared to the current year. The average sales prices per head decreased approximately 2.6% during the current period as the demand for beef products during the quarter was not as strong compared to the same quarter of last year.

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

Net Sales. Net sales were approximately $1,318.0 million for the thirteen weeks ended May 30, 2009 compared to approximately $1,529.6 million for the fourteen weeks ended May 31, 2008, a decrease of approximately $211.6 million, or 13.8%. The decrease in net sales resulted from an approximate 4.5% decrease in the average volume of cattle processed per week and from an extra week of sales activity last year as compared to the same period of the current year. Also contributing to the decrease in sales was a decrease in average sales prices per head of about 2.6% during the current thirteen week period of fiscal year 2009 as compared to the fourteen week period of fiscal year 2008.

Cost of Sales. Cost of sales was approximately $1,242.3 million for the thirteen weeks ended May 30, 2009 compared to approximately $1,428.1 million for the fourteen weeks ended May 31, 2008, a decrease of approximately $185.8 million, or 13.0%. The decrease resulted partially from an approximate 4.5% decrease in the number of live cattle purchased on a per week basis in addition to the additional week in the same period of last year. Also contributing to this decrease was an approximate 7.4% decrease in live cattle prices. Partially offsetting these decreases was an increase in the average cattle weights by approximately 2.0% during this thirteen week period of fiscal year 2009 as compared to the fourteen week period of fiscal year 2008.

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

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

Operating Income. Operating income was approximately $51.3 million for the thirteen weeks ended May 30, 2009 compared to approximately $77.9 million for the fourteen weeks ended May 31, 2008, a decrease of approximately $26.6 million. The decline in operating income resulted primarily from a somewhat weaker beef demand as reflected in a drop in volume of cattle processed and in average sales prices per head during the thirteen week period ended May 30, 2009, as compared to the fourteen week period ended May 31, 2008. In addition, the prior reporting period reflects an extra week of operating income as compared to the same period of the current year.

Minority Owners’ Interest in NBP. Minority interest in the net income of NBP for the thirteen weeks ended May 30, 2009 was $16.6 million compared to minority interest in the net income for the fourteen weeks ended May 31, 2008 of $33.3 million, a change of $16.7 million. The minority interest in NBP represents the minority owners’ equity in NBP’s earnings.

Interest Expense. Interest expense was approximately $5.9 million for the thirteen weeks ended May 30, 2009 compared to approximately $8.7 million for the fourteen weeks ended May 31, 2008, a decrease of approximately $2.8 million, or 32.2%. The decrease in interest expense was due primarily to the purchase and cancellation of an aggregate principal amount of NBP’s Senior Notes of approximately $30.6 million, $2.3 million, and $43.2 million during the fourth quarter of fiscal year 2008, and the first and third quarters of fiscal year 2009, respectively. The repayment of approximately $25.7 million of NBP’s term note in December 2008 also contributed to the decline in interest expense for the current quarter. Also contributing to the decrease in interest expense was lower interest rates on our variable rate debt, which decreased approximately 291 basis points from the same period in the prior year. Also contributing to the decrease was an extra week of interest expense in the prior year as compared to the same period of the current year. Partially offsetting the decrease in interest expense was an approximate $27.2 million increase in the weighted average principal amount of our variable rate debt at May 30, 2009 as compared to May 31, 2008.

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

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

Thirty-nine weeks ended May 30, 2009 compared to forty weeks ended May 31, 2008

General. Net income for the thirty-nine weeks ended May 30, 2009 was approximately $55.9 million compared to net income of approximately $18.0 million for the forty weeks ended May 31, 2008, an increase of approximately $37.9 million. Sales were lower in the thirty-nine week period ended May 30, 2009 compared to the forty week period ended May 31, 2008 primarily due in part to an approximate 2.7% decrease in the average volume of cattle processed per week and due to an extra week in the prior reporting period as compared to this year. Partially offsetting these decreases was a slight increase in the average sales price per head, about 1.0%, during the first thirty-nine weeks of fiscal year 2009 as compared to the first forty weeks of fiscal year 2008. An overall improved demand for boxed beef drove an increase in our operating income for this reporting period.

Total costs and expenses of approximately $3,951.2 million for the thirty-nine weeks ended May 30, 2009 were 97.7% as a percent of sales compared to approximately $4,176.1 million for the forty weeks ended May 31, 2008, or 98.6% as a percent of sales. A relatively stable demand for beef products and lower cattle prices allowed for slightly higher sales prices, about 1.0% higher, to cover the cost of the live cattle that we processed during this thirty-nine week period of fiscal year 2009 as compared to the forty week period of fiscal year 2008.

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

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

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

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

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

Minority Owners’ Interest in NBP. Minority interest in the net income of NBP for the thirty-nine weeks ended May 30, 2009 was $28.3 million compared to minority interest in net income for the forty weeks ended May 31, 2008 of $17.0 million, a change of $11.3 million. The minority interest in NBP represents the minority owners’ equity in NBP’s earnings.

Interest Expense. Interest expense was approximately $18.3 million for the thirty-nine weeks ended May 30, 2009 compared to approximately $27.1 million for the forty weeks ended May 31, 2008, a decrease of approximately $8.8 million, or 32.5%. The decrease in interest expense during the thirty-nine weeks ended May 30, 2009 as compared to the forty week period ended May 31, 2008 was due primarily to the purchase and cancellation of an aggregate principal amountof our Senior Notes of approximately $30.6 million, $2.3 million, and $43.1 million during the fourth quarter of fiscal year 2008, and the first and third quarters of fiscal year 2009, respectively. The repayment of approximately $25.7 million of our term note in December 2008 also contributed to the decline in interest expense for the reporting period. Also contributing to the decrease in interest expense was lower interest rates on our variable rate debt, a decrease of approximately 291 basis points, during the comparable periods. Also contributing to these decreases was an extra week of interest expense in the prior reporting period as compared to the same period of this year. Partially offsetting these decreases in interest expense was an approximate $15.0 million increase in the weighted average principal amount of our variable rate debt at May 30, 2009 as compared to May 31, 2008.

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

Other, net. Other, net non-operating expense was approximately $4.4 million for the thirty-nine weeks ended May 30, 2009 compared to other, net non-operating income of approximately $6.1 million for the forty weeks ended May 31, 2008, a decrease of approximately $10.5 million. The decrease in other, net was primarily related to the write-off of approximately $3.6 million of legal fees related to the termination of the MIPA in February 2009. Also contributing to the decrease was the approximate $0.7 million write-off of obsolete parts at our case ready facilities during the second quarter of fiscal year 2009 and to an approximate $1.3 million write-off of debt issuance costs in both the first and third quarters of fiscal year 2009. The forty weeks ended May 31, 2008 included approximately $3.4 million in income for a settlement of a lawsuit related to corrugated packaging materials and about $1.3 million in income related to proceeds received in redemption of an investment interest in which our basis had previously been written down to zero, both of which did not recur during the comparable period of this year.

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

Liquidity and Capital Resources

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

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

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

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

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

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

NBP believes that available borrowings under its Credit Facility and cash provided by operating activities will be sufficient to support its working capital, capital expenditures and debt service requirements for the foreseeable future. Under the April 13, 2009 amendment to its Credit Facility, NBP is required to purchase or redeem $100.0 million aggregate principal amount of its outstanding Senior Notes on or before December 31, 2009, which NBP intends to finance with the increased available line of credit of $25.0 million and upon the increase in the available term borrowings of up to $75.0 million. As of May 30, 2009, NBP has purchased approximately $43.2 million of the $100.0 million aggregate principal amount of Senior Notes to be purchased. NBP’s ability to generate sufficient cash, however, is subject to certain general economic, financial, industry, legislative, regulatory and other factors beyond its control. For a review of the obligations that affect liquidity, please see the Cash Payment Obligations table in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended August 30, 2008.

Operating Activities

Net cash provided by operating activities in the thirty-nine weeks ended May 30, 2009 was $143.4 million compared to $58.9 million in the forty weeks ended May 31, 2008. The $84.5 million change was primarily due to an increase in net income of approximately $38.2 million during the current year-to-date period as compared to the same period in the prior year. Also contributing to the increase in cash provided by operating activities were reductions in accounts receivable and inventory which were partially offset by net cash used in operating activities through accrued compensation and benefits in the current year.

Investing Activities

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

Financing Activities

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

Amended and Restated Senior Credit Facility

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

Effective April 13, 2009, NBP’s Credit Facility was amended to permit the redemption of its membership interests in the amount of $125.5 million, including the authorization and issuance of Class A1 Units to help fund the redemption. In addition, the terms of NBP’s Credit Facility were amended to: (1) increase the borrowings under the Credit Facility by up to $100.0 million, of which up to $75.0 million is under NBP’s term loan and $25.0 million is under NBP’s revolving line of credit; (2) increase the applicable margin on the rates of interest of the term loan and revolving line of credit; (3) revise the payment schedule of the term loan; (4) shorten the maturity date of the term loan; (5) remove the restrictions on purchasing the Senior Notes and require the repurchase or redemption of $100 million aggregate principal amount of the Senior Notes; (6) increase the amount of capital expenditures NBP can make in any fiscal year from $50 million to $60 million, or $65 million if NBP expends less than $55 million in the immediately preceding fiscal year; and (7) add a financial covenant requiring NBP to maintain a Funded Debt to EBITDA ratio. The related financing charges, an upfront fee of approximately $0.8 million and an arrangement fee of approximately $0.5 million, will be amortized over the life of the loan.

Once the applicable collateral requirements are satisfied, which NBP expects to occur during the fourth quarter, the Credit Facility will consist of up to $251.9 million under a term loan that matures in July 2012 and a revolving line of credit loan of $225.0 million that matures in July 2012 that is subject to certain borrowing base limitations.

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

NBP funded debt to EBITDA ratio is not to be more than 3.75 to 1.00 at the end of each fiscal quarter. If the borrowing base availability is less than $50.0 million for five consecutive business days or less than $35.0 million on any single business day during any fiscal quarter, a fixed charge ratio of 1:15 to 1:00 must be maintained at the end of each subsequent fiscal quarter until the borrowing base availability has been greater than or equal to $50.0 million for 90 consecutive days. The advance rates under the borrowing base are 90% on eligible accounts and 70% on eligible inventory. As of May 30, 2009, NBP had met the borrowing base availability requirements under its Credit Facility.

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

The Credit Facility contains customary affirmative covenants, including, without limitation, conduct of business, the maintenance of insurance, compliance with laws, maintenance of properties, keeping of books and records, and the furnishing of financial statements. The facility also contains customary negative covenants, including without limitation, restrictions on the following: distributions, mergers, sale of assets, investments and acquisitions, encumbrances, indebtedness, affiliate transactions, and ERISA matters.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The principal market risks affecting our business are exposure to changes in prices for commodities, such as livestock and boxed beef, and interest rate risk.

Commodities. NBP uses various raw materials, many of which are commodities. Raw materials are generally available from several different sources, and NBP presently believes that it can obtain them as needed. Commodities are subject to price fluctuations that may create price risk. When appropriate, NBP may hedge commodities in order to mitigate this price risk. While this may tend to limit its ability to participate in gains from commodity price fluctuations, it also tends to reduce the risk of loss from changes in commodity prices. To the extent the contracts are not designated as normal purchases, NBP reflects commodity contract gains and losses as adjustments to the basis of underlying commodities purchased; gains or losses are recognized in the statement of operations as a component of costs of goods sold.

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

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

We may use futures contracts in order to reduce exposure associated with entering into firm commitments to purchase live cattle at prices determined prior to delivery of the cattle as well as firm commitments to sell certain beef products at sales prices determined prior to shipment. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, we account for futures contracts and their related firm purchase commitments at fair value. Certain firm commitments for live cattle purchases and all firm commitments for boxed beef sales are treated as “normal purchases and sales” and not marked to market. SFAS No. 133 imposes extensive recordkeeping requirements in order to treat a derivative instrument as a hedge for accounting purposes. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the instrument and the related change in fair value of the underlying commitment. For derivatives that qualify as effective hedges, the change in fair value has no net effect on earnings until the hedged transaction affects earnings. For derivatives that are not designated as hedging instruments, or for the ineffective portion of a hedging instrument, the change in fair value does affect current period net earnings.

While management believes each of these instruments help mitigate various market risks, they are not designated and accounted for as hedges under SFAS No. 133 as a result of the extensive recordkeeping requirements of this statement. Accordingly, the gains and losses associated with the change in fair value of the instrument and the offsetting gains and losses associated with changes in the market value of certain of the firm purchase commitments related to the futures contracts are recorded to income and expense in the period of change.

We use a sensitivity analysis to evaluate the effect that changes in the market value of commodities will have on these commodity derivative instruments. We feel that sensitivity analysis more appropriately reflects the potential market value exposure associated with the use of derivative instruments. As of May 30, 2009, the potential change in the fair value of applicable commodity prices, assuming a hypothetical 10% decrease in the underlying commodity price in each year, was $15.7 million. As of August 30, 2008, the potential change in fair value of applicable commodity prices, assuming a hypothetical 10% decrease in the underlying commodity price, was $1.2 million. This significant change was primarily due to the cattle futures contracts that we entered into during the first quarter of fiscal year 2009 to offset the risk of fixed-price sales commitments.

Foreign Operations. Transactions denominated in a currency other than an entity’s functional currency may expose that entity to currency risk. Although we operate in international markets including Japan and South Korea, product sales are predominately made in United States dollars, and therefore, currency risks are limited.

Interest Rates. As a result of our normal borrowing and leasing activities, our operating results are exposed to fluctuations in interest rates, which we manage primarily through our regular financing activities. We generally maintain limited investments in cash and cash equivalents.

We have long-term debt with variable interest rates. Short-term debt is primarily comprised of the current portion of long-term debt maturing twelve months from the balance sheet date. Our variable interest expense is sensitive to changes in the general level of interest rates. As of May 30, 2009, the weighted average interest rate on our $274.0 million of variable rate debt was approximately 3.3%.

We had total interest expense of approximately $18.3 million during the thirty-nine week period ending May 30, 2009. The estimated increase in interest expense from a hypothetical 200 basis point increase in applicable variable interest rates would have been approximately $3.7 million in the thirty-nine week period ending May 30, 2009.

Item 4T. Controls and Procedures.

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the Consolidated Financial Statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Reporting and Compliance Officer. Based upon that evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Reporting and Compliance Officer concluded that our disclosure controls and procedures were effective in alerting them, in a timely manner, to material information required to be included in our periodic Securities and Exchange Commission filings. There have been no changes in our internal controls over financial reporting during the thirteen weeks ended May 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding legal proceedings, see Note 7. Contingencies to our Consolidated Financial Statements included in Part I- Item 1 of this Form 10-Q.

Item 1A. Risk Factors.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

(A)

Exhibits

10.1		Ninth Amendment to Credit Agreement, dated May 14, 2009, by and among U.S. Premium Beef, LLC and CoBank, ACB, as agent and as the sole syndication party (filed herewith).

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

10.3		Pledge Agreement dated as of June 22, 2009 by and among U.S. Premium Beef, LLC and CoBank, ACB, as agent on behalf of the syndication parties (incorporated herein by reference to Exhibit 10.2 to Form 8-K (File No. 333-115164) filed with the SEC on June 25, 2009).

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

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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

_____________

* Management contract or compensatory plan or arrangement.

SIGNATURES

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

		U.S. Premium Beef, LLC


By:		/s/ Steven D. Hunt

		Steven D. Hunt Chief Executive Officer (Principal Executive Officer)


By:		/s/ Scott J. Miller

		Scott J. Miller Chief Reporting and Compliance Officer (Principal Financial and Accounting Officer)

Date: July 10, 2009

EX-10.1 2 es10-1.htm Exhibit 10.1

NINTH AMENDMENT TO CREDIT AGREEMENT

This Ninth Amendment to Credit Agreement (“Amendment”) is made as of May 14, 2009, by and among U.S. PREMIUM BEEF, LLC, a Delaware limited liability company (together with its successors and assigns, the “Borrower”), and COBANK, ACB, an agricultural credit bank (“CoBank”), as Agent (in such capacity, the “Agent”) and as the sole Syndication Party as of the date of this Amendment.

RECITAL

This Amendment is made with respect to the Credit Agreement (Term Loan) dated as of November 25, 1997 (as amended, modified, supplemented, renewed or restated from time to time, the “Agreement”). Capitalized terms that are not defined in this Amendment shall have the meanings assigned to them in the Agreement. The parties desire to re-advance amounts of the Loan from time to time up to $13,000,000 in the aggregate outstanding and to otherwise amend certain provisions of the Agreement.

NOW, THEREFORE, in consideration of the foregoing and of the terms and conditions contained in this Amendment, and of any loans or extensions of credit or other financial accommodations heretofore, now or hereafter made to or for the benefit of Borrower, the parties agree as follows:

1. Borrower is presently indebted under the Loan in the amount $2,316,763.34 (said existing indebtedness may sometimes be referred to herein as “Tranche A” of the Loan). All terms of the Agreement relating to Tranche A of the Loan, including but not limited to the accrual and repayment of interest and the repayment of principal shall not be affected by this Amendment.

2. Subject to the conditions set forth in Section 9 hereof and Sections 11.1.12, 11.1.23, 11.2.1, 11.2.9 and 11.2.10 and 11.3 of the Agreement, but otherwise the terms of the Agreement to the contrary notwithstanding, the Syndication Parties agree, each as to their Syndication Share to, in addition to Tranche A of the Loan, to re-advance amounts of the Loan previously repaid, from time to time through the Maturity Date, up to the initial amount of $13,000,000, reducing to $10,000,000 on May 31, 2010, in the aggregate outstanding (said re-advances may sometimes be referred to herein as “Tranche B” of the Loan). Amounts re-advanced and repaid under Tranche B of the Loan may be again re-advanced, provided that at no time shall the aggregate amount outstanding under Tranche B of the Loan exceed in the initial amount of $13,000,000, reducing to $10,000,000 on May 31, 2010. As of the date of this Amendment the Syndication Share of CoBank is 100%. Amounts re-advanced and repaid under Tranche B of the Loan may be used by Borrower for working capital and for general corporate purposes. Notwithstanding the foregoing, during at least 30 consecutive days during each calendar year the amount outstanding under Tranche B of the Loan shall be $0. The Aggregate Commitment shall be in the initial amount of $15,316,763.34, reducing to $11,287,090.78 on May 31, 2010. The amount set forth in the Note payable to CoBank shall be deemed to read $15,316,763.34 and the Agreement (as amended by this Amendment) shall govern and control over any contrary terms of the Note.

3. Terms of the Agreement to the contrary notwithstanding, as to Tranche B of the Loan the Maturity Date shall be July 1, 2011. If not due sooner by reason of acceleration, the principal amount outstanding under Tranche B of the Loan together with any unpaid interest accrued thereon, shall be due and payable on said Maturity Date.

4. Terms of the Agreement to the contrary notwithstanding, as to Tranche B of the Loan, interest shall accrue and be payable as follows:

(a) Advances may be maintained as Base Rate Advances or LIBOR Rate Advances according to the same terms and procedures as are set forth in the Sixth Amended and Restated Credit Agreement made as of the 25th day of July, 2007, as amended by the First and Second Amendments thereto (but not as may be subsequently amended unless agreed by the appropriate parties to this Agreement) by and among National Beef Packing Company, LLC, a Delaware limited liability company (“National Beef”), and the other financial institutions signatory thereto (the “National Beef Agreement”), except (a) each request for an advance shall be in a minimum amount of $25,000 and an integral multiple of $25,000 and (b) any request for a LIBOR Rate Advance must be given by Borrower no later than 11:00 a.m. mountain time on the Business Day prior to the date of any proposed LIBOR Rate Advance;

(b) For purposes of determining Applicable Margin (but for no other purpose), Borrowing Base Availability shall have the meaning assigned to it in the National Beef Agreement;

(c) Applicable Margin shall have the meaning assigned to it in the National Beef Agreement for Line of Credit Loans to National Beef with reference to the Borrowing Base Availability of National Beef, plus, in each case one quarter of one percent (0.25%);

(d) Interest on Advances that are maintained as Base Rate Advances shall be accrued and shall be payable in the same manner and according to the same terms as set forth for Base Rate Advances under the National Beef Agreement (making reference to the Base Rate as defined in the National Beef Agreement and the Applicable Margin), except (a) it shall be calculated with the interest rate being converted to a daily rate on the basis of a year consisting of 360 days and applied based on the actual number of days the Advance is outstanding, and (b) shall be payable monthly in arrears on the twentieth day of the following month;

(e) Interest on Advances that are maintained as LIBOR Rate Advances shall be accrued and shall be payable in the same manner and according to the same terms as set forth for LIBOR Rate Advances under the National Beef Agreement (making reference to the LIBOR Rate as defined in the National Beef Agreement, Interest Periods as defined in the National Beef Agreement, and the Applicable Margin); and

(f) After the occurrence of an Event Default and for so long as such Event of Default is continuing, the Agent may notify Borrower that any and all amounts due shall bear interest, from the date of such notice by the Agent and for so long as such Event of Default continues, payable on demand, at a rate per annum (the “Default Rate”) equal to the lesser of (i) with respect to a Base Rate Advance, the sum of two percent (2.0%) per annum plus the Base Rate (as defined in the National Beef Agreement) in effect from time to time plus the Applicable Margin; or (ii) with respect to a LIBOR Rate Advance, during the Interest Period (as defined in the National Beef Agreement) in which the Event of Default has occurred, the sum of two percent (2.0%) per annum plus the LIBOR Rate (as defined in the National Beef Agreement) then in effect for such LIBOR Rate Advance plus the Applicable Margin, and in Interest Periods (as defined in the National Beef Agreement) subsequent to that in which the Event of Default occurred, the Default Rate applicable to a Base Rate Advance as calculated under (i) hereof.

5. Terms of the Agreement to the contrary notwithstanding, Borrower agrees to pay to the Agent for distribution to the Syndication Parties (based on their applicable respective Syndication Shares) a quarterly non-use fee on the daily average unused amount of Tranche B of the Loan at the rate per annum of one quarter of one percent (0.25%) (the “Non-Use Fee”). The Non-Use Fee for each calendar quarter shall be due and payable in arrears on the first Business Day of each January, April, July and October hereafter through the Maturity Date applicable to the Line of Credit Loans. A pro-rated non-use fee shall be due and payable on the first Business Day of the quarter following the date of this Amendment and on the Maturity Date applicable to the Tranche B of the Loan. The Non-Use Fee shall be earned as it accrues.

6. Terms of the Agreement to the contrary notwithstanding, Working Capital and Net Worth shall be calculated on a consolidated basis.

7. Section 12.2.3 of the Agreement is hereby amended in its entirety to read as follows:

“12.2.3 Notice of Suit, Adverse Change, ERISA Event or Default. The Borrower shall, as soon as possible, and in any event within ten (10) Business Days after the Borrower learns of the following, give written notice to the Agent of (a) any proceeding being instituted or threatened to be instituted by or against either the Borrower or any subsidiary of Borrower in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign) for which claimed damages exceed $2,000,000, (b) any material adverse change in the business, assets or condition, financial or otherwise, of either the Borrower or any subsidiary of Borrower, (c) any ERISA Event and (d) the occurrence of any Potential Default or Event of Default. Within three (3) Business Days after the Agent’s receipt of such written notice, the Agent shall forward such notice to the Syndication Parties.”

8. Sections 12.2.5 and 12.2.6 of the Agreement are hereby deleted and replaced with “This Section Intentionally Omitted”

9. Section 13.11 of the Agreement is hereby amended in its entirety to read as follows:

“13.11 Payment of Dividends. Borrower shall not, directly or indirectly, declare or pay any dividends on account of any units of any class of its equity or any of its patronage notices now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any units of any class of its equity or any of its patronage notices (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than additional units or patronage notices or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such units of any class of its equity or any of its patronage notices, or make any other distribution or allocation of its earnings, surplus or assets to any holder of units of any class of its equity or any of its patronage notices, or agree to do any of the foregoing; provided, that Borrower may, so long as Borrower is treated as a partnership for tax purposes, make distributions to its members on account of the federal and state income taxes that would be assessed to such members based on Borrower’s income, provided that Borrower delivers to the Agent a certificate that no Event of Default has occurred or will result thereby, further provided that the aggregate amount of all such distributions with respect to any calendar year may not exceed the amount of such income which would be taxable to such members for such calendar year multiplied by the maximum applicable state and federal income tax rate for the calendar year in which taxed, and further provided that interim quarterly distributions shall not exceed seventy five percent (75%) of the estimated federal and state income taxes that would be assessed to such members based on Borrower’s income multiplied by the maximum applicable state and federal income tax rate.”

10. The Loan (Tranche A of the Loan and Tranche B of the Loan) shall continue to be secured as provided for in the Security Documents.

11. In addition to all other Event’s of Default set forth in the Agreement, the occurrence of a Matured Default under the National Beef Agreement shall be an Event of Default. Agent shall use its commercially reasonable best efforts to provide to Borrower any default notice or termination notice under the National Beef Agreement at the same time that such notices are delivered to National Beef.

12. In addition to the affirmative covenants set forth in the Agreement, Borrower agrees to cooperate with CoBank to finalize and execute an Amended and Restated version of the Agreement substantially in the form presented to Borrower as a draft on or about the date of this Amendment.

13. This Amendment shall be effective as of its date, conditioned upon the execution and delivery to the Agent in form and substance acceptable to the Agent of this Amendment, executed by Borrower and the Agent; and payment of an Amendment Fee to the Agent in the amount of $7,500.

14. This Amendment shall be an integral part of the Agreement, and all of the terms set forth therein are hereby incorporated in this Amendment by reference, and all terms of this Amendment are hereby incorporated into said Agreement as if made an original part thereof. All of the terms and conditions of the Agreement, which are not modified in this Amendment, shall remain in full force and effect. To the extent the terms of this Amendment conflict with the terms of the Agreement, the terms of this Amendment shall control.

15. This Amendment may be executed in several counterparts, each of which shall be construed together as one original. Facsimile (or other electronic) signatures on this Amendment shall be considered as original signatures.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first herein above written.

U.S. PREMIUM BEEF, LLC

By: __________________________

Its: __________________________

COBANK, ACB, individually and as Agent and Syndication Party

By: __________________________

Its: __________________________

{SIGNATURE PAGE TO NINTH AMENDEMENT TO CREDIT AGREEMENT}

EX-10.4 3 es10-4.htm Exhibit 10.4

CEO Employment Agreement
Between
U.S. Premium Beef, LLC
And
Steven D. Hunt
Employment Years 2010 - 2015

THIS EMPLOYMENT AGREEMENT (“Agreement”) made effective as of the 1st day of September, 2009, is made by and between U.S. Premium Beef, LLC, a Delaware limited liability company (“USPB”), and Steven D. Hunt (“Chief Executive Officer” or “CEO”).

1. Employment and Term of Agreement.

(a) Employment. USPB will employ CEO as the chief executive officer of USPB under this Agreement from September 1, 2009 (the “Effective Date”) until August 29, 2015 (the “Expiration Date”) or the date the employment is otherwise terminated as provided in this Agreement (“Termination Date”).

(b) Term of Agreement. Employment under this Agreement starts on September 1, 2009 and continues until the Expiration Date or the Termination Date, whichever is earlier. This Agreement is effective September 1, 2009 and continues until the payments under this Agreement have been made and the obligations have been discharged or fulfilled. For clarity: CEO’s employment terminates on the Expiration Date or the Termination Date, whichever is earlier; the compensation provisions under Section 3(a) through Section 3(e) terminate when the compensation has been paid; CEO’s rights to exercise phantom units and purchase phantom units under Section 3(f) continue for 18 months after the Expiration Date or Termination Date, whichever is earlier, and if not exercised or purchased by that time, those rights are then terminated; Section 5 continues until the payments under that section have been made which include payments under Section 5(b) continuing for 18 months after termination of CEO’s employment with USPB; Section 6(a) continues until 18 months after termination of CEO’s employment with USPB; Sections 6(b) through Section 6(e), Section 7 and Section 8 survive termination of this Agreement.

2. Location of Employment. CEO’s principal place of employment shall be at the principal offices of USPB located in Kansas City, Missouri, or at another location as mutually agreed by USPB and CEO.

3. Compensation. CEO shall be paid compensation for services as provided in this Section 3. All compensation paid under this Agreement will be paid to CEO less necessary deductions and withholdings.

SIGNATURE COPY

June 15, 2009

USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(a) Annual Salary. CEO shall be paid by USPB a base annual salary of $775,000 for employment years September 1, 2009 through August 28, 2010 (“YR 2010”), August 29, 2010 through August 27, 2011(“YR 2011”), and August 28, 2011 through August 25, 2012 (“YR 2012”); and $825,000 for employment years August 26, 2012 through August 31, 2013 (“YR 2013”), September 1, 2013 through August 30, 2014 (“YR 2014”), and August 31, 2014 through August 29, 2015 (“YR 2015”) during the term of CEO’s employment under this Agreement, pro-rated for partial years, payable on USPB’s normal payroll dates.

(b) Incentive Cap. The compensation provided in Sections 3(c) (Annual Incentive), 3(d) (Long-Term Incentive), and 3(e) (Full-Term Incentive), and including any incentive compensation under Section 5 (Compensation Upon Termination) as it pertains to incentive compensation, specifically Section 5(a), clauses (2), (3), and (4) and Section 5 (c), clauses (3), (4), and (5); shall be subject to a cumulative annual cap (referred to as “Incentive Cap”) pro-rated over the term of this Agreement not to exceed $2,000,000 per year averaged over the term (whether the term extends to the Expiration Date or through an earlier Termination Date), provided, however, that for purposes of Section 5(c) (Termination By USPB For Other Than Cause, Death or Disability or By CEO For Good Reason), the proration term shall extend through the Expiration Date. For example, other than an earlier termination under Section 5(c), if this Agreement is earlier terminated after four (4) years the Incentive Cap would be $2,000,000 per year averaged over four (4) years or $8,000,000). An example of the incentive compensation under Sections 3(c), 3(d), and 3(e) is provided on Exhibit A. For employment years YR 2010, YR 2011, YR 2013 and YR 2014 the Incentive Cap for those years will be $2,000,000. For YR 2012, any incentive compensation that exceeded the Incentive Cap in the prior two years and the incentive compensation for the year ending YR 2012 will be paid to CEO providing the amount does not exceed the Incentive Cap of $2,000,000 per year averaged over the first three years of YR 2010, YR 2011, and YR 2012. For the year YR 2015, any incentive compensation that exceeded the Incentive Cap in prior years plus the incentive compensation for the year YR 2015 shall be paid to CEO subject to an Incentive Cap of $2,000,000 per year averaged over the six years of the term, YR 2010, YR 2011, YR 2012, YR 2013, YR 2014, and YR 2015.

	2	SIGNATURE COPY
		June 15, 2009

USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(c) Annual Incentive Plan. In addition to CEO’s base Annual Salary, if CEO is employed by USPB on the last day of any employment year (except as otherwise provided in this Agreement), CEO shall be paid an annual incentive compensation, (“Annual Incentive”) equal to two percent (2.0%) of the sum of the total financial benefits to USPB (“USPB Total Benefits”) that exceed $25,000,000. USPB Total Benefits are: (1) audited fiscal year-end USPB earnings before tax; and (2) two times the fiscal year USPB grid premiums which is the net sum of all USPB member grid premiums and discounts calculated through all USPB grids at all plants, taking into account all calculators including, but not limited to, base price, dressing percent, quality grade, outlier cattle, A/V, Natural, per head category premiums, and other specific categories, less the base price calculator excluding any set base price premium. (Example, if 25 cents per cwt. is paid to a member for one head of cattle over the western Kansas reported USDA average, then 25 cents per cwt. times the weight of the head of cattle would be added to the net grid premium.) This calculation shall be based on the actual cattle delivered by USPB members to National Beef Packing Company, LLC or its successor under the Cattle Purchase and Sale Agreement unless one of the following two events occur: (1) the member cattle delivery requirements are reduced below the fiscal year requirements of 98% delivery; or (2) the penalties for nondelivery are reduced below fiscal year 2009 levels. If either member delivery requirements are reduced below 98% or the penalties for nondelivery are reduced below the fiscal year 2009 levels, then the fiscal year grid premiums under clause (2) above shall be adjusted to reflect the grid premium per head of cattle actually delivered multiplied times the number of USPB delivery rights held by members. In no event shall the nondelivery penalties paid by members be included in the net sum of all USPB member grid premiums under clause (2) above. The Annual Incentive is subject to the following:

(1) Any Annual Incentive accruing with respect to an employment year shall be payable, on or before the date (the “Annual Incentive Payment Date”) that is sixty (60) days following the end of the employment year or, if later, ten (10) days following receipt by the USPB Board of Directors, of all completed financial statements that are relevant to the calculation of the Annual Incentive, but in no event later than March 15th of the calendar year first occurring after the end of the employment year to which the Annual Incentive relates.

(2) For purposes of calculating any Annual Incentive under this Section 3(c), or any Long-Term Incentive under Section 3(d), USPB’s Total Benefits shall be determined by USPB’s accountants using generally accepted accounting principles consistently applied to the fiscal year.

(d) Long-Term Incentive Plan. In addition to CEO’s base Annual Salary and Annual Incentive, CEO shall, (except as otherwise provided in this Agreement), if CEO is employed by USPB through the end of YR 2012, be paid long-term incentive compensation calculated as described in clause (1) below, and if CEO is employed by USPB as of the end of YR 2015 be paid an additional long-term incentive compensation, calculated as described in clause (2) below (in both cases referred to as “Long-Term Incentive”):

(1) the Long-Term Incentive to be paid as a result of CEO’s employment on August 25, 2012 shall be equal to one and one-quarter percent (1.25%) of the amount by which USPB’s Total Benefits from YR 2010, YR 2011, and YR 2012, exceed $100,000,000 but are equal to or less than $130,000,000; plus seventy-five one hundredths of a percent (0.75%) of the amount by which USPB’s Total Benefits from YR 2010, YR 2011, and YR 2012 exceed $130,000,000, subject to clause (3) below; and

(2) the Long-Term Incentive to be paid as a result of CEO’s employment on August 29, 2015 shall be equal to one and one-quarter percent (1.25%) of the amount by which USPB’s Total Benefits from YR 2013, YR 2014, and YR 2015, exceed $100,000,000 but are equal to or less than $130,000,000; plus seventy-five one hundredths of a percent (0.75%) of the amount by which USPB’s Total Benefits from YR 2013, YR 2014, and YR 2015 exceed $130,000,000, subject to clause (3) below; and

(3) any Long-Term Incentive accruing under this Agreement shall be payable, on or before the date (“Long-Term Incentive Payment Date”) that is sixty (60) days following the last day of YR 2012 or YR 2015, respectively, or, if later, ten (10) days following receipt by USPB’s Board of Directors, of all completed financial statements that are relevant to the calculation of the applicable Long-Term Incentive, but in no event later than March 15th of the calendar year first occurring after the end of the respective employment year.

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(e) Full-Term Incentive Plan. In addition to any other payments paid under this agreement, CEO shall be paid full-term incentive compensation (“Full-Term Incentive”) in the amount of $775,000 if CEO is employed under this Agreement through the end of YR 2012, and additionally, $825,000 if CEO is employed under this Agreement through the end of YR 2015, except as otherwise provided in this Agreement. Any Full-Term Incentive accruing under this Agreement shall be payable, on or before the date that is sixty (60) days following the last day of YR 2012 or YR 2015, respectively, or if agreed to by CEO, a later date coinciding with payments under Section 3(c) (Annual Incentive) or Section 3(d) (Long-Term Incentive) for employment through the end of YR 2012, and employment through the end of YR 2015, but in no event later than March 15 of the calendar year first occurring after the end of the respective employment year.

(f) Phantom Units Plan. Effective as of the date of this Agreement, CEO is granted phantom unit rights to phantom Class A Units of USPB with an exercise price or purchase price of $55 per unit subject to reduction under clause (4) below, and phantom Class B Units of USPB with an exercise price or purchase price of $0 (the $55 per Class A Unit and $0 per Class B Unit referred to as the “Exercise Price” or “Unit Purchase Price”) as provided in this paragraph (f). CEO has 20,000 phantom Class A Units minus any phantom Class A Units purchased or exercised prior to September 1, 2009, and 20,000 phantom Class B Units minus any phantom Class B Units exercised or purchased prior to September 1, 2009. The phantom Class A Units granted under this Agreement less (any prior exercised or purchased phantom Class A Units and) any Class A Units exercised or purchased under this Agreement are the “Available Phantom Class A Units.” The phantom Class B Units granted under this Agreement less (any prior exercised or purchase of Class B Units and) any Class B Units exercised or purchased under this Agreement are the “Available Class B Units.” The rights of exercise and purchase of the phantom unit rights are:

(1) Appreciation Rights. CEO shall exercise the phantom units by written notice of the Chair of the Board of Directors of USPB. Upon exercise of the phantom units, CEO shall be paid the amount that the weighted average trading price of the units (“Market Unit Price”) exceeds the Exercise Price per unit times the number of phantom units exercised, not to exceed the number of Available Phantom Class A Units and the Available Phantom Class B Units.

(2) Market Unit Price. The “Market Unit Price” shall equal the weighted average price of the previous 20,000 non-conditional unit transaction prices of the prior sales of USPB Class A Units and/or Class B Units, from Unitholders to unaffiliated third parties. The weighted average price shall be for the unit transactions of 20,000 units of USPB Class A and/or Class B Units occurring immediately prior to the CEO’s notice of exercise.

If the transactions of the Class A and Class B Units are linked, then the transaction price shall be based on the linked Class A and Class B Unit Price allocated to the Class A Units and Class B Units according to the percentage of profits and losses allocated by USPB to Class A Units and Class B Units, respectively, under the USPB LLC Agreement, Section 3.6(b).

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

If the number of exercised phantom Class A Units and phantom Class B Units are not equal and/or the Market Unit Price is based in part or in whole on sales of linked USPB Class A Units and Class B Units, then: the Market Unit Price for phantom Class A Units is the percentage of the linked Market Unit Price that is the same as the percentage of profits and losses allocated to the Class A Units at the time of exercise; and the Market Unit Price for phantom Class B Units is the percentage of the linked Market Unit Price that is the same as the percentage of profits and losses allocated to the Class B Units at the time of exercise.

If the CEO is exercising an unequal number of phantom Class A Units and phantom Class B Units, whether only phantom Class A Units, only phantom Class B Units, or an unequal combination, and 20,000 separate Class A Units or Class B Units for which the Market Unit Price will be determined have not transferred, then the Market Unit Price shall be established first, from the appropriate separate Class A Unit or Class B Unit transactions, and then, from the number of linked Class A Unit and Class B Unit transactions so that in combination 20,000 unit transactions are utilized to determine the Market Unit Price.

(3) Exercise. CEO shall be entitled to exercise phantom unit rights at CEO’s election, at the time and under the conditions, and with the same consequences as if CEO held similar unqualified options to purchase USPB Class A or Class B Units acquired at the same time as the phantom unit rights. In either case, payment shall be made to CEO by 90 days after the notice of exercise of the phantom unit rights, but in no event later than March 15th of the calendar year first occurring after the end of the calendar year in which the notice is given.

(4) Asset Sale Distribution Rights. Should USPB liquidate some or all of USPB’s assets and distribute the proceeds to unitholders, CEO shall be paid an amount equal to the distribution to unitholders of Class A or Class B Units on a per unit basis for the number of CEO’s Available Phantom Class A Units and Available Phantom Class B Units without any deduction. Of the distributions to Class A Unitholders, the first $55 per Class A Unit of such cumulative distributions shall not be paid to CEO per Available Phantom Class A Unit and cumulative distributions in excess of $55 per Class A Unit shall be paid to CEO without deduction. The Exercise Price of phantom Class A Units under this Section 3(f) shall be reduced by the distributions to Class A Unitholders up to the cumulative first $55 per Class A Unit. The amount under this clause (4) shall be paid at the time distributions are made to the unitholders. If USPB Class A or Class B Units are redeemed as part of the distribution, the corresponding proportional number of Available Phantom Class A Units or Available Phantom Class B Units shall be deemed to be exercised as part of the distribution.

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(5) Ownership Interest Distribution Rights. If USPB distributes ownership rights of another entity to its unitholders, CEO shall be granted phantom ownership rights in proportion to the Available Phantom Class A Units and Available Phantom Class B Units held by CEO to the total issued units or, at the election of CEO, actual ownership rights corresponding to the phantom units as if the Available Phantom Class A Units are Available Phantom Class B Units were purchased by CEO under clause (6) and were issued to CEO prior to the time of ownership right distribution. If USPB units are redeemed as part of the distribution, the corresponding amount of Available Phantom Class A Units and Available Phantom Class B Units shall be deemed to be exercised as part of the distribution.

(6) Purchase Rights. Effective as of termination of this Agreement until 18 months after termination of this Agreement, or within 10 days prior to an event that is a liquidation or an event under which liquidation distributions would be made by USPB to Class A Unitholders, and at the election of CEO; or, upon mutual agreement of CEO and USPB; CEO may purchase the number of USPB Class A Units at the Unit Purchase Price corresponding to the Available Phantom Class A Units held by CEO. At the election of CEO, CEO may purchase the number of USPB Class B Units at the Unit Purchase Price corresponding to the Available Phantom Class B Units held by CEO. USPB shall pay the costs of appraisal of USPB Class A Units and USPB Class B Units, if CEO purchases all Available Phantom Class A Units or all Available Phantom Class B Units. Upon purchase, USPB will grant CEO the same rights, privileges, allocations, distributions, liquidating distributions, and transferability of the Class A Units and Class B Units purchased by CEO as other holders of Class A Units and Class B Units, which may require special allocations as provided in the USPB LLC Agreement, Section 3.3(h). CEO may designate the purchased Class A Units or Class B Units to be held by CEO’s Designated Beneficiary identified under Section 3(h), providing CEO retains control over voting rights and any right to transfer the Class A or Class B Units during the time CEO is employed by USPB. The purchase of Class A Units or Class B Units under this clause (6) shall reduce the corresponding number of Available Phantom Class A Units and Available Phantom Class B Units held by CEO.

(7) Anti-dilution. CEO’s phantom unit rights under this paragraph (f) shall not be diluted by actions of USPB including transfer of assets to another entity or issuance of units such that the number of unexercised phantom unit rights held by CEO at the time of a dilution event under this paragraph (f) shall be increased so that CEO’s phantom unit rights are not diluted. For purposes of this clause (7), USPB’s issuance to CEO under this paragraph (f), issuance of additional units at or above the Market Unit Price, or the issuance of debt instruments or preferred units with fixed (interest like) returns shall not be considered dilution of CEO’s phantom unit rights.

(g) Other Benefits. CEO shall be entitled to paid vacations, personal and sick days consistent with the policy of USPB. CEO shall receive other compensation as approved by the Board of Directors and shall participate in all fringe benefits approved by the Board of Directors (including, without limitation, group medical, life, disability and accidental death and dismemberment insurance) and benefit plans which shall be available from time to time to management employees of USPB.

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(h) Beneficiary If CEO Is Deceased. If CEO has deceased: (1) during the term of this Agreement, or (2) after this Agreement expires or is terminated, the payments due or payable to CEO shall be paid to the CEO’s beneficiary (referred to as the “Designated Beneficiary”) as provided in this Section 3(h). If the CEO has deceased, the Designated Beneficiary shall have the authority of the CEO under Section 3(f)(3) to exercise the phantom unit rights and under Section 3(f)(6) to purchase Available Phantom Class A Units and Available Class B Units.

The Designated Beneficiary is Mary F. Hunt, if she is then living, primary beneficiary; or if Mary F. Hunt is not then living, the Trustee, serving as such, of the Steven D. Hunt Trust under Trust Agreement dated February 11, 2005, secondary beneficiary. If Mary F. Hunt is the Designated Beneficiary and she deceases prior to all of the payments and rights under this Section 3(h) being completed, then the Trustee identified above shall be the Designated Beneficiary under this Section 3(h). Mary F. Hunt may be replaced by the Trustee as the Designated Beneficiary if the Trustee notifies USPB in writing that the Trustee is assuming the duties of Designated Beneficiary, whether due to Mary F. Hunt being unable, incapacitated or otherwise. Upon receipt of the written notice, the Trustee shall then replace Mary F. Hunt as the Designated Beneficiary. Upon request, the Chair of the Board of Directors will acknowledge the Trustee as second beneficiary upon receipt of proper notification. CEO shall notify the Chair of the Board of Directors in writing as to who is the Trustee and the contact information for the Trustee, as well as any change in the Trustee. The Trustee as the secondary beneficiary shall be entitled to receive the payments due or payable to CEO and the Trustee shall have the authority of the CEO under Section 3(f)(3) to exercise the phantom unit rights and under Section 3(f)(6) to purchase Available Phantom Class A Units and Available Phantom Class B Units, provided the Company has been notified in writing of the Trustee and there is demonstration that the Trustee is duly authorized to act as such.

CEO may change the Designated Beneficiary by submitting a written change of beneficiary form to the Chair of the Board of Directors to be included in the minutes of the Board of Directors. If the Board of Directors is unable to determine or locate the Designated Beneficiary in the two functions of: (1) to whom or what entity should payments due or payable to CEO be paid; and (2) who shall have the authority of the CEO under Section 3(f)(3) to exercise the phantom unit rights, then the Designated Beneficiary shall be deemed to be the estate of the CEO as to the entity to which the payments should be made, and the administrator of CEO’s estate shall have the authority of the CEO under Section 3(f)(3).

(i) Reimbursement Of Business Expenses. During his employment under this Agreement, CEO shall also be reimbursed by USPB for reasonable business expenses actually incurred or services provided under this Agreement, upon presentation of expense statements or other supporting information within 60 days after the expense is incurred. In no event will any expense be reimbursed later than December 31st of the calendar year first following the calendar year in which the expense was incurred.

(j) Renegotiation Due to Change in Business. USPB and CEO agree to renegotiate the terms and conditions of this Section 3 to be effective for the remainder of the term of the Agreement after August 31, 2012 if during CEO’s employment under this Agreement if a material change in the business of USPB occurs, in which:

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(i) revenues of National Beef Packing Company, LLC or its successor increase by more than 50% in a fiscal year over the average revenue of the prior two fiscal years;

(ii) USPB enters a joint venture by merger, acquisition, contract or otherwise in which USPB is not a majority owner;

(iii) the source of revenues of USPB or National Beef Packing Company, LLC or its successor change more than 50% from the source of revenues in fiscal year 2009;

(iv) an adverse event such as widespread disease or widespread calamity which prohibits or materially changes the ability of the members as a whole to deliver cattle to USPB; or

(v) other material change events of the same scope and magnitude as those listed in clauses (i) to (iv).

4. Termination.

(a) Termination Upon Permanent Disability. The employment of CEO may be terminated by USPB on at least thirty (30) days prior written notice if the Board of Directors determines that the CEO has become permanently disabled. CEO shall be deemed to be “permanently disabled,” as used in this Section, if CEO has been substantially unable to discharge his duties and obligations under this Agreement by reason of illness, accident, or disability for a period of 180 days in any twelve-month period. Any disputes concerning the nature or extent of CEO’s disability will be determined by a neutral physician at the expense of USPB.

(b) Termination Upon Death. The employment of CEO shall automatically terminate on the date of CEO’s death.

(c) Termination For Cause. The employment of CEO may be terminated immediately by USPB for cause upon written notice from the Chair of the Board of Directors to the CEO after a Board determination that cause for termination exists as provided in this paragraph. The written notice shall provide reasonable detail regarding the basis for the termination decision. USPB shall have “cause” to terminate CEO, as used in this Subsection, only if CEO has, and the Board of Directors has determined by resolution that CEO has:

(1) refused or failed, after reasonable written notice that the refusal or failure would constitute a default under this Agreement, to carry out any reasonable and material order of the Board of Directors given to him in writing;

(2) been guilty of a willful breach of the terms of this Agreement;

(3) demonstrated gross negligence or willful misconduct in the execution of his material assigned duties;

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(4) been convicted of a felony or other serious crime;

(5) engaged in fraud, embezzlement or other illegal conduct to the detriment of USPB;

(6) intentionally imparted confidential information relating to USPB to a third party, other than in the course of carrying out CEO’s duties, which as resulted in material damage to USPB; or

(7) otherwise fails to reasonably perform his duties and obligations as contemplated under this Agreement.

(d) Termination By USPB Other Than For Cause, Death, Or Disability. In addition to the circumstances set forth above in Sections 4(a), 4(b) and 4(c), USPB may terminate CEO’s employment for any reason or no reason and with or without cause upon thirty (30) days prior written notice to CEO.

(e) Termination By CEO Other Than For Good Reason. CEO may terminate his employment under this Agreement for any reason or no reason upon thirty (30) days prior written notice to USPB.

(f) Termination By CEO For Good Reason. CEO may terminate his employment immediately at any time for good reason (as hereinafter defined) upon written notice to USPB. For purposes of this Subsection, “good reason” shall mean the occurrence of any of the following:

(1) a significant reduction or adverse alteration in the duties, authorities or responsibilities as CEO;

(2) removal of CEO from, or any failure to re-appoint CEO to, any titles, offices or positions held by CEO;

(3) a significant reduction by USPB in CEO’s incentive compensation as provided in this Agreement; or

(4) a material and willful breach by USPB of any of its obligations to CEO under this Agreement.

5. Compensation Upon Termination.

(a) Termination Upon Death Or Permanent Disability. If CEO’s employment is terminated pursuant to Section 4(a) or 4(b) above, CEO shall be entitled to, and USPB’s obligation under this Agreement shall be limited to:

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(1) the payment of salary accrued under Section 3(a) to the date of the termination plus continued monthly payment of salary under Section 3(a) through the date (“Deemed Termination Date”) that is the earlier of the first anniversary of the termination or the Expiration Date;

(2) if termination occurs under Section 4(a), provision of fringe benefits listed in Section 3(g), through the Deemed Termination Date, but excluding vacation pay, personal and sick days, vehicle, telecommunications, and 401K contributions, (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination shall be paid to CEO in equal monthly payments), through the Deemed Termination Date;

(3) payment of the Annual Incentive in the amounts and at the times provided under Section 3(c) through the employment year in which the Deemed Termination Date occurs pro-rated for the last employment year based upon the period through the Deemed Termination Date;

(4) payment of the Long-Term Incentive is as provided in Section 3(d)(1) (less any amounts paid) and Section 3(d)(2) that would have accrued if the CEO had remained employed under this Agreement through the end of YR 2015, with payments to be made at the same times specified in Section 3(d)(3);

(5) payment of the Full-Term Incentive under Section 3(e) within thirty (30) days following the termination, that would have been paid if CEO had remained employed under this Agreement through the end of YR 2012 (less any amounts paid) and YR 2015, pro-rated based upon the period of CEO’s employment under this Agreement through the Deemed Termination Date versus the period of employment under this Agreement through the Expiration Date;

(6) payments under this Section 5(a)(3), (4) and (5) are subject to the Incentive Cap under Section 3(b) and USPB shall make payments that exceed the Incentive Cap subject to the $2,000,000 per year Incentive Cap average in YR 2012 and YR 2015 as provided in Section 3(b).

(b) Termination By USPB For Cause Or By CEO For Other Than Good Reason. If CEO’s employment is terminated by USPB pursuant to Section 4(c) above, or if CEO terminates his employment pursuant to Section 4(e) above, USPB’s obligation hereunder shall be limited to the payment of salary accrued under Section 3(a) to the date of the termination, and the payment of noncompetition compensation under Section 5(d), unless CEO is terminated pursuant to Section 4(c)(4) or Section 4(c)(5) in which case noncompetition compensation will not be paid.

(c) Termination By USPB Other Than For Cause, Death or Disability; Termination By CEO For Good Reason. If CEO’s employment is terminated pursuant to Section 4(d) or 4(f) above, CEO shall be entitled to, and USPB’s obligation under this Agreement shall be limited to:

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(1) the payment of the salary accrued under Section 3(a) to the date of the termination plus continued monthly payment of salary under Section 3(a) through the Expiration Date;

(2) provision of fringe benefits listed in Section 3(g) through the Expiration Date, but excluding vacation pay, personal and sick days, vehicle, telecommunications, and 401K contributions, (subject to any necessary consent of applicable insurers which, if consent is not obtained within 30 days after termination, then the cash value of the monthly premiums at the date of termination shall be paid to CEO in equal monthly payments);

(3) payment of the Annual Incentive in the amounts and at the times provided under Section 3(c) as if CEO has remained employed through the Expiration Date;

(4) payment of the Long-Term Incentive at the amounts provided in Section 3(d)(1) (less any amounts paid) and Section 3(d)(2) that would have accrued if the CEO had remained employed under this Agreement through the end of YR 2015, with payments to be made at the same times specified in Section 3(d)(3);

(5) the payment of the Full-Term Incentive at the times and in the amounts under Section 3(e) as if CEO had remained employed through the end of YR 2012 (less any amounts paid) and through the end of YR 2015;

(6) payments under this Section 5(c)(3),(4) and (5) are subject to the Incentive Cap under Section 3(b) and USPB shall make payments that exceed the Incentive Cap subject to the $2,000,000 per year Incentive Cap average in YR 2012 and YR 2015 as provided in Section 3(b); and

(7) payment of the noncompetition compensation under Section 5(d).

(d) Noncompetition Compensation. In the event that CEO’s employment is terminated (including by expiration of this Agreement), other than by death or permanent disability under Section 4(a) or Section 4(b) or for cause under Sections 4(c)(4) or 4(c)(5), and CEO is not employed by USPB or one of the USPB Entities (defined in Section 7(a)); then USPB shall provide noncompetition compensation for each of the eighteen (18) months first following the termination of employment of CEO with USPB, provided USPB may terminate noncompetition compensation prior to the end of the eighteen month period if the Board of Directors determines the CEO violated the noncompetition restriction in Section 6(a) or any of the remaining obligations under Section 6. The period in which noncompetition compensation is provided, from start to expiration or earlier termination, is the “Noncompetition Period.” Noncompetition compensation shall be paid during the Noncompetition Period as follows:

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(1) Monthly Payments. USPB shall pay CEO an additional month’s salary in an amount equal to the annual Base Salary that would be paid to CEO under this Agreement if CEO was employed or CEO’s Base Salary at the time of termination, whichever is greater, divided by twelve (12), which payments shall be paid at normal salary payment intervals in effect for USPB’s management personnel at the date of termination; and

(2) Group Benefits. USPB shall also provide to CEO the benefits provided to other employees of USPB such as group medical, life, disability, and accidental death and dismemberment insurance, but excluding paid vacations, personal and sick days, allowances, telecommunications equipment or services, expense reimbursement (except on prior written approval), or 401K contributions, subject to any necessary consent of applicable insurers. If the consent of the applicable insurers is not received within 30 days or in the event any applicable law or any benefit plan referred to in Section 3(g) prohibits or otherwise precludes the provision of the benefits to CEO, the cash value of the current premiums will be distributed to CEO in equal monthly payments during the Noncompetition Period. The value of any prohibited or precluded benefits shall be equal to the sum of the amount of premium, payment, or contribution that USPB would have made on behalf of the CEO for the benefits during the Noncompetition Period.

6. Certain CEO Covenants. CEO expressly covenants and agrees to and with USPB as set forth in this Section:

(a) Noncompetition. CEO recognizes and acknowledges that he has knowledge of USPB and its affiliates (including National Beef Packing Co., LLC and entities owned or controlled by National Beef Packing Co., LLC and its affiliates), their operations, strategies and plans (collectively the “Affiliates”) which was acquired during his employment with USPB. During the employment term and for a period of eighteen (18) months after the termination of the CEO’s employment with USPB, CEO shall not, without the written consent of USPB, within the United States of America, participate through management or control or consult or be employed by any business or enterprise, other than USPB and its Affiliates, which is engaged in the beef packing or processing industry that involves any business activity that competes with the business of USPB and its Affiliates.

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(b) Confidential Information. CEO recognizes the interests of USPB and its Affiliates in maintaining the confidential nature of its respective proprietary information. CEO shall not, during the Employment Term or at any time after the termination of employment with the USPB, in any manner that does not promote the interests of USPB and its Affiliates, directly or indirectly, publish, disclose or use, or authorize anyone else to publish, disclose or use, any secret, confidential or proprietary information of USPB, or its Affiliates which USPB and its Affiliates intend to be maintained as confidential information that is in the public domain through no fault of CEO, which is information acquired by CEO in connection with CEO’s employment with USPB or work with the USPB prior to the date of this agreement and relates to any aspect of the operations, activities, research, investigations or obligations of USPB, or its Affiliates, including confidential material or information relating to the business, customers, suppliers, trade or industrial practices, trade secrets, technology, know-how or intellectual property of USPB and its Affiliates (collectively, the “Confidential Information”). Confidential Information does not include all records, files, data, documents and the like relating to suppliers, customers, costs, prices, systems, methods, personnel, equipment and other materials relating to USPB, or the its Affiliates (including, but not limited to, the Confidential Information), shall be and remain the sole property of USPB or its Affiliates. Any disclosure of Confidential Information by the CEO shall include appropriate protection for the type of information to protect USPB’s interests in the Confidential Information. Upon termination of CEO’s employment with USPB, CEO shall not remove from USPB’s premises, or retain, any of the Confidential Information materials described in this Section.

(c) Return of Information. Upon termination of CEO’s employment with USPB for whatever reason, CEO shall return to or leave all Confidential Information with USPB and its Affiliates, without making or retaining copies of the Confidential Information, including all documents, records, notebooks and other repositories containing Confidential Information.

(d) Breach of Covenants. If CEO breaches any of the covenants and agreements contained in this Section 6, then, in addition to any other rights or remedies of USPB, USPB shall have at its option the following specific rights and remedies: (1) CEO’s right to any payments pursuant to Section 5(d) may be terminated by USPB; (2) USPB shall have the right to enforce any legal or equitable remedy (including injunctive relief) that may be available to USPB; and (3) USPB shall be entitled to relief as necessary to remedy any willful breach of the covenants and agreements under this Section that injures USPB or its Affiliates.

(e) Covenants Survive Termination. Except to the extent otherwise expressly limited to a restricted period in Section 6(a), all covenants and provisions contained in this Section 6 shall survive any termination of CEO’s employment with Company.

7. Indemnification.

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USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(a) Indemnified Claims. USPB shall, to the extent not expressly prohibited by the Delaware Limited Liability Company Act as set forth in the Delaware Code commencing with Section 18-101 of the Delaware Code, indemnify CEO against reasonable expenses, including attorneys' fees, and against loss or liability incurred by or asserted against CEO in a legal matter or proceeding in which CEO is a party or is threatened to be made a party because CEO is, or was, an officer or employee of USPB or an affiliate of USPB (specifically including, but not limited to, any acts of the CEO related to affiliates of USPB, National Beef Packing Co., LLC and its affiliates, with USPB and all of these entities referred to as “USPB Entities”). USPB’s obligation to indemnify and hold harmless includes, but is not limited to, all pending and future litigation and claims against the USPB Entities, its officers, employees and directors which may impose liability on CEO including those claims against the USPB Entities, and claims relating to investigations relating to tort claims against the USPB Entities, deceptive trade practices and anti-competitive conduct of the USPB Entities, or their officers, employees and directors. The expenses against which CEO is indemnified include, but are not limited to, all reasonable attorney fees and other costs associated with legal representation for representation and costs that are not reasonably covered by the USPB Entities. USPB shall advance amounts to cover expenses, or pay expenses, that are included in the foregoing indemnity, upon request from the CEO. These indemnification rights shall not be deemed to exclude any rights to which the CEO may otherwise be entitled. The foregoing right to indemnification shall: (1) inure to the CEO whether or not he is an officer or employee of the USPB Entities at the time the liability or expenses are asserted, imposed or incurred and whether or not the claim asserted is based on matters which pre-date this Indemnification Agreement; and (2) extend to the CEO's heirs and legal representatives in the event of the CEO's death.

(b) Exclusions from Indemnification. The right to indemnification in Subsection 8(a) does not include any liability or expense relating to a matter in which the CEO is finally adjudged to have breached or failed to perform a duty that CEO owes to the USPB Entities and the breach or failure to perform constitutes any of the following: (1) a willful failure to deal fairly with the USPB Entities, or USPB or its members in connection with a matter in which the CEO has a material conflict of interest; (2) a violation of the criminal law, unless the CEO had reasonable cause to believe that CEO’s conduct was lawful or no reasonable cause to believe that CEO’s conduct was unlawful; (3) a transaction from which the CEO derived an improper personal profit; or (4) willful misconduct. Determination of whether the CEO is entitled to the indemnification provided for above shall be made as provided in the Delaware Limited Liability Company Act.

(c) Insurance. USPB further agrees that during the term of the Employment Agreement and for a period of six (6) years after termination of the Employment Agreement, USPB shall maintain in full force and effect a director’s and officer’s insurance policy insuring the CEO against liability asserted and incurred by the CEO in the CEO’s capacity as an officer, manager, employee or agent of USPB Entities or arising from the CEO’s status as an officer, manager, employee or agent of USPB Entities. The insurance shall be in amounts and contain terms and conditions as are reasonable and customary for a company of the size and scope of USPB participating in the industry and business in which USPB is engaged, all as determined by the mutual agreement of USPB and the CEO.

(d) Claims After Termination of Employment. If CEO is no longer employed by USPB and existing or new claims are made against USPB Entities or the CEO, the CEO shall be paid (at a daily rate equal to CEO’s Base Salary at the time of termination divided by 260) for all time spent as a witness, for depositions, and similar pre-approved claim-related expenses to defend against an indemnified claim. The USPB Entities shall promptly make information of USPB Entities available to CEO to defend the claims which may impose liability on CEO.

8. Other Provisions.

(a) Successors and Assigns. This Agreement shall be binding on and inure to the benefit of any successor of USPB. Any successor shall absolutely and unconditionally assume all of USPB’s obligations under this Agreement.

(b) Disputes. Any dispute, controversy or claim for damages arising in connection with this agreement shall be settled exclusively by arbitration in Kansas City, Missouri, at a location designated by USPB by an arbitrator selected by the parties and in accordance with the rules of the American Arbitration Association then in effect. The parties shall share equally the expenses of arbitration, unless otherwise agreed.

	14	SIGNATURE COPY
		June 15, 2009

USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

(c) Governing Law. The validity, interpretation, construction, performance, enforcement and remedies relating to this agreement and the rights and obligations of the parties shall be governed by the substantive laws of the state of Kansas.

(d) Entire Agreement. This Agreement constitutes the entire agreement and understanding between the CEO and USPB in reference to all matters in this Agreement. This Agreement replaces and rescinds any prior agreements or understandings between CEO and USPB.

CEO

/s/ Steven D. Hunt

Steven D. Hunt

U.S. PREMIUM BEEF, LLC

By: /s/ Mark Gardiner

Mark Gardiner, Chair

Board of Directors

Date: July 10, 2009

	15	SIGNATURE COPY
		June 15, 2009

USPB/Steven D. Hunt	CEO Employment Agreement
2010-2015

Exhibit A

Compensation Example

	A-1	SIGNATURE COPY
		June 15, 2009

EX-31.1 4 ex31-1.htm Ex31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steven D. Hunt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of U.S. Premium Beef, LLC;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


By:		/s/ Steven D. Hunt

		Steven D. Hunt Chief Executive Officer

Date: July 10, 2009

EX-31.2 5 ex31-2.htm EXHIBIT 31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Scott J. Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of U.S. Premium Beef, LLC;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


By:		/s/ Scott J. Miller

		Scott J. Miller Chief Reporting and Compliance Officer (Principal Financial and Accounting Officer)

Date: July 10, 2009

EX-32.1 6 ex32-1.htm EXHIBIT 32.1

EXHIBIT 32.1

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of U.S. Premium Beef, LLC (the Company) on Form 10-Q for the period ended May 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Steven D. Hunt, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


By:		/s/ Steven D. Hunt

		Steven D. Hunt Chief Executive Officer

Date: July 10, 2009

EX-32.2 7 ex32-2.htm Exhibit 32.1

EXHIBIT 32.2

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of U.S. Premium Beef, LLC (the Company) on Form 10-Q for the period ended May 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Scott J. Miller, Chief Reporting and Compliance Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


By:		/s/ Scott J. Miller

		Scott J. Miller Chief Reporting and Compliance Officer (Principal Financial and Accounting Officer)

Date: July 10, 2009

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