U. S. Premium Beef (USPB) 10-Q 2012 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2012

or

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

For the transition period from           to           .

Commission file number 333-115164

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

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

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

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

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

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

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

Large Accelerated Filer o   Accelerated Filer o  Non-Accelerated Filer þ 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 May 31, 2012, there were 735,385 Class A units and 755,385 Class B units outstanding.    

	TABLE OF CONTENTS
PART I.	FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements (unaudited).	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	14
Item 4.	Controls and Procedures.	15
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings.	16
Item 1A.	Risk Factors.	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	16
Item 3.	Defaults Upon Senior Securities.	16
Item 4.	Submission of Matters to a Vote of Security Holders.	16
Item 5.	Other Information.	16
Item 6.	Exhibits.	16
	Signatures.	17

Unless the context indicates or otherwise requires, the terms “the Company”, “we”, “our” and “us” refer to U.S. Premium Beef, LLC 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 prior to consolidation.

ii

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited).

1

U.S. PREMIUM BEEF, LLC
Consolidated Balance Sheets
(thousands of dollars, except unit data)
					March 31,		December 31,
				Assets	2012		2011
Current assets:
	Cash and cash equivalents				$	65,419	$	642,670
	Accounts receivable				386		-
	Due from affiliates				37		2,333
		Total current assets			65,842		645,003
Property, plant, and equipment, at cost					244		241
	Less accumulated depreciation				233		231
		Net property, plant, and equipment			11		10
Investment in National Beef Packing Company, LLC					162,990		165,696
Restricted cash					36,943		36,943
Other assets					380		418
		Total assets			$	266,166	$	848,070
			Liabilities and Capital Shares and Equities
Current liabilities:
	Accounts payable - trade				$	34	$	44
	Due to affiliates				24		34
	Accrued compensation and benefits				1,875		2,559
	Other accrued expenses and liabilities				4,662		9,831
	Patronage notices payable in cash				278		42,160
	Distributions payable				498		508,936
		Total current liabilities			7,371		563,564
Long-term liabilities:
	Accrued compensation and benefits				3,381		3,177
		Total liabilities			10,752		566,741
Capital shares and equities:
	Members' capital, 735,385 Class A units and 755,385 Class B units
		authorized, issued and outstanding			255,414		281,329
		Total liabilities and capital shares and equities			$	266,166	$	848,070
See accompanying notes to consolidated financial statements.

2

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except per unit and per unit data)
				13 weeks ended		13 weeks ended
				March 31, 2012		March 26, 2011
Net sales				$	-	$	1,660,821
Costs and expenses:
	Cost of sales			-		1,564,454
	Selling, general, and administrative expenses			2,089		16,446
	Depreciation and amortization			2		13,485
		Total costs and expenses		2,091		1,594,385
			Operating (loss) income	(2,091)		66,436
Other income (expense):
	Interest income			27		8
	Interest expense			(13)		(3,379)
	Equity interest in net loss of National Beef Packing Company, LLC			(2,706)		-
	Other, net			-		732
			(Loss) income before taxes	(4,783)		63,797
Income tax expense				-		(563)
			Net (loss) income	(4,783)		63,234
Less: Net income attributable to noncontrolling interest in:
	Kansas City Steak Company, LLC			-		(43)
	National Beef Packing Company, LLC			-		(20,644)
Net (loss) income attributable to U.S. Premium Beef, LLC				$	(4,783)	$	42,547
(Loss) earnings per unit:
	Basic
		Class A units		$	(0.65)	$	5.65
		Class B units		$	(5.70)	$	49.52
	Diluted
		Class A units		$	(0.65)	$	5.56
		Class B units		$	(5.70)	$	49.52
Outstanding weighted-average Class A and Class B units:
	Basic
		Class A units		735,385		735,385
		Class B units		755,385		755,385
	Diluted
		Class A units		735,385		747,306
		Class B units		755,385		755,385
See accompanying notes to consolidated financial statements.

3

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(thousands of dollars)
		13 weeks ended		13 weeks ended
		March 31, 2012		March 26, 2011
Net (loss) income		$	(4,783)	$	63,234
Other comprehensive income:
	Foreign currency translation adjustments	-		10
Comprehensive (loss) income		$	(4,783)	$	63,244
Comprehensive income attibutable to noncontrolling interest in:
	Kansas City Steak Company, LLC	-		(43)
	National Beef Packing Company, LLC	-		(20,644)
Comprehensive (loss) income attributable to USPB		$	(4,783)	$	42,557

4

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
					13 weeks ended		13 weeks ended
					March 31, 2012		March 26, 2011
Cash flows from operating activities:
	Net (loss) income				$	(4,783)	$	63,234
	Adjustments to reconcile net (loss) income to net cash provided by
		operating activities:
		Depreciation and amortization			2		13,485
		Equity in losses of National Beef Packing Company, LLC			2,706		-
		Gain on disposal of property, plant, and equipment			-		(272)
		Amortizaton of debt issuance costs			-		366
		Changes in assets and liabilities:
			Accounts receivable		(386)		(3,392)
			Due from affiliates		2,296		(1,417)
			Other receivables		-		60
			Inventories		-		(34,946)
			Other assets		38		(20,309)
			Cattle purchases payable		-		118
			Accounts payable		(10)		5,888
			Due to affiliates		(10)		(582)
			Accrued compensation and benefits		(480)		18,762
			Accrued insurance		-		(1,505)
			Other accrued expenses and liabilities		3,650		13,858
				Net cash provided by operating activities	3,023		53,348
Cash flows from investing activities:
	Capital expenditures, including interest capitalized				(3)		(17,930)
	Proceeds from sale of property, plant, and equipment				-		1,119
		Net cash used in investing activities			(3)		(16,811)
Cash flows from financing activities:
	Net receipts under revolving credit lines				-		(143,659)
	Payments of term notes payable				-		(9,507)
	Borrowings of term notes payable				-		175,000
	Repayments of other indebtedness / capital leases				-		(306)
	Payments of patronage notices				(21,868)		-
	Change in overdraft balances				(19,563)		(35,897)
	Distributions to noncontrolling interests in National Beef Packing Company, LLC				-		(18,116)
	Member distributions				(538,840)		(32,814)
				Net cash used in financing activities	(580,271)		(65,299)
	Effect of exchange rate changes on cash				-		10
				Net decrease in cash	(577,251)		(28,752)
Cash and cash equivalents at beginning of the period					642,670		52,030
Cash and cash equivalents at end of the period					$	65,419	$	23,278
See accompanying notes to consolidated financial statements.

5

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-KT on file with the Securities and Exchange Commission (SEC), for the transition period ended December 31, 2011.  The results of operations for the interim periods presented are not necessarily indicative of the results for a full fiscal year.

As a result of the transaction with Leucadia National Corporation (Leucadia) on December 30, 2011 in which Leucadia purchased 56.2415% of the membership interests in National Beef Packing Company, LLC (NBP) from the Company, the Company’s financial statements are no longer consolidated with NBP.  USPB’s remaining 15.0729% investment in NBP will be accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. In the 13 weeks ended March 26, 2011, the Company’s consolidated financial statements included the accounts of USPB and its majority owned subsidiary, NBP, and its direct and indirect subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

Historically, the Company’s fiscal year consisted of a 52 or 53 week period, which ended on the last Saturday in August.  With the closing of the transaction with Leucadia, the Company’s fiscal year-end changed from the last Saturday in August to the last Saturday in December.  The Company will file annual reports for each 52 week or 53 week period ended on the last Saturday in December, beginning with the 52 week period ended December 29, 2012.

(2) Members’ Capital

The following table represents a reconciliation of Members’ Capital for the quarter ended March 31, 2012 (thousands of dollars).

Balance at December 31, 2011	$	281,329
Allocation of net loss for the quarter ended March 31, 2012	(4,783)
Member distributions	(21,131)
Balance at March 31, 2012	$	255,414

 (3) 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 instruments 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

6

While NBP management believes each of these instruments helps 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 goods sold 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.

The following table presents the impact of derivative instruments on the Consolidated Statement of Operations for the thirteen week periods ended March 31, 2012 and March 26, 2011 (thousands of dollars):

Derivatives Not	Location of Gain (Loss)
Designated as Hedging	Recognized in Income on	Amount of Gain (Loss) Recognized in
Instruments	Derivatives	Income On Derivatives
		13 weeks ended		13 weeks ended
		March 31, 2012		March 26, 2011
Commodity contracts	Net sales	$	-	$	(333)
Commodity contracts	Cost of sales	-		(1,521)
Total		$	-	$	(1,854)

(4) Income Attributable to USPB Per Unit

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

Basic EPU excludes dilution and is computed by first allocating a portion of net income (loss) attributable to USPB to Class A units and the remainder is allocated to Class B units.  For the thirteen week periods ended March 31, 2012 and March 26, 2011, income was allocated 10% to the Class A’s and 90% to the Class B’s.  Income (loss) allocated to the Class A and Class B units is then divided by the weighted-average number of Class A and Class B units outstanding for the period to determine the basic EPU for each respective class of unit. 

Diluted EPU reflects the potential dilution that could occur if potential Class A unit purchase rights were exercised or contractual appreciation rights were converted into units.   Upon termination of the CEO employment agreement and until eighteen months after the 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 units, or upon agreement of the CEO and the Board of the Company, the CEO may convert the contractual unit appreciation rights to up to 20,000 Class A units.  The diluted EPU reflects the circumstances of termination of the CEO employment agreement, and the election of the 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 Class A units at $55 per unit for the periods as provided in the CEO employment agreement. The diluted loss per Class A unit calculation in the following table excludes the effect of the 20,000 Class A unit purchase rights noted above for the thirteen week period ended March 31, 2012, as the effect of including them would have been anti-dilutive to the loss per Class A unit calculation.

7

Certain affiliates of NBP’s current Chief Executive Officer, Timothy M. Klein (collectively referred to herein as the “Klein Affiliates”) entered into a unit redemption agreement on April 13, 2009 which provided the right at any time after July 31, 2011, to request that NBP repurchase their interests, the value of which was to be determined by a specified formula.  This formula-based valuation differed from estimates of fair value from period to period.  When the differences between the estimated fair value of the non-controlling interest in NBP held by the Klein Affiliates and the formula-based valuation are appropriately considered this reduces the amount of net earnings allocated to NBP’s owners and thus to the Company’s unitholders for their proportionate share.  The difference between the two values for the period ended March 26, 2011 is reflected in the table below.  The units subject to the unit redemption agreement were redeemed as part of the Leucadia transaction and do not have an impact on the EPU calculation for the quarter ended March 31, 2012.

Income Per Unit Calculation
			13 weeks ended		13 weeks ended
(thousands of dollars, except unit and per unit data)			March 31, 2012		March 26, 2011
Basic income per unit
Income attributable to USPB available to
	unitholders (numerator)
		Class A	$	(478)	$	4,156
		Class B	$	(4,305)	$	37,408
Weighted average outstanding units (denominator)
	Class A		735,385		735,385
	Class B		755,385		755,385
Per unit amount
	Class A		$	(0.65)	$	5.65
	Class B		$	(5.70)	$	49.52
Diluted income per unit:
Income attributable to USPB available to
	unitholders (numerator)
		Class A	$	(478)	$	4,156
		Class B	$	(4,305)	$	37,408
Weighted average outstanding Class A units			735,385		735,385
Effect of dilutive securities - Class A unit options			-		11,921
	Units (denominator)		735,385		747,306
Weighted average outstanding Class B units			755,385		755,385
Effect of dilutive securities - Class B unit options			-		-
	Units (denominator)		755,385		755,385
Per unit amount
	Class A		$	(0.65)	$	5.56
	Class B		$	(5.70)	$	49.52

(5) Investment in National Beef Packing Company, LLC

USPB’s investment in NBP will be accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control.  Below is a summary of the results of operations for NBP for the thirteen week periods ended March 31, 2012 and March 26, 2011 (thousands of dollars):

8

					13 weeks ended		13 weeks ended
					March 31, 2012		March 26, 2011
Net sales					$	1,790,555	$	1,660,821
Costs and expenses:
		Cost of sales			1,772,219		1,564,454
		Selling, general, and administrative expenses			14,033		12,799
		Depreciation and amortization			20,308		12,636
			Total costs and expenses		1,806,560		1,589,889
				Operating (loss) income	(16,005)		70,932
Other income (expense):
		Interest income			3		5
		Interest expense			(3,016)		(3,369)
		Other, net			1,421		722
				(Loss) income before taxes	(17,597)		68,290
Income tax expense					(420)		(506)
				Net (loss) income	(18,017)		67,784
Less: net income (loss) attributable to Kansas City Steak Company, LLC					64		(43)
	Net (loss) income attributable to NBP				$	(17,952)	$	67,741
	NBP's net (loss) income attributable to USPB				$	(2,706)	$	47,097

9

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

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

Disclosure Regarding Forward-Looking Statements

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

In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this report will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors.  Please review Part II. Item 1A, Risk Factors, included in this report, for other important factors that could cause actual results to differ materially from those in any such forward-looking statements.

Recent Events 

On December 5, 2011, USPB and the other members of NBP entered into a Membership Interest Purchase Agreement with Leucadia National Corporation (Purchase Agreement), pursuant to which Leucadia agreed to purchase from USPB and NBPCo Holdings a substantial portion of the issued and outstanding membership interests in NBP. 

The transactions contemplated by the Purchase Agreement were completed on December 30, 2011.  Pursuant to the Purchase Agreement, Leucadia purchased 56.2415% of the membership interests in NBP (National Interests) from the Company for approximately $646.8 million and 19.8775% of the National Interests from NBPCo Holdings for approximately $228.6 million.  As contemplated by the Purchase Agreement and pursuant to pre-existing put rights, NBP purchased from TKK Investments, LLC (TKK) and TMKCo, LLC (TMKCo) all National Interests owned by TKK and TMKCo for approximately $75.9 million.  Simultaneously, Leucadia sold to TMK Holdings, LLC 0.6522% of the National Interests for $7.5 million.  Following consummation of the various transactions contemplated by the Purchase Agreement, the parties now own the following percentage membership interests in NBP: Leucadia 78.9477%; the Company 15.0729%; NBPCo Holdings 5.3272%; and TMK Holdings, LLC 0.6522%.

10

When the transaction closed, the Company received consideration of approximately $646.8 million; of that amount approximately $609.8 million was immediately paid to USPB in cash.  The remaining amount of approximately $37.0 million was deposited in an escrow account to satisfy potential indemnification claims from Leucadia under the Purchase Agreement.  If no indemnification claims arise during a period of two years after the closing of the Purchase Agreement, those remaining funds (or any portion remaining after payment of any indemnification claims) will be distributed to USPB.  USPB distributed a portion of the cash consideration received at closing to each unitholder in the amount of approximately $70 (before applicable tax withholding, if any) for each USPB Class A unit and $617 for each USPB Class B unit held by such unitholder.  The total distribution to Class A and Class B unitholders was approximately $517.7 million.  The Company also paid all outstanding patronage notices, which totaled approximately $42.1 million.  In addition, the Company’s fiscal year has been changed to the last Saturday in December. 

As part of the transactions with Leucadia, the Company entered into a Cattle Purchase and Sale Agreement with NBP, pursuant to which the Company will facilitate the delivery of cattle from the Company’s unitholders and associates to NBP.  NBP, in the aggregate, will purchase on an annual basis, a base amount of 735,385 head of cattle annually, subject to an adjustment of plus or minus ten percent (10%).  The Cattle Purchase and Sale Agreement will remain in effect for an initial term of five years. 

In connection with completion of the transactions governed by the Purchase Agreement, the Company entered into a Pledge Agreement with NBP (Pledge Agreement).  The Pledge Agreement was entered into in order to secure the payment and performance of the Company’s obligations under the Cattle Purchase and Sale Agreement.  Under the terms of the Pledge Agreement, the Company has granted NBP a perfected security interest in and to the Company’s Membership Interests in NBP (Collateral), subject only to the prior first priority security interest in the Collateral held by CoBank, ACB (CoBank), up to a maximum principal amount of $15.0 million plus fees and expenses, pursuant to the Pledge Agreement dated July 26, 2011 by and between the Company and CoBank.

Beef Export Markets

On April 24, 2012, the U.S. Department of Agriculture's (USDA) Animal and Plant Health Inspection Service (APHIS) confirmed the nation's fourth case of bovine spongiform encephalopathy (BSE) in a dairy cow from central California.  Confirmatory results using immunohistochemistry and western blot tests confirmed the animal was positive for atypical BSE, a very rare form of the disease not generally associated with an animal consuming infected feed.  The animal was never presented for slaughter for human consumption, so at no time presented a risk to the food supply or human health.

Export markets for U.S. beef products remain constrained since the discovery of a single 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.  South Korea announced a provisional opening of its border to U.S. beef from animals 30 months and younger in September 2006 but subsequently closed its border again in October 2007.  South Korea reopened its border and started inspecting U.S. beef near the end of June 2008.  These constraints and uncertainties have historically had a negative impact on beef demand during the periods in which they occurred.

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

In December 2010, the USDA announced that China has agreed to resume talks with the Unites States regarding beef market access and that technical talks will resume with the goal of re-opening China’s market for U.S. beef under the age of 30 months.  We cannot presently assess the full economic impact of the re-opening of China’s market to age verified beef on the U.S. beef packing industry or NBP’s operations and there can be no assurance that such talks will occur or result in a re-opening of China’s market to U.S. beef products. 

In March 2011, a major earthquake followed by a tsunami hit the east coast of Japan and caused significant damage to parts of the country.  A portion of NBP’s export sales are delivered to Japan, and while we cannot presently assess the full long-term economic impact of the earthquake and tsunami on NBP’s operations, so far there have been few interruptions.

Investment in National Beef Packing Company, LLC

USPB’s investment in NBP will be accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control. 

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NBP’s profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products.  Because NBP operates in a large and liquid market, it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces.  NBP’s profitability typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of cattle herd expansion.

The USDA regularly reports market values for cattle, beef, offal and other products produced by ranchers, farmers and beef processors.  Generally, NBP expects its profitability to improve as the ratio of the USDA comprehensive boxed beef cutout (a weekly reported measure of the total value of all USDA inspected beef primal cuts, grind and trim produced from fed cattle) to the USDA 5-area weekly average slaughter cattle price increases and for profitability to decline as the ratio decreases.  The ratio during the first quarter of fiscal year 2012 was the lowest first quarter ratio during the past ten years.  Due in part to the declining U.S. cattle herd, average cattle prices have increased to record levels.  However, the increase in NBP’s revenue per head has not kept pace with the rise in the cost for cattle, resulting in reduced margins.

As part of NBP’s operations, it is exposed to market risks from changes in certain commodity prices.  To manage these risks, NBP may enter into forward purchase contracts for cattle and exchange traded futures and options contracts for cattle or grain.  While these instruments are intended to mitigate market risks, they are not designated and accounted for as hedges; accordingly, the gains and losses associated with changes in fair value of derivative financial instruments are recorded in net sales or cost of goods sold in the period of change. 

During the thirteen week period ended March 31, 2012, NBP obtained approximately 20% of its cattle requirements through USPB.

USPB Results of Operations

As a result of the Purchase Agreement, which is discussed further in Recent Events above, USPB’s financial statements were not consolidated with NBP’s for the period ended March 31, 2012.  Unless otherwise indicated, all significant changes in financial statement line items between the first quarters of fiscal years 2012 and 2011 are due to this change in reporting.

Thirteen weeks ended March 31, 2012 compared to thirteen weeks ended March 26, 2011

Net Sales.  Net sales were $0.0 million for the thirteen weeks ended March 31, 2012 compared to approximately $1,660.8 million for the thirteen weeks ended March 26, 2011.   

Cost of Sales.  Cost of sales were $0.0 million for the thirteen weeks ended March 31, 2012 compared to approximately $1,564.5 million for the thirteen weeks ended March 26, 2011.   

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were approximately $2.1 million for the thirteen weeks ended March 31, 2012 compared to approximately $16.4 million for the thirteen weeks ended March 26, 2011, a decrease of approximately $14.3 million.  The $16.4 million in the prior year included $3.6 million in selling, general and administrative expenses attributable to USPB.  From that perspective, USPB’s selling, general and administrative expenses were $1.6 million less than the same period a year ago.  That decrease is primarily due to lower compensation expense on the phantom unit plans.  

Depreciation and Amortization Expense.  Depreciation and amortization expenses were approximately $0.0 million for the thirteen weeks ended March 31, 2012 compared to approximately $13.5 million for the thirteen weeks ended March 26, 2011, a decrease of approximately $13.5 million.               

Operating (Loss) Income.  Operating loss was approximately $2.1 million for the thirteen weeks ended March 31, 2012 compared to operating income of approximately $66.4 million for the thirteen weeks ended March 26, 2011, a decrease of approximately $68.5 million.   

Interest Expense.  Interest expense was $0.0 million for the thirteen weeks ended March 31, 2012 compared to $3.4 million for the thirteen weeks ended March 26, 2011, a decrease of $3.4 million.  

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Equity Interest in Net Loss of National Beef Packing Company, LLC.  Equity in NBP was a loss of $2.7 million for the thirteen weeks ended March 31, 2012 compared to $0.00 million for the thirteen weeks ended March 26, 2011, a decrease of $2.7 million.  As of December 31, 2012 and going forward, USPB will carry its 15.0729% investment in NBP under the equity method of accounting.

Income Tax Expense.  Income tax expense was $0.0 million and $0.6 million for the thirteen weeks ended March 31, 2012 and March 26, 2011, respectively.  Income tax expense in the prior year period was recorded on taxable income from National Carriers, which is organized as a C Corporation and the apportioned taxable income of NBP by certain states which impose privilege taxes. 

Net (Loss) Income.  As a result of the factors described above, net loss for the thirteen-week period ended March 31, 2012 was approximately $4.8 million compared to net income of approximately $63.2 million for the thirteen-week period ended March 26, 2011, a decrease of approximately $68.0 million.

Net Income Attributable to Noncontrolling Interest in NBP.  Noncontrolling interest in the net income of NBP for the thirteen weeks ended March 31, 2012 was $0.0 million compared to $20.6 million in the same period a year ago, a decrease of $20.6 million. The noncontrolling interest in NBP represented the minority owners’ interest in NBP’s earnings while USPB was consolidating NBP.

Net (Loss) Income Attributable to USPB.  Net loss attributable to USPB for the thirteen-week period ended March 31, 2012 was approximately $4.8 million compared to net income of approximately $42.5 million for the thirteen-week period ended March 26, 2011, a decrease of approximately $47.3 million.

Liquidity and Capital Resources

As of March 31, 2012, USPB had net working capital of approximately $58.4 million, which included cash and cash equivalents of $65.4 million and $0.5 million in distributions payable and $0.3 million in patronage notices payable.  As of December 31, 2011, we had net working capital of approximately $82.9 million, which included cash and cash equivalents of $642.7 million, with $508.9 million in distributions payable and $42.2 million in patronage notices payable.

As of March 31, 2012, we had a $15.0 million revolving term loan with CoBank, all of which was available.  USPB was in compliance with all of the financial covenants under the Credit Facility as of March 31, 2012.

We believe that available borrowings under our Credit Facility and cash provided by operating activities will be sufficient to support working capital and capital expenditures.  For a review of our obligations that affect liquidity, please see the “Cash Payment Obligations” table in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the transition period ended December 31, 2011.

Operating Activities

Net cash provided by operating activities in the thirteen weeks ended March 31, 2012 was approximately $3.0 million compared to net cash provided by operating activities of approximately $53.3 million in the thirteen weeks ended March 26, 2011.  The thirteen weeks ended March 31, 2012, includes a $2.3 million tax distribution received from NBP.  

Investing Activities

Net cash used in investing activities was approximately $0.0 million in the thirteen weeks ended March 31, 2012 compared to approximately $16.8 million in the thirteen weeks ended March 26, 2011.  

Financing Activities

Net cash used by financing activities was approximately $580.3 million in the thirteen weeks ended March 31, 2012 compared to net cash used in financing activities of approximately $48.6 million in the thirteen weeks ended March 26, 2011.  The change was primarily related to distributions to USPB’s unitholders, and the redemption of the patronage notices which occurred as a result of the transaction with Leucadia.  Overdraft balances in the current period relate to distribution and patronage redemption checks that were issued but have not cleared as of the balance sheet date.

Master Loan Agreement

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On July 28, 2011, USPB and CoBank entered into a Master Loan Agreement, Revolving Term Loan Supplement to the Master Loan Agreement, and Pledge Agreement.  These agreements replace the Amended and Restated Credit Agreement and Security Agreement dated June 22, 2009.

The Master Loan Agreement and the Revolving Term Loan Supplement provide for a $15 million revolving credit commitment.  That commitment carries a term of three years, maturing on June 30, 2014.  The Pledge Agreement provides CoBank with a first-priority security interest in USPB’s membership interests in, and Distributions from, NBP.

All of the $15 million revolving credit commitment was available as of March 31, 2012.  Borrowings under the revolving credit commitment bear interest at the base rate or LIBOR rate plus applicable margin.

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

Comparative Data

As a result of the transaction with Leucadia on December 30, 2011 in which Leucadia purchased 56.2415% of the membership interests in NBP from the Company, the Company’s financial statements are no longer consolidated with NBP.  USPB’s investment in NBP will instead be accounted for using the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operational control.  The following table provides a comparison of the Company’s statement of operations for the 13 week period ended March 31, 2012 to the 13 week period ended March 26, 2011, both of which reflect our investment in NBP under the equity method of accounting. 

		13 weeks ended		13 weeks ended
(Non-GAAP)		March 31, 2012		March 26, 2011
		(thousands of dollars)
Statement of Operations Data:
Net sales		$	-	$	-
Operating loss		$	(2,091)	$	(4.496)
Equity interest in net (loss) income of National Beef Packing Company, LLC		$	(2,706)	$	47,097
Net (loss) income		$	(4,783)	$	42,547
Statement of Cash Flow Data:
Net cash provided by operating activities		$	3,023	$	19,966
Net cash used in financing activities		(580,271)		(49,771)
	Net decrease in cash	$	(577,248)	$	(29,805)

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As part of NBP’s operations, it is exposed to market risks from changes in certain commodity prices.  To manage these risks, NBP may enter into forward purchase contracts for cattle and exchange traded futures and options contracts for cattle or grain.  While these instruments are intended to mitigate market risks, they are not designated and accounted for as hedges; accordingly, the gains and losses associated with changes in fair value of derivative financial instruments are recorded in net sales or cost of goods sold in the period of change.

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The principal market risks affecting USPB’s business are exposure to interest rate risk, to the extent the company has debt outstanding.  As of March 31, 2012, the company did not have any outstanding debt.

Item 4.  Controls and Procedures.

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the Consolidated Financial Statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in alerting them, in a timely manner, to material information required to be included in our periodic Securities and Exchange Commission filings.  There have been no changes in our internal controls over financial reporting during the thirteen weeks ended March 31, 2012 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

The risk factors set forth in our Annual Report on Form 10-KT for the transition period ended December 31, 2011 have not materially changed.  Please refer to the Company’s report on Form 10-KT for the transition period ended December 31, 2011 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
		31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
		31.2	Certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
		32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
		32.2	Certification of the Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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SIGNATURES

Pursuant to the requirements of the Securities 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 Financial Officer (Principal Financial and Accounting Officer)

Date: June 15, 2012

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