NATIONAL BEEF PACKING CO LLC - FORM 10-Q

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EX-32.1 - EXHIBIT 32.1 - NATIONAL BEEF PACKING CO LLC	nbp2011528ex321.htm
EX-10.1 - EXHIBIT 10.1 - NATIONAL BEEF PACKING CO LLC	nbp2011528ex101.htm
EX-32.2 - EXHIBIT 32.2 - NATIONAL BEEF PACKING CO LLC	nbp2011528ex322.htm
EX-31.1 - EXHIBIT 31.1 - NATIONAL BEEF PACKING CO LLC	nbp2011528ex311.htm
EX-31.2 - EXHIBIT 31.2 - NATIONAL BEEF PACKING CO LLC	nbp2011528ex312.htm

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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 May 28, 2011



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 333-111407

NATIONAL BEEF PACKING COMPANY, LLC

(Exact name of registrant as specified in its charter)



DELAWARE		48-1129505
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

12200 North Ambassador Drive

Kansas City, MO 64163

(Address of principal executive offices)

Telephone: (800) 449-2333

(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 smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer £	Accelerated filer £	Non-accelerated filer R	Smaller Reporting Company £

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

There is no market for the Registrant’s equity. As of July 8, 2011, there were 203,990,136 Class A units and 15,545,948 Class B units outstanding.

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	TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements.	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	16

Item 4.	Controls and Procedures.	18

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.	19

Item 1A.	Risk Factors.	19

Item 6.	Exhibits.	19

	Signatures.	20

Unless the context indicates or otherwise requires, the terms “National Beef,” “NBP,” “Company,” “we,” “our,” and “us” refer to National Beef Packing Company, LLC and its consolidated subsidiaries. As used in this report, the term “U.S. Premium Beef” or “USPB” refers to U.S. Premium Beef, LLC, a Delaware limited liability company, formerly U.S. Premium Beef, Ltd., a Kansas cooperative, which owns a majority interest in National Beef.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

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NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)



	May 28, 2011			August 28, 2010
Assets
Current assets:
Cash and cash equivalents	$	25,875		$	20,405
Accounts receivable, less allowance for returns and doubtful accounts of $2,982 and $2,891, respectively	207,855			182,234
Due from affiliates	5,974			4,961
Other receivables	9,379			7,399
Inventories	272,577			232,943
Other current assets	19,302			45,999
Total current assets	540,962			493,941
Property, plant and equipment, at cost	573,752			526,712
Less accumulated depreciation	255,064			220,274
Net property, plant and equipment	318,688			306,438
Goodwill	81,242			81,242
Other intangibles, net of accumulated amortization of $13,889 and $13,661, respectively	22,643			22,858
Other assets	7,745			8,213
	$	971,280		$	912,692
Liabilities and Members’ Capital
Current liabilities:
Current installments of long-term debt	$	38,474		$	21,382
Cattle purchases payable	74,898			70,208
Accounts payable – trade	82,153			73,522
Due to affiliates	1,189			718
Accrued compensation and benefits	59,672			78,401
Accrued insurance	15,142			15,048
Other accrued expenses and liabilities	19,689			27,091
Distributions payable	19,508			27,364
Total current liabilities	310,725			313,734
Long-term debt, excluding current installments	356,615			225,090
Other liabilities	2,423			2,443
Total liabilities	669,763			541,267
Capital subject to redemption	327,718			291,746
Members’ (deficit) / capital:
Members’ (deficit) / capital attributable to NBP	(29,313		)	76,894
Accumulated other comprehensive attributable to NBP	60			23
Noncontrolling interest in Kansas City Steak Company, LLC	3,052			2,762
Total members’ (deficit) / capital	(26,201		)	79,679
	$	971,280		$	912,692

See accompanying notes to consolidated financial statements.

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NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands)



	13 weeks ended			13 weeks ended			39 weeks ended			39 weeks ended
	May 28, 2011			May 29, 2010			May 28, 2011			May 29, 2010
Net sales	$	1,772,903		$	1,537,879		$	5,012,828		$	4,221,415
Costs and expenses:
Cost of sales	1,681,816			1,429,435			4,749,605			3,962,607
Selling, general and administrative	13,158			13,196			38,778			36,489
Depreciation and amortization	12,793			12,471			37,576			36,756
Total costs and expenses	1,707,767			1,455,102			4,825,959			4,035,852
Operating income	65,136			82,777			186,869			185,563
Other income (expense):
Interest income	2			4			13			39
Interest expense	(3,464		)	(3,513		)	(9,537		)	(11,563		)
Other, net	514			217			1,347			(3,559		)
Income before taxes	62,188			79,485			178,692			170,480
Income tax expense (benefit)	737			326			1,455			678
Net income	61,451			79,159			177,237			169,802
Net income attributable to the noncontrolling interest	(81		)	(58		)	(514		)	(850		)
Net income attributable to NBP	$	61,370		$	79,101		$	176,723		$	168,952

See accompanying notes to consolidated financial statements.

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NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)



	39 weeks ended			39 weeks ended
	May 28, 2011			May 29, 2010
Cash flows from operating activities:
Net income	$	177,237		$	169,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	37,576			36,756
Gain on disposal of property, plant and equipment	(949		)	(154		)
Amortization of debt issuance costs	1,125			772
Write-off of debt issuance costs	—			418
Change in assets and liabilities:
Accounts receivable	(25,621		)	(33,364		)
Due from affiliates	(1,013		)	695
Other receivables	(1,980		)	95
Inventories	(39,634		)	(41,406		)
Other assets	26,530			(3,334		)
Cattle purchases payable	4,798			5,505
Accounts payable	11,683			(1,470		)
Due to affiliates	471			59
Accrued compensation and benefits	(18,729		)	10,894
Accrued insurance	94			(1,182		)
Other accrued expenses and liabilities	(7,422		)	(3,441		)
Net cash provided by operating activities	164,166			140,645
Cash flows from investing activities:
Capital expenditures, including interest capitalized	(51,603		)	(28,867		)
Proceeds from sale of property, plant and equipment	2,960			974
Net cash used in investing activities	(48,643		)	(27,893		)
Cash flows from financing activities:
Net receipts under revolving credit lines	(2,000		)	8,718
Repayments of term note payable	(23,500		)	(23,102		)
Borrowings of term note payable	175,000			75,000
Purchase and cancellation of senior notes	—			(66,855		)
Change in overdraft balances	(3,160		)	6,857
Repayments of other indebtedness	(883		)	(5,838		)
Cash paid for financing costs	(509		)	(1,017		)
Member distributions	(254,813		)	(103,245		)
Distributions paid to noncontrolling interest	(225		)	(568		)
Net cash used in financing activities	(110,090		)	(110,050		)
Effect of exchange rate changes on cash	37			7
Net increase (decrease) in cash	5,470			2,709
Cash and cash equivalents at beginning of period	20,405			17,373
Cash and cash equivalents at end of period	$	25,875		$	20,082
Supplemental disclosures:
Cash paid during the period for interest	$	8,540		$	11,285
Cash paid during the period for taxes	$	2,164		$	729
Supplemental non-cash disclosures of investing and financing activities:
Assets acquired through capital lease	$	187		$	139

See accompanying notes to consolidated financial statements.

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NATIONAL BEEF PACKING COMPANY, 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, or 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 NBP’s Annual Report on Form 10-K on file with the Securities and Exchange Commission, or SEC for the fiscal year ended August 28, 2010. The results of operations for the interim periods presented are not necessarily indicative of the results for a full fiscal year.

(2) New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update, or ASU No. 2010-06, Fair Value Measurements and Disclosures. The Update issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance will become effective for the Company’s year ending in fiscal 2012. The adoption of ASU No. 2010-06 is not expected to significantly impact the Company’s consolidated financial position or results of operations.

(3) Inventories

Inventories at May 28, 2011 and August 28, 2010 consisted of the following (in thousands):



	May 28, 2011		August 28, 2010
Dressed and boxed meat products	$	166,933	$	154,927
Beef by-products	57,898		46,891
Supplies and other	47,746		31,125
Total inventory	$	272,577	$	232,943

(4) 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			13 weeks ended			39 weeks ended			39 weeks ended
	May 28, 2011			May 29, 2010			May 28, 2011			May 29, 2010
Net income	$	61,451		$	79,159		$	177,237		$	169,802
Other comprehensive income / (loss):
Foreign currency translation adjustments	16			(11		)	37			7
Comprehensive income	61,467			79,148			177,274			169,809
Comprehensive income attributable to the noncontrolling interest	(81		)	(58		)	(514		)	(850		)
Comprehensive income attributable to NBP	$	61,386		$	79,090		$	176,760		$	168,959

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(5) Contingencies

The Company is a party to a number of 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 the Company’s financial condition, results of operations or liquidity.

(6) Capital Subject to Redemption

At any time after certain dates, the earliest being July 31, 2010 in the case of NBPCo Holdings, the latest being July 31, 2011 in the case of certain affiliates of our Chief Executive Officer, Timothy M. Klein, or the Klein Affiliates, NBPCo Holdings and the Klein Affiliates have the right to request that the Company repurchase their interests, the value of which is to be determined by a mutually agreed appraisal process or a specified formula. If the Company is unable to effect the repurchase within a specified time, the requesting member(s) have the right to cause a sale process to commence.

Generally accepted accounting principles require the Company to determine the fair value of the capital subject to redemption at the end of each reporting period. To the extent the Klein Affiliates value increases, the change in fair value is accreted over the redemption period. NBPCo Holdings' interests reflect fair value. In determining the fair value of the capital subject to redemption held by NBPCo Holdings as of May 28, 2011, management has considered previous redemption prices, valuations of peer companies and other factors. The capital subject to redemption held by the Klein Affiliates as of May 28, 2011 was valued based upon a contractually stipulated formula.

At May 28, 2011, the value of the capital subject to redemption was determined to be $330.9 million, which was in excess of its carrying value. The total value of the capital subject to redemption at May 28, 2011, increased by approximately $15.0 million and $33.6 million compared to the value at February 26, 2011 and August 28, 2010, respectively. The carrying value of the capital subject to redemption increased through valuation and accretion during the thirteen and thirty-nine week period ending May 28, 2011 by approximately $7.6 million and $57.5 million, resulting in the $327.7 million carrying value, as reflected in the accompanying consolidated balance sheet as of May 28, 2011. Offsetting the change in value of capital subject to redemption is a corresponding change in members’ capital.

(7) Fair Value Measurements

The Company determines fair value utilizing 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.

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The following table details the assets and liabilities measured at fair value on a recurring basis as of May 28, 2011 and August 28, 2010 and also the level within the fair value hierarchy used to measure each category of assets (in thousands).



Description	May 28, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets – derivatives	$	7,945	$	7,945	$	—	$	—
Other accrued expenses and liabilities – derivatives	$	7,836	$	50	$	7,786	$	—
Capital subject to redemption	$	327,718	$	—	$	67,776	$	259,942



Description	August 28, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets – derivatives	$	15,563	$	61	$	15,502	$	—
Other accrued expenses and liabilities – derivatives	$	14,672	$	14,672	$	—	$	—
Capital subject to redemption	$	291,746	$	—	$	61,854	$	229,892

Management has used certain contractual redemption prices in measuring the fair value of the Klein Affiliates capital subject to redemption, which is included in level 2 as of May 28, 2011 and August 28, 2010. NBPCo Holdings capital subject to redemption is based upon unobservable inputs, thus included in Level 3 as of May 28, 2011 and August 28, 2010.

The following table presents a reconciliation of capital subject to redemption measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the thirteen and thirty-nine weeks ended May 28, 2011 (in thousands).



	Thirteen weeks ended			Thirty-nine weeks ended
	May 28, 2011			May 28, 2011
Beginning Balance	$	249,281		$	229,892
Allocation of net income	15,214			43,804
Class A 5% priority distributions	(736		)	(2,208		)
Class B distributions	(6,710		)	(21,848		)
Equity distribution	—			(37,156		)
Appraisal valuation adjustment	2,893			47,458
Balance, May 28, 2011	$	259,942		$	259,942

(8) Disclosure about Derivative Instruments and Hedging Activities

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


•	Forward purchase contracts for cattle for use in our 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 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.

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The Company 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 28, 2011. The exchange-traded contracts have been entered into under a master netting agreement. None of the derivatives entered into have credit-related contingent features. The Company has $1.7 million in cash collateral posted on its derivative liabilities.

The following table presents the fair values as discussed in Note 7 and other information regarding derivative instruments not designated as hedging instruments as of May 28, 2011 and August 28, 2010 (in thousands):



	Derivative Asset			Derivative Liability
	As of May 28, 2011			As of May 28, 2011
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Other current assets	$	7,945	Other accrued expenses and liabilities	$	7,836
Totals		$	7,945		$	7,836



	Derivative Asset			Derivative Liability
	As of August 28, 2010			As of August 28, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Other current assets	$	15,563	Other accrued expenses and liabilities	$	14,672
Totals		$	15,563		$	14,672

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 28, 2011 and May 29, 2010, respectively (in thousands):



Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss)Recognized in Income on Derivatives	Amount of Gain or (Loss)Recognized in Income on Derivatives
		13 weeks ended May 28, 2011			39 weeks ended May 28, 2011
Commodity contracts	Net sales	$	(445	)	$	9,483
Commodity contracts	Cost of sales	(17,655		)	(35,626		)
Totals		$	(18,100	)	$	(26,143	)



Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss)Recognized in Income on Derivatives	Amount of Gain or (Loss)Recognized in Income on Derivatives
		13 weeks ended May 29, 2010			39 weeks ended May 29, 2010
Commodity contracts	Net sales	$	(11,866	)	$	(8,697	)
Commodity contracts	Cost of sales	8,794			857
Totals		$	(3,072	)	$	(7,840	)

(9) Segments

The Company’s operating segments are based on segment profit and evaluated by the Chief Executive Officer, who also serves as the Chief Operating Decision Maker, or CODM. Segment profit is measured as operating income for NBP’s two reporting segments, Core Beef and Other, based on the definitions provided in ASC 280, Disclosures about Segments of an Enterprise and Related Information.

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Core Beef—the majority of NBP’s revenues are generated from the sale of fresh meat, which include chuck cuts, rib cuts, loin cuts, round cuts, thin meats, ground beef, and other products. In addition, we also sell beef by-products including hides to the variety meat, feed processing, fertilizer and pet food industries. Aggregation criteria were applied to determine the constituents of the Core Beef segment.

Other—the Other segment of NBP consists of the operations of National Carriers, Inc., a refrigerated and livestock contract carrier company, National Elite Transportation, LLC, a provider of transportation logistics services, and Kansas City Steak Company, LLC, a portion control steak cutting operation.

Eliminations—this line item includes eliminations of inter-segment and intra-segment activity resulting from the consolidation process.

The following table represents segment results for the periods indicated (in thousands):



	13 weeks ended May 28, 2011			13 weeks ended May 29, 2010			39 weeks ended May 28, 2011			39 weeks ended May 29, 2010
Net sales:
Core beef	$	1,819,493		$	1,575,926		$	5,121,914		$	4,306,246
Other	62,494			53,954			185,379			173,962
Eliminations	(109,084		)	(92,001		)	(294,465		)	(258,793		)
Total net sales	$	1,772,903		$	1,537,879		$	5,012,828		$	4,221,415
Operating income:
Core beef	$	63,428		$	82,252		$	183,036		$	181,911
Other	1,708			525			3,833			3,652
Total operating income	65,136			82,777			186,869			185,563
Interest income	2			4			13			39
Interest expense	(3,464		)	(3,513		)	(9,537		)	(11,563		)
Other expense, net	514			217			1,347			(3,559		)
Total income before taxes	$	62,188		$	79,485		$	178,692		$	170,480
	May 28, 2011			May 29, 2010
Assets:
Core beef	$	924,045		$	836,339
Other	48,390			44,155
Eliminations	(1,155		)	(208		)
Total assets	$	971,280		$	880,286

(10) Subsequent Events

The primary purpose of the First Amendment was to amend the Credit Facility to (i) reduce the applicable margin by up to 0.75% for “LIBOR Rate” advances and “Base Rate” advances, (ii) revise the “fixed charge coverage ratio” covenant provisions to provide the Company credit of up to $30 million for maintaining net asset borrowing base levels that exceed the lenders' aggregate credit commitments under the Credit Facility and (iii) extend the maturity date of the Credit Facility to June 4, 2016.

The Company determined that as of May 28, 2011 it was in violation of a negative covenant within the Credit Facility restricting the number of cattle permitted to be owned. The Company reported this violation to its lenders and sought to have the violation waived and the Credit Facility amended. On July 7, 2011, the lenders granted a waiver and the parties amended the Credit Facility.

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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 Bovine Spongiform Encephalopathy (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, 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 Part II. Item 1A, Risk Factors, included in this report, and Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended August 28, 2010 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

Cattle supplies during the summer are expected to remain above prior year levels, and shift below prior year levels during the 4th quarter of 2011 due to drought induced placement of cattle onto feed earlier than anticipated. Liquidation of herds on the Southern Plains and Southwest due to drought continues to keep long term prospects for any type of herd growth unlikely through 2012. We anticipate annual fed cattle supplies to continue to decline with the ongoing downsizing at the cow-calf sector.

Beef Export Markets

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 our 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 our revenues and net income

In December 2010, the United States Department of Agriculture, or USDA, announced that China has agreed to resume talks with the United 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 in 2011. 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 our operations, and there can be no assurance that such talks will occur or result in 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 our export sales are delivered to Japan, and while we cannot presently assess the full long-term economic impact of the earthquake and tsunami on our operations, so far there have been few interruptions.

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Regulatory Developments

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

Results of Operations

Thirteen weeks ended May 28, 2011 compared to thirteen weeks ended May 29, 2010

General. Net income for the thirteen weeks ended May 28, 2011 was approximately $61.5 million compared to net income of approximately $79.2 million for the thirteen weeks ended May 29, 2010, a decrease of approximately $17.7 million, or 22.3%. Net sales were higher in the thirteen weeks ended May 28, 2011 compared to the thirteen weeks ended May 29, 2010 primarily due to a 15.9% increase in the net sales per head.

Total costs and expenses of approximately $1,707.8 million for the thirteen weeks ended May 28, 2011, were 96.3% of net sales compared to approximately $1,455.1 million for the thirteen weeks ended May 29, 2010, or 94.6% of net sales. Continued stable demand for beef products and increases in cattle prices during the second quarter of fiscal 2011 as compared to the same period of fiscal 2010 resulted in an increase in the percentage of total costs to net sales during the period.

Net Sales. Net sales were approximately $1,772.9 million for the thirteen weeks ended May 28, 2011 compared to approximately $1,537.9 million for the thirteen weeks ended May 29, 2010, an increase of approximately $235.0 million, or 15.3%. The increase in net sales resulted primarily from a 15.9% increase in the net sales per head during the thirteen weeks ended May 28, 2011 compared to the same period in the prior year, as the demand for beef products remained strong, and price of beef products increased during the period.

Cost of Sales. Cost of sales was approximately $1,681.8 million for the thirteen weeks ended May 28, 2011 compared to approximately $1,429.4 million for the thirteen weeks ended May 29, 2010, an increase of approximately $252.4 million, or 17.7%. The increase was primarily a result of an approximately 19.8% increase in average cattle prices during the period compared to the prior period.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $13.2 million for the thirteen weeks ended May 28, 2011 compared to approximately $13.2 million for the thirteen weeks ended May 29, 2010.

Depreciation and Amortization Expense. Depreciation and amortization expenses were approximately $12.8 million for the thirteen weeks ended May 28, 2011 compared to approximately $12.5 million for the thirteen weeks ended May 29, 2010, an increase of approximately $0.3 million, or 2.4%. Depreciation expense increased due to assets being placed into service during fiscal year 2011, primarily at our three beef plants and two case ready plants.

Operating Income. Operating income was approximately $65.1 million for the thirteen weeks ended May 28, 2011 compared to operating income of approximately $82.8 million for the thirteen weeks ended May 29, 2010, a decrease of approximately $17.7 million, or 21.4%. The decreased operating income primarily resulted from an approximately 19.8% increase in average cattle prices during the period.

Income Tax Expense/Benefit. Income tax expense was $0.7 million for the thirteen weeks ended May 28, 2011 compared to income tax expense of $0.3 million for the same period of fiscal year 2010, an increase of $0.4 million. Income tax expense is 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.

Thirty-nine weeks ended May 28, 2011 compared to thirty-nine weeks ended May 29, 2010

General. Net income for the thirty-nine weeks ended May 28, 2011 was approximately $177.2 million compared to net income of approximately $169.8 million for the thirty-nine weeks ended May 29, 2010, an improvement of approximately $7.4 million, or 4.4%. Net sales were higher in the thirty-nine weeks ended May 28, 2011 compared to those of the prior period primarily due to an increase in net sales per head of approximately 16.7%, and an approximately 2.0% increase in the volume of cattle processed.

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Total costs and expenses of $4,826.0 million for the thirty-nine weeks ended May 28, 2011 were 96.3% of net sales compared to $4,035.9 million for the thirty-nine weeks ended May 29, 2010, or 95.6% of net sales. Total costs as a percentage of net sales are similar primarily due to the increase in net sales per head of approximately 16.7%, offset by an increase in average cattle prices of approximately 19.7% for the comparable periods.

Net Sales. Net sales were approximately $5,012.8 million for the thirty-nine weeks ended May 28, 2011 compared to approximately $4,221.4 million for the thirty-nine weeks ended May 29, 2010, an increase of approximately $791.4 million, or 18.7%. The increase in net sales resulted primarily from an average increase in net sales per head of 16.7%, and an increase in the volume of cattle processed by approximately 2.0% in the thirty-nine weeks ended May 28, 2011, as compared to the same period in the prior year.

Cost of Sales. Cost of sales was approximately $4,749.6 million for the thirty-nine weeks ended May 28, 2011 compared to approximately $3,962.6 million for the thirty-nine weeks ended May 29, 2010, an increase of approximately $787.0 million, or 19.9%. The increase was primarily a result of an approximately 19.7% increase in average cattle prices during the period, and an approximately 2.0% increase in the number of cattle processed during the period.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $38.8 million for the thirty-nine weeks ended May 28, 2011 compared to approximately $36.5 million for the thirty-nine weeks ended May 29, 2010, an increase of approximately $2.3 million, or 6.3%. The increase for the period is primarily due to an approximately $1.4 million increase in salary expense, an increase in travel expenses of approximately $0.8 million and an approximately $0.7 million increase in consulting expenses during the current period as compared to the same period of the prior year. These increases are partially offset by a decrease in bad debt expense of approximately $1.3 million during the period.

Depreciation and Amortization Expense. Depreciation and amortization expenses were approximately $37.6 million for the thirty-nine weeks ended May 28, 2011 compared to approximately $36.8 million for the thirty-nine weeks ended May 29, 2010, an increase of approximately $0.8 million, or 2.2%. Depreciation expense increased due to assets being placed into service, primarily at our three beef plants and two case ready plants, during fiscal year 2011.

Operating Income. Operating income was approximately $186.9 million for the thirty-nine weeks ended May 28, 2011 compared to operating income of approximately $185.6 million for the thirty-nine weeks ended May 29, 2010, an improvement of approximately $1.3 million, or 0.7%. The increased operating income primarily resulted from an approximately 16.7% increase in net sales per head and a 2.0% increase in the volume of cattle processed. These increases are partially offset by an approximately 19.7% increase in average cattle prices during the period.

Interest Expense. Interest expense was approximately $9.5 million for the thirty-nine weeks ended May 28, 2011 compared to $11.6 million for the thirty-nine weeks ended May 29, 2010, a decrease of approximately $2.1 million or 18.1%. The decrease in interest expense during the thirty-nine weeks ended May 28, 2011 as compared to the same period in the prior fiscal year was due primarily to an average daily interest rate reduction from 4.3% to 2.8%. This decrease was primarily the result of purchasing and canceling the remaining $66.9 million of our Senior Notes during the thirty-nine weeks ended May 29, 2010.

Other, net. Other, net non-operating income was approximately $1.3 million for the thirty-nine weeks ended May 28, 2011 compared to other, net non-operating expense of approximately $3.6 million for the thirty-nine weeks ended February 27, 2010, an improvement of approximately $4.9 million. During the thirty-nine weeks ended May 29, 2010, we expensed $2.2 million incurred in connection with the attempted IPO by National Beef Inc. in December 2009. In addition, during the thirty-nine weeks ended May 29, 2010, we expensed approximately $2.1 million of legal fees, and the remaining senior notes issuance fees of $0.4 million.

Income Tax Expense. Income tax expense was $1.5 million for the thirty-nine weeks ended May 28, 2011 compared to $0.7 million for the same period of fiscal year 2010, an increase of $0.8 million. Income tax expense is 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.

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Segment Results

The Company’s operating segments are based on segment profit and evaluated by the Chief Executive Officer, who also serves as the Chief Operating Decision Maker (CODM). Segment profit is measured as operating income for NBP’s two reporting segments, Core Beef and Other, based on the definitions provided in ASC 280, Disclosures about Segments of an Enterprise and Related Information.

Eliminations—this line item includes eliminations of inter-segment and intra-segment activity resulting from the consolidation process.

The following table represents segment results for the periods indicated (in thousands):



	13 weeks ended			13 weeks ended			39 weeks ended			39 weeks ended
	May 28, 2011			May 29, 2010			May 28, 2011			May 29, 2010
Net sales:
Core beef	$	1,819,493		$	1,575,926		$	5,121,914		$	4,306,246
Other	62,494			53,954			185,379			173,962
Eliminations	(109,084		)	(92,001		)	(294,465		)	(258,793		)
Total net sales	$	1,772,903		$	1,537,879		$	5,012,828		$	4,221,415
Operating income:
Core beef	$	63,428		$	82,252		$	183,036		$	181,911
Other	1,708			525			3,833			3,652
Total operating income	65,136			82,777			186,869			185,563
Interest income	2			4			13			39
Interest expense	(3,464		)	(3,513		)	(9,537		)	(11,563		)
Other expense, net	514			217			1,347			(3,559		)
Total income before taxes	$	62,188		$	79,485		$	178,692		$	170,480
	May 28, 2011			May 29, 2010
Assets:
Core beef	$	924,045		$	836,339
Other	48,390			44,155
Eliminations	(1,155		)	(208		)
Total assets	$	971,280		$	880,286

Thirteen weeks ended May 28, 2011 compared to thirteen weeks ended May 29, 2010

Core Beef

Net Sales. Net sales for Core Beef were approximately $1,819.5 million for the thirteen weeks ended May 28, 2011 compared to approximately $1,575.9 million for the thirteen weeks ended May 29, 2010, an increase of approximately $243.6 million, or 15.5%. The increase in net sales resulted primarily from an increase in net sales per head of 15.9% for the current thirteen week period as compared to the same period of the prior year.

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Operating Income. The operating income for Core Beef was approximately $63.4 million for the thirteen weeks ended May 28, 2011 compared to operating income of approximately $82.3 million for the thirteen weeks ended May 29, 2010, a decrease of approximately $18.9 million. The decreased operating income resulted primarily from an approximately 19.8% increase in average cattle prices during the period, partially offset by an increase in net sales per head of approximately 15.9% during the period.

Other

Net Sales. Net sales for Other were approximately $62.5 million for the thirteen weeks ended May 28, 2011 compared to approximately $54.0 million for the thirteen weeks ended May 29, 2010, an increase of approximately $8.5 million, or 15.7%. The increase was primarily due to increased net sales at our portion control beef facility and transportation operations during the thirteen week period of fiscal 2011 as compared to the same period of the prior year.

Operating Income. Operating income for Other was approximately $1.7 million for the thirteen weeks ended May 28, 2011 compared to approximately $0.5 million for the thirteen weeks ended May 29, 2010, an increase of approximately $1.2 million.

Thirty-nine weeks ended May 28, 2011 compared to thirty-nine weeks ended May 29, 2010

Core Beef

Net Sales. Net sales for Core Beef were approximately $5,121.9 million for the thirty-nine weeks ended May 28, 2011 compared to approximately $4,306.2 million for the thirty-nine weeks ended May 29, 2010, an increase of approximately $815.7 million, or 18.9%. The increase in net sales resulted primarily from an approximately 16.7% increase in net sales per head for the thirty-nine weeks ended May 28, 2011 as compared to the same period of the prior year, and a 2.0% increase in the number of cattle processed.

Operating Income. Operating income for Core Beef was approximately $183.0 million for the thirty-nine weeks ended May 28, 2011 compared to operating income of approximately $181.9 million for the thirty-nine weeks ended May 29, 2010, an improvement of approximately $1.1 million, or 0.6%. The slightly improved operating income is the result of a 16.7% increase in net sales per head and a 2.0% increase in the volume of cattle processed, offset by an approximately 19.7% increase in average cattle prices compared to the prior year.

Other

Net Sales. Net sales for Other were approximately $185.4 million for the thirty-nine weeks ended May 28, 2011 compared to approximately $174.0 million for the thirty-nine weeks ended May 29, 2010, an increase of approximately $11.4 million, or 6.6%. The increase in net sales was primarily due to increased net sales at our portion control beef facility and transportation operations during the thirty-nine week period of fiscal 2010 as compared to the same period of the prior year.

Operating Income. Operating income for Other was approximately $3.8 million for the thirty-nine weeks ended May 28, 2011 compared to approximately $3.7 million for the thirty-nine weeks ended May 29, 2010, an increase of approximately $0.1 million.

Liquidity and Capital Resources

As of May 28, 2011, we had net working capital of approximately $230.2 million, which included cash and cash equivalents of $25.9 million, with $19.5 million in distributions payable. As of August 28, 2010, we had net working capital of approximately $180.2 million, which included cash and cash equivalents of $20.4 million, with $27.4 million in distributions payable. Our primary sources of liquidity are cash flows from operations and available borrowings under our amended and restated credit facility, or Credit Facility.

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As of May 28, 2011, we had $395.1 million of long-term debt, of which $38.5 million was classified as a current liability. As of May 28, 2011, our Credit Facility consisted of a term loan, of which $351.5 million was outstanding, and a $250.0 million revolving line of credit loan, which had outstanding borrowings of $25.0 million, outstanding letters of credit of $24.1 million and available borrowings of $200.9 million, based on the most restrictive financial covenant calculations. Cash flows from operations and borrowings under our Credit Facility have funded our working capital requirements, acquisitions, capital expenditures and other general corporate purposes. We were in compliance with all of our financial covenants under our Credit Facility as of May 28, 2011.

In addition to outstanding borrowings under our Credit Facility, we had outstanding borrowings under industrial revenue bonds of $12.2 million and capital leases and other obligations of $6.4 million as of May 28, 2011.

We believe that available borrowings under our Credit Facility and cash provided by operating activities will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future. Our ability to generate sufficient cash, however, is subject to certain general economic, financial, industry, legislative, regulatory and other factors beyond our control. 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 year ended August 28, 2010.

Operating Activities

Net cash provided by operating activities in the thirty-nine weeks ended May 28, 2011 was approximately $164.2 million compared to net cash provided by operating activities of approximately $140.6 million in the thirty-nine weeks ended May 29, 2010. The $23.6 million change was primarily due to changes in working capital during the period. The working capital changes were primarily related to an increase in cash paid in fiscal year 2011 for bonuses earned in fiscal year 2010 offset by a decrease in cash collateral posted on derivatives liabilities, and an increase in net income of approximately $7.4 million during the thirty-nine weeks ended May 28, 2011 as compared to the thirty-nine weeks ended May 29, 2010.

Investing Activities

Net cash used in investing activities was approximately $48.6 million in the thirty-nine weeks ended May 28, 2011 compared to approximately $27.9 million in the thirty-nine weeks ended May 29, 2010. This increase in cash used was primarily attributable to an approximate $22.7 million increase in expenditures for property, plant and equipment during the thirty-nine weeks ended May 28, 2011 as compared to the thirty-nine weeks ended May 29, 2010.

Financing Activities

Net cash used in financing activities was approximately $110.1 million in the thirty-nine weeks ended May 28, 2011 compared to net cash used in financing activities of approximately $110.1 million in the thirty-nine weeks ended May 29, 2010. There were various financing activity changes during the period, including an additional $100.0 million of borrowings on the term loan during the thirty-nine weeks ended May 28, 2011 compared to the prior year period. In addition, the remaining $66.9 million was purchased and canceled on our senior notes during the thirty-nine weeks ended May 29, 2010. These increases in cash provided by financing activities were partially offset by an additional $151.6 million in member distributions made during the thirty-nine weeks ended May 28, 2011 compared to the thirty-nine weeks ended May 29, 2010.

Amended and Restated Senior Credit Facility

Effective as of June 4, 2010, the Credit Facility was amended and restated to: (1) increase the borrowings under the Credit Facility by providing for a term loan facility of up to $375 million and a revolving line of credit of up to $250 million; (2) reduce the applicable margin on the rates of interest of the term loan and revolving line of credit; (3) revise the payment schedule of the term loan; (4) extend the maturity date of the Credit Facility to June 4, 2015; (5) remove limitations on capital expenditures; (6) add new financial covenants regarding adjusted net worth and a fixed charge coverage ratio; and (7) add two wholly owned subsidiaries, National Beef California, LP and National Carriers, Inc., as loan parties and guarantors. The lender financing charges for the amended and restated Credit Facility of approximately $4.7 million are being amortized over the life of the loan.

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On November 29, 2010, the Company drew $175 million under the Credit Facility. The draw was made to fund distributions to the Company’s members and for general corporate purposes. The draw constitutes the last of a series of term loans under the Credit Facility not to exceed $375 million in the aggregate.

On June 10, 2011 the Company entered into the First Amendment to the Amended and Restated Credit Agreement with Cobank, ACB and various other lenders, or the First Amendment. The First Amendment amends the Credit Facility to (i) reduce the applicable margin by up to 0.75% for “LIBOR Rate” advances and “Base Rate” advances, (ii) revise the “fixed charge coverage ratio” covenant provisions to provide the Company credit of up to $30 million for maintaining net asset borrowing base levels that exceed the lenders' aggregate credit commitments under the Credit Facility and (iii) extend the maturity date of the Credit Facility to June 4, 2016.

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 as set forth on a grid based on different ratios of funded debt to EBITDA. As of May 28, 2011, the interest rates for the term loan and revolving loan were both approximately 2.71%.

The borrowings under the revolving loan are available for our working capital requirements, capital expenditures and other general corporate purposes. The advance rates under the borrowing base are 90% on eligible accounts and 70% on eligible inventory. The Credit Facility is secured by a first priority lien on substantially all of our assets and the assets of our subsidiaries.

The principal amount outstanding under the term loan is due and payable in equal quarterly installments beginning in October 2010, based on a 10-year level amortization of the remaining amount of the term loan. All outstanding loan amounts are due and payable on June 4, 2016. Prepayment of the loans is allowed at any time.

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

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 NBP LLC’s property, changes in control of National Beef or the Company, failure of any of the loan documents to remain in full force, and the Company’s failure to properly fund its employee benefit plans. The Credit Facility also includes customary provisions protecting the lenders against increased costs 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. We use various raw materials, many of which are commodities. Raw materials are generally available from several different sources, and we presently believe that we can obtain them as needed. Commodities are subject to price fluctuations that may create price risk. When appropriate, we may hedge commodities 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 prices. To the extent the contracts are not designated as normal purchases, we reflect 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.

We purchase cattle for use in our processing businesses. From time to time, we enter 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 we use depends on a number of factors, including availability of appropriate derivative instruments.

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We sell commodity beef products in our business. Commodity beef products are subject to price fluctuations that may create price risk. From time to time, 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.

From time to time, we purchase cattle futures and options contracts. Our primary use of these contracts is to partially fix our future input costs when we have committed forward sales purchase orders from customers at a specified fixed price. The longest duration futures contract owned is sixteen months. In accordance with ASC Topic 815, 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. ASC Topic 815 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 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 the sensitivity analysis appropriately reflects the potential market value exposure associated with the use of derivative instruments. As of May 28, 2011 and August 28, 2010, the potential change in the fair value of the derivative instruments we hold that are not designated as normal purchases or sales, assuming a hypothetical 10% decrease in the underlying commodity price in each year, was $4.9 million and $0.3 million, respectively.

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 28, 2011, the weighted average interest rate on our $388.7 million of variable rate debt was approximately 2.63%. As of August 28, 2010, the weighted average interest rate on our $239.2 million of variable interest debt was approximately 2.77%.

We had total interest expense of approximately $9.5 million during the thirty-nine week period ending May 28, 2011. The estimated increase in interest expense from a hypothetical 200 basis point increase in applicable variable interest rates would have been approximately $5.6 million in the thirty-nine week period ending May 28, 2011.

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.

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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 May 28, 2011 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.

For information regarding legal proceedings, see Note 5, “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 year ended August 28, 2010 have not materially changed.

Item 6. Exhibits.


(A)	Exhibits

10.1 Limited Waiver and Second Amendment

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

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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.

32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.



	National Beef Packing Company, LLC

	By:	/s/ Timothy M. Klein
		Timothy M. Klein
		Chief Executive Officer and Manager
		(Principal Executive Officer)

	By:	/s/ Simon P. McGee
		Simon P. McGee
		Chief Financial Officer
		(Principal Financial Officer)

	By:	/s/ Jay D. Nielsen
		Jay D. Nielsen
		Chief Accounting Officer
		(Principal Accounting Officer)

Date: July 8, 2011

NATIONAL BEEF PACKING CO LLC - FORM 10-Q - July 8, 2011

Attached files

NATIONAL BEEF PACKING CO LLC Reports