**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington****, D.C. 20549**

**FORM 10-Q**

| **(Mark one)**                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                         |
| þ     **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF 	THE SECURITIES EXCHANGE ACT OF 1934** |

 

|                                            |
|-------------------------------------------------|
| **For the quarterly period ended May 31, 2008** |
| **or**                                          |

 

|  

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

 

|                                                                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **For the transition period from             to           .** |
| ** **                                                                                                                                                        |

**Commissionfile number 333-115164**

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

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

 **12200  North Ambassador Drive****Kansas  City****, MO 64163****(Addressof principal executive offices)**

**Telephone:(866) 877-2525(Registrant’stelephone number, including area code)**

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer or a small reporting company.  See definition of“accelerated filer”, “large accelerated filer” and “small reporting company” inRule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer o   | Accelerated Filer 		o | Non-Accelerated Filer þ | Small Reporting Company o |
|---------------------------------------|-----------------------|------------------------------|---------------------------|

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

The registrant’s unitsare not traded on an exchange or in any public market.  As of June 28, 2008, there were 735,385 Class A units and 735,385 Class B unitsoutstanding.     

 

 

 

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|                  | TABLE OF CONTENTS

                                                                      |         |
|-----------------------|-----------------------------------------------------------------------------------------------|--------------|
| PART I.               | FINANCIAL INFORMATION                                                                         | **Page No.** |
|                  |                                                                                          |         |
| Item 1.               | Financial Statements.                                                                         | 1            |
|                  |                                                                                          |         |
| Item 2.               | Management’s  Discussion and Analysis of Financial Condition

and Results of Operations. | 9            |
|                  |                                                                                          |         |
| Item 3.               | Quantitative and Qualitative Disclosures About Market Risk.                                   | 15           |
|                  |                                                                                          |         |
| Item 4T.              | Controls and Procedures.                                                                      | 17           |
|                  |                                                                                          |         |
|                  |                                                                                          |         |
| PART II.              | OTHER INFORMATION                                                                             |         |
|                  |                                                                                          |         |
| Item 1.               | Legal Proceedings.                                                                            | 18           |
|                  |                                                                                          |         |
|    Item 1A. | Risk Factors.                                                                                 | 18           |
|                  |                                                                                          |         |
| Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds.                                  | 18           |
|                  |                                                                                          |         |
| Item 3.               | Defaults Upon Senior Securities.                                                              | 18           |
|                  |                                                                                          |         |
| Item 4.               | Submission of Matters to a Vote of Security Holders.                                          | 18           |
|                  |                                                                                          |         |
| Item 5.               | Other Information.                                                                            | 18           |
|                  |                                                                                          |         |
| Item 6.               | Exhibits.                                                                                | 18           |
|                  |                                                                                          |         |
|                  | Signatures.                                                                                   | 20           |

 

 

Unless the context indicates orotherwise requires, the terms “the Company”, “we”, “our” and “us” refer to U.S.Premium Beef, LLC (formerly known as U.S. Premium Beef, Ltd.) and itsconsolidated subsidiaries. As used in this report, the terms “NBP” and“National Beef” refer to National Beef Packing Company, LLC (formerly known asFarmland National Beef Packing Company, LP), a Delaware limited liabilitycompany, and “USPB” refers to U.S. Premium Beef, LLC (formerly known U.S.Premium Beef, Ltd.) prior to consolidation. 

 

 

 

**                                                                                               **

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**PART I.  FINANCIAL INFORMATION**

** **

**Item 1.  Financial Statements.**

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

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| ** **                                                                                                                                                  |                                                                                                                |                                                                            |          |             |          |                |         |          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|---------------|------------------|---------------|---------------------|--------------|---------------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                                                                                        |
| **Consolidated Balance Sheets**                                                                                                                   |
| (in thousands, except unit data)                                                                                                        |
|                                                                                                                                                        |                                                                                                                |                                                                            |          |             |          |                |
|                                                                                                                                                        |                                                                                                                |                                                                            |          | **May 31,** |          | **August 25,** |
| **Assets**                                                                                                                                                  |                                                                                                                | **2008**                                                                        |          | **2007**         |
|                                                                                                                                                        |                                                                                                                |                                                                            |          | **(unaudited)**  |          |                |
| Current assets:                                                                                                                                        |                                                                                                                |                                                                            |          |             |
|                                                                                                                                                        | Cash and cash equivalents                                                                            |                                                                            | $             | 61,438      |          | $                   | 62,869  |
|                                                                                                                                                        | Accounts receivable, less allowance for returns and doubtful accounts       |                                                                            |          |             |          |
|                                                                                                                                                        |                                                                                                                | of $3,343 and $4,642, respectively                          |          | 199,240     |          | 189,728        |
|                                                                                                                                                        | Due from affiliates                                                                                       |                                                                            | 4,741    |             | 4,609    |
|                                                                                                                                                        | Other receivables                                                                                              |                                                                            | 6,141    |             | 8,389    |
|                                                                                                                                                        | Inventories                                                                                                         |                                                                            | 198,055  |             | 177,244  |
|                                                                                                                                                        | Other current assets                                                                                      |                                                                            | 19,607   |             | 14,144   |
|                                                                                                                                                        |                                                                                                                | Total current assets                                                  |          | 489,222     |          | 456,983        |
| Property, plant, and equipment, at cost                                                                                            |                                                                                                                | 412,120                                                                    |          | 372,404     |
|                                                                                                                                                        | Less accumulated depreciation                                                                             |                                                                            | (125,201)     |             | (99,575)      |
|                                                                                                                                                        |                                                                                                                | Net property, plant, and equipment                          |          | 286,919     |          | 272,829        |
| Goodwill                                                                                                                                                    |                                                                                                                | 80,042                                                                     |          | 80,042      |
| Other intangible assets, net of accumulated amortization                                                                      |                                                                                                                |                                                                            |          |             |
|                                                                                                                                                        | of $8,823 and $7,214, respectively                                                              |                                                                            | 27,228   |             | 28,659   |
| Other assets                                                                                                                                           |                                                                                                                | 10,222                                                                     |          | 10,104      |
|                                                                                                                                                        |                                                                                                                | Total assets                                                               |          | $                | 893,633  |                | $            | 848,617  |
|                                                                                                                                                        |                                                                                                                |                                                                            |          |             |          |                |
| **Liabilities and Capital Shares and Equities**                                                                                    |                                                                                                                |                                                                            |          |             |
| Current liabilities:                                                                                                                                   |                                                                                                                |                                                                            |          |             |
|                                                                                                                                                        | Current installments of long-term debt                                                          |                                                                            | $             | 4,583       |          | $                   | 4,421   |
|                                                                                                                                                        | Cattle purchases payable                                                                                  |                                                                            | 86,407   |             | 62,995   |
|                                                                                                                                                        | Accounts payable - trade                                                                             |                                                                            | 63,221   |             | 60,257   |
|                                                                                                                                                        | Due to affiliates                                                                                         |                                                                            | 215      |             | 977      |
|                                                                                                                                                        | Accrued compensation and benefits                                                                    |                                                                            | 28,923   |             | 18,785   |
|                                                                                                                                                        | Accrued insurance                                                                                              |                                                                            | 12,854   |             | 14,550   |
|                                                                                                                                                        | Other accrued expenses and liabilities                                                          |                                                                            | 16,723   |             | 11,757   |
|                                                                                                                                                        | Distributions payable                                                                                          |                                                                            | 14,440   |             | 2,708    |
|                                                                                                                                                        |                                                                                                                | Total current liabilities                                             |          | 227,366     |          | 176,450        |
| Long-term liabilities:                                                                                                                                 |                                                                                                                |                                                                            |          |             |
|                                                                                                                                                        | Long-term debt, excluding current installments                                                  |                                                                            | 412,380  |             | 438,544  |
|                                                                                                                                                        | Other liabilities                                                                                              |                                                                            | 2,365    |             | 2,559    |
|                                                                                                                                                        |                                                                                                                | Total long-term liabilities                                           |          | 414,745     |          | 441,103        |
|                                                                                                                                                        |                                                                                                                | Total liabilities                                                          |          | 642,111     |          | 617,553        |
| Minority interest in National Beef Packing Company, LLC and Kansas City Steak Company, LLC | 134,703                                                                                                        |                                                                            | 77,890   |
| Capital shares and equities:                                                                                                                 |                                                                                                                |                                                                            |          |             |
|                                                                                                                                                        | Members' capital, 735,385 Class A units and 735,385 Class B units |                                                                            |          |             |          |
|                                                                                                                                                        |                                                                                                                | authorized, issued and outstanding                               |          | 66,140      |          | 102,472        |
|                                                                                                                                                        | Patronage notices                                                                                              |                                                                            | 50,642   |             | 50,642   |
|                                                                                                                                                        | Accumulated other comprehensive income                                                               |                                                                            | 37       |             | 60       |
|                                                                                                                                                        |                                                                                                                | Total capital shares and equities                           |          | 116,819     |          | 153,174        |
| Commitments and contingencies                                                                                                                     |                                                                                                                | -                                                                          |          | -           |
|                                                                                                                                                        |                                                                                                                | Total liabilities and capital shares and equities |          | $                | 893,633  |                | $            | 848,617  |
|                                                                                                                                                        |                                                                                                                |                                                                            |          |             |          |                |
| See accompanying notes to consolidated financial statements.                                                                  |                                                                                                                |                                                                            |          |             |

** **

** **

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| ** **                                                                                 |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |   |            |    |   |
|--------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|--------------------------------------------------------|-------------------------------------------|-----------------|-----------------|------------------------------|-----------------|------------------------------|-----------------|------------------------------|-----------------|------------------------------|--------|-----------------|---------|--------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                       |
| **Consolidated Statements of Operations**                                   |
| (in thousands, except unit and per unit data)                                         |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
|                                                                                       |                                                                                 |                                                   |                                      |            |            | **14 weeks ended** |            | **13 weeks ended** |            | **40 weeks ended** |            | **39 weeks ended** |
|                                                                                       |                                                                                 |                                                   |                                      |            |            | **May 31, 2008**   |            | **May 26, 2007**   |            | **May 31, 2008**   |            | **May 26, 2007**   |
|                                                                                       |                                                                                 |                                                   |                                      |            |            | **(unaudited)**              |            | **(unaudited)**              |            | **(unaudited)**              |            | **(unaudited)**              |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
| Net sales                                                                             |                                                                                 |                                                   |                                      | $               | 1,529,624  |                         | $               | 1,479,676               |            | $                            | 4,233,676  |                         | $      | 4,066,020  |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
| Costs and expenses:                                                              |                                                                                 |                                                   |                                      |            |            |                         |            |                         |
|                                                                                       | Cost of sales                                                              |                                                   | 1,428,059                            |            | 1,436,361  |                         | 4,109,947  |                         | 3,993,987  |
|                                                                                       | Selling, general, and administrative expenses                    |                                                   | 13,844                               |            | 12,491     |                         | 38,713     |                         | 33,726     |
|                                                                                       | Depreciation and amortization                                              |                                                   | 9,819                                |            | 8,249      |                         | 27,403     |                         | 24,066     |
|                                                                                       |                                                                                 | Total costs and expenses                |                                      | 1,451,722  |            | 1,457,101               |            | 4,176,063               |            | 4,051,779               |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
|                                                                                       |                                                                                 |                                                   | Operating income                     |            | 77,902     |                         | 22,575     |                         | 57,613     |                         | 14,241     |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
| Other income (expense):                                                          |                                                                                 |                                                   |                                      |            |            |                         |            |                         |
|                                                                                       | Interest income                                                                 |                                                   | 217                                  |            | 475        |                         | 1,159      |                         | 1,569      |
|                                                                                       | Interest expense                                                                |                                                   | (8,737)                                   |            | (10,632)        |                         | (27,147)        |                         | (29,788)        |
|                                                                                       | Minority owners' interest in net (income) loss of |                                                   |                                      |            |            |                         |            |                         |            |
|                                                                                       |                                                                                 | National Beef Packing Company, LLC |                                      | (33,265)        |            | (5,827)                      |            | (17,002)                     |            | 6,497                   |
|                                                                                       | Minority owners' interest in net (income) loss of |                                                   |                                      |            |            |                         |            |                         |            |
|                                                                                       |                                                                                 | Kansas City Steak Company, LLC     |                                      | (162)           |            | 90                      |            | (608)                        |            | (262)                        |
|                                                                                       | Equity in loss of aLF Ventures, LLC                    |                                                   | (26)                                      |            | (23)            |                         | (76)            |                         | (77)            |
|                                                                                       | Other, net                                                                      |                                                   |                                      | 4,331      |            | 935                     |            | 6,138                   |            | 1,606                   |
|                                                                                       |                                                                                 |                                                   | Income (loss) before taxes |            | 40,260     |                         | 7,593      |                         | 20,077     |                         | (6,214)         |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
| Income tax expense                                                               |                                                                                 | (978)                                                  |                                      | (558)           |            | (2,057)                      |            | (1,443)                      |
|                                                                                       |                                                                                 |                                                   | Net income (loss)               |            | $               | 39,282                  |            | $                            | 7,035      |                         | $               | 18,020                  |   | $               | (7,657) |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
| Net income (loss) per linked unit:                                |                                                                                 |                                                   |                                      |            |            |                         |            |                         |
|                                                                                       | Basic                                                                                |                                                   |                                      |            | $               | 53.42                   |            | $                            | 9.57       |                         | $               | 24.50                   |   | $               | (10.41) |
|                                                                                       | Diluted                                                                              |                                                   |                                      |            | $               | 52.64                   |            | $                            | 9.42       |                         | $               | 24.15                   |   | $               | (10.41) |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
| Outstanding weighted-average Class A and Class B units: |                                                                                 |                                                   |                                      |            |            |                         |            |
|                                                                                       | Basic                                                                                |                                                   |                                      |            | 735,385    |                         | 735,425    |                         | 735,385    |                         | 735,478    |
|                                                                                       | Diluted                                                                              |                                                   |                                      |            | 746,218    |                         | 746,946    |                         | 746,161    |                         | 735,478    |
|                                                                                       |                                                                                 |                                                   |                                      |            |            |                         |            |                         |            |                         |            |                         |
| See accompanying notes to consolidated financial statements. |                                                                                 |                                                   |                                      |            |            |                         |

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| ** **                                                                                   |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |         |         |                         |         |                         |   |   |
|----------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|------------------------------------------------------------|----------------------------------------------------------------------------------------|--------------|--------------|------------------------------|--------------|------------------------------|--------|--------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                         |
| **Consolidated Statements of Cash Flows**                                |
| (in thousands)                                                                          |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |         |         | **40 weeks ended** |         | **39 weeks ended** |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |         |         | **May 31, 2008**   |         | **May 26, 2007**   |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |         |         | **(unaudited)**              |         | **(unaudited)**              |
| Cash flows from operating activities:                                    |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Net income (loss)                                                                                                                                |                                                                                  | $                                                          | 18,020                                                                            |         | $            | (7,657)                      |
|                                                                                         | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |                                                                                  |                                                       |
|                                                                                         |                                                                                                                                                       | Depreciation and amortization                                               |                                                       | 27,403                                                                            |         | 24,066  |
|                                                                                         |                                                                                                                                                       | Gain on disposal of property, plant, and equipment |                                                       | (1)                                                                                    |         | (137)        |
|                                                                                         |                                                                                                                                                       | Gain on disposal of investment                                    |                                                       | (1,342)                                                                                |         | -       |
|                                                                                         |                                                                                                                                                       | Minority interest                                                                |                                                       | 17,419                                                                            |         | (6,373)      |
|                                                                                         |                                                                                                                                                       | Changes in assets and liabilities:                                |                                                       |                                                                                   |         |         |
|                                                                                         |                                                                                                                                                       |                                                                                  | Accounts receivable                                   |                                                                                   | (9,512)      |         | (17,999)                     |
|                                                                                         |                                                                                                                                                       |                                                                                  | Due from affiliates                              |                                                                                   | (132)        |         | (523)                        |
|                                                                                         |                                                                                                                                                       |                                                                                  | Other receivables                                     |                                                                                   | 2,248   |         | (2,901)                      |
|                                                                                         |                                                                                                                                                       |                                                                                  | Inventories                                                |                                                                                   | (20,811)     |         | (30,698)                     |
|                                                                                         |                                                                                                                                                       |                                                                                  | Other assets                                          |                                                                                   | (5,759)      |         | 10,688                  |
|                                                                                         |                                                                                                                                                       |                                                                                  | Cattle purchases payable                         |                                                                                   | 9,216   |         | 1,853                   |
|                                                                                         |                                                                                                                                                       |                                                                                  | Accounts payable                                      |                                                                                   | 9,250   |         | (1,620)                      |
|                                                                                         |                                                                                                                                                       |                                                                                  | Due to affiliates                                |                                                                                   | (762)        |         | (480)                        |
|                                                                                         |                                                                                                                                                       |                                                                                  | Accrued compensation and benefits           |                                                                                   | 10,138  |         | (12,220)                     |
|                                                                                         |                                                                                                                                                       |                                                                                  | Accrued insurance                                     |                                                                                   | (1,696)      |         | (4,907)                      |
|                                                                                         |                                                                                                                                                       |                                                                                  | Other accrued expenses and liabilities |                                                                                   | 5,238   |         | 2,335                   |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       | Net cash provided by (used in) operating activities |         | 58,917  |                         | (46,573)     |
| Cash flows from investing activities:                                    |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Capital expenditures, including interest capitalized                                                                                   |                                                                                  | (40,058)                                                   |                                                                                   | (31,003)     |
|                                                                                         | Acquisition of business, final purchase price adjustment                                                                     |                                                                                  | -                                                     |                                                                                   | 1,248   |
|                                                                                         | Proceeds from sale of property, plant, and equipment                                                                    |                                                                                  | 175                                                   |                                                                                   | 381     |
|                                                                                         | Proceeds from redemption of investment                                                                                                 |                                                                                  | 1,342                                                 |                                                                                   | -       |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       | Net cash used in investing activities                         |         | (38,541)     |                         | (29,374)     |
| Cash flows from financing activities:                                    |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Net (payments) receipts under revolving credit lines                                                                         |                                                                                  | (22,368)                                                   |                                                                                   | 42,854  |
|                                                                                         | Borrowings of term note payable                                                                                                        |                                                                                  | -                                                     |                                                                                   | 40,000  |
|                                                                                         | Payments of notes payable and fees                                                                                                |                                                                                  | (772)                                                      |                                                                                   | (8,157)      |
|                                                                                         | Repayments of other indebtedness / capital leases                                                                            |                                                                                  | (2,862)                                                    |                                                                                   | (1,963)      |
|                                                                                         | Change in overdraft balances                                                                                                                |                                                                                  | 7,910                                                 |                                                                                   | 12,881  |
|                                                                                         | Distributions to minority interest owners in National Beef Packing Company, LLC                          |                                                                                  | (3,692)                                                    |                                                                                   | (5,862)      |
|                                                                                         | Member distributions                                                                                                                                  |                                                                                  | -                                                     |                                                                                   | (1,755)      |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       | Net cash (used in) provided by financing activities |         | (21,784)     |                         | 77,998  |
| Effect of exchange rate changes on cash                        |                                                                                                                                                       | (23)                                                                                  |                                                       | 9                                                                                 |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       | Net (decrease) increase in cash                                    |         | (1,431)      |                         | 2,060   |
| Cash and cash equivalents at beginning of the period |                                                                                                                                                       | 62,869                                                                           |                                                       | 58,434                                                                            |
| Cash and cash equivalents at end of the period       |                                                                                                                                                       | $                                                                                     | 61,438                                                |                                                                                   | $            | 60,494  |
| Supplemental cash disclosures:                                                     |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |
|                                                                                         | Cash paid during the period for interest                                                                                     |                                                                                  | $                                                          | 23,561                                                                            |         | $            | 25,419                  |
|                                                                                         | Cash paid during the period for taxes, net of refunds                                                         |                                                                                  | $                                                          | 1,082                                                                             |         | $            | 756                     |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |         |         |                         |         |                         |
|                                                                                         |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |         |         |                         |         |                         |
| See accompanying notes to consolidated financial statements.   |                                                                                                                                                       |                                                                                  |                                                       |                                                                                   |

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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

** **

**(1)Interim Financial Statements**

**Basisof Presentation**

The accompanying unaudited Consolidated FinancialStatements have been prepared in accordance with U.S. generally acceptedaccounting principles (GAAP) for interim financial information; therefore, theydo not include all of the information and footnotes required by GAAP forcomplete financial statements. In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been included usingmanagement’s best estimates and judgments where appropriate.  These estimatesand judgments affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements.  The estimates and judgments will also affect the reported amountsfor certain revenues and expenses during the reporting period.  Actual resultscould differ materially from these estimates and judgments.  For furtherinformation, refer to the audited Consolidated Financial Statements and Notesto Consolidated Financial Statements, which are included in the Company’s AnnualReport on Form 10-K on file with the Securities and Exchange Commission (SEC)for the fiscal year ended August 25, 2007.  The results of operations for theinterim periods presented are not necessarily indicative of the results for afull fiscal year.  

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

The Company’s fiscal year ends on the last Saturday inAugust.  For financial reporting purposes, fiscal year 2008 will consist of 53weeks, whereas fiscal year 2007 consisted of 52 weeks.  The additional week isincluded in the third quarter of fiscal year 2008.  As a result, the quarterlyand nine-month periods ended May 31, 2008 consisted of fourteen and fortyweeks, respectively, as compared to the quarterly and nine-month periods ended May 26, 2007, which consisted of thirteen weeks and thirty-nine weeks, respectively.

**(2)New Accounting Pronouncements**

In September 2006, the FASB issued Statement ofFinancial Accounting Standard No. 157, *Fair Value Measurements*(SFAS157).  This statement establishes a single authoritative definition of fair value,sets out a framework for measuring fair value, and requires additionaldisclosures about fair value measurements.  SFAS 157 will apply to fiscal yearsbeginning after November 15, 2007, and interim periods within those fiscalyears.  In February 2008, however, the FASB issued FASB Staff Position 157-2(FSP 157-2) which defers the effective date of SFAS 157 for nonfinancial assetsand nonfinancial liabilities, except for items that are recognized or disclosedat fair value in an entity’s financial statements on a recurring basis (atleast annually).  FSP 157-2 will apply to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  The Company is currently evaluating the impact SFAS157 may have, if any, on its Consolidated Financial Statements.

In February 2007, the FASB issued Statement ofFinancial Accounting Standard No. 159, *The Fair Value Option for FinancialAssets and Financial Liabilities*(SFAS 159).  This statement providescompanies with an option to report selected financial assets and liabilities atfair value.  SFAS 159 will apply to fiscal years beginning after November 15, 2007.  The Company is currently evaluating the impact SFAS 159 may have, ifany, on its Consolidated Financial Statements.

 

 

 

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In December 2007, the FASB issued Statement ofFinancial Accounting Standard No. 160,*Noncontrolling Interests inConsolidated Financial Statements**—an amendmentof ARB No. 51* (SFAS 160).  SFAS 160establishes accounting and reporting standards for the noncontrolling interest(minority interest) in a subsidiary.  SFAS 160 requires noncontrollinginterests held by parties other than the parent in subsidiaries be clearlyidentified, labeled, and presented in the consolidated balance sheet withinequity, but separate from the parent's equity.   SFAS 160 iseffective for fiscal years beginning after December 15, 2008.  The Company is currently assessing the impact of SFAS 160 on its ConsolidatedFinancial Statements.

In December 2007, the FASB issued Statement ofFinancial Accounting Standard No. 141R, *Business Combinations*(SFAS141R)*. *This statement requires an acquirer to recognize the assetsacquired, the liabilities assumed, and any noncontrolling interest in theacquiree at the acquisition date to be measured at their fair value as of thatdate.  An acquirer is required to recognize assets or liabilities arising fromall other contingencies (contractual contingencies) as of the acquisition date,measured at their acquisition-date fair values, only if it is more likely thannot that they meet the definition of an asset or a liability in FASB ConceptsStatement No. 6, *Elements of Financial Statements.*  Any acquisition-relatedcosts are to be expensed instead of capitalized.  This statement appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15, 2008.  The impact to the Company from the adoption of SFAS 141R in fiscalyear 2010 will depend on acquisitions at the time. 

In March 2008, the FASB issued Statement of FinancialAccounting Standard No. 161, *Disclosures about Derivative Instruments andHedging Activities - an amendment of FASB Statement No. 133*(SFAS 161). SFAS 161 establishes enhanced disclosure requirements about: 1) how and why anentity uses derivative instruments; 2) how derivative instruments and relatedhedged items are accounted for under Statement 133 and its relatedinterpretations; and 3) how derivative instruments and related hedged itemsaffect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years andinterim periods beginning after November 15, 2008.  The Company is currently assessing the impact SFAS 161 will have on its Consolidated FinancialStatements.

**(3)Inventories**

Inventories at May 31, 2008 and August 25, 2007 consisted of the following (in thousands):

| ** **                                          |                   |         |          |                       |   |                          |          |   |
|-----------------------------------------------------|------------------------|--------------|---------------|----------------------------|--------|-------------------------------|---------------|--------|
|                                                |                   |         |          | **May 31, 2008** |   | **August 25, 2007** |
|                                                |                   |         |          |                       |   |                          |
| Dressed and boxed meat products |                   | $            | 153,611  |                       | $      | 144,766                  |
| Beef by-products                               |                   | 27,911  |          | 19,540                |
| Supplies                                            |                   | 16,533  |          | 12,938                |
|                                                | Total inventories |         | $             | 198,055               |   | $                             | 177,244  |
|                                                |                   |         |          |                       |   |                          |

** **

**(4)Comprehensive Income (Loss)**

Comprehensive income (loss), which consists of netincome (loss) and foreign currency translation adjustments, was as follows forthe periods indicated (in thousands): 

|                                                                             |                                  |   |         |         |   |                                                |        |                                                |         |                                                |   |                                                |    |   |   |   |
|----------------------------------------------------------------------------------|---------------------------------------|--------|--------------|--------------|--------|-----------------------------------------------------|-------------|-----------------------------------------------------|--------------|-----------------------------------------------------|--------|-----------------------------------------------------|---------|--------|--------|--------|
|                                                                             |                                  |   |         |         |   | **14 weeks ended	May 31, 2008** |        | **13 weeks ended	May 26, 2007** |         | **40 weeks ended	May 31, 2008** |   | **39 weeks ended	May 26, 2007** |
| Net income (loss)                                                      |                                  | $      | 39,282  |         | $      | 7,035                                          |        | $                                                   | 18,020  |                                                | $      | (7,657)                                             |
| Other comprehensive (loss) income:                                |                                  |   |         |         |   |                                                |        |                                                |
|      Foreign currency translation adjustments | (26)                                  |   | 2       |         | (23)   |                                                | 9      |
|                                                                             | Comprehensive income (loss) |   | $            | 39,256  |   | $                                                   | 7,037  |                                                | $            | 17,997                                         |   | $                                                   | (7,648) |
|                                                                             |                                  |   |         |         |   |                                                |        |                                                |         |                                                |   |                                                |

** **

**(5)Minority Interest **

 

At any time after certain dates, the earliest beingJuly 31, 2008, the latest being July 31, 2011, certain members of NBP managementand/or NBPCo Holdings, LLC have the right to request that NBP repurchase theirinterests, the value of which is to be determined by a mutually agreedappraisal process. If NBP is unable to effect the repurchase within a specifiedtime, the requesting member(s) have the right to cause a sale process tocommence.  The Company accounts for changes in the redemption value of theseinterests by accreting the change in value over the current period through theearliest redemption date of the respective interests.  At May 31, 2008, the minority interest in National Beef was revalued by an independent appraisal process,and the value was determined to be $194.8 million, which was in excess of itscarrying value.  Accordingly, the carrying value of the minority interest inNational Beef increased by approximately $29.1 million through accretion duringthe fourteen weeks ended May 31, 2008, resulting in a carrying value of $133.3 million,which is included in the accompanying Consolidated Balance Sheet as of May 31, 2008.

 

 

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The redemption value of the minority interest in NBPat May 31, 2008, increased by approximately $122.7 million compared to thevalue at August 25, 2007 primarily as a result of the Membership InterestPurchase Agreement (the Agreement) that was entered into on February 29, 2008 with JBS S.A. (JBS).  Under the Agreement, JBS will acquire all of theoutstanding membership interests in NBP for an aggregate value of $560.0million.  Generally accepted accounting principles require that the fair valueof the Company’s minority interests in NBP that are redeemable be determined atthe end of each reporting period.  This change in fair value is accreted overthe redemption period as discussed above.  The value arrived at through theindependent appraisal process considers certain estimates of managementregarding future performance as well as an estimated probability of theAgreement reaching a successful conclusion.  Offsetting the change in the redemptionvalue of the minority interest is a corresponding change in members’ capital.  

**(6)Income Taxes**

On August 26, 2007, the Company adopted FASB Interpretation No. 48 (FIN 48),*Accounting for Uncertainty in Income Taxes*.  FIN 48 provides guidance on the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  FIN 48 also provides guidance on derecognition, classifications,interest and penalties, accounting in interim periods, disclosures andtransition.  As a result of the adoption,tax reserves in the amount of approximately $0.5 million were reversed duringthe first quarter of fiscal year 2008. 

Priorto the adoption of FIN 48, the Company did not recognize accrued interest orpenalties on uncertain tax positions.  Shouldthe Company be required to accrue interest and penalties in the future, it willlikely record the interest accrual to interest expense and record the penaltiesaccrual to selling, general and administrative expense.  As of August 26, 2007, the Company did not have anyamounts recorded for accrued interest and penalties on uncertain taxpositions.   

The Company’s subsidiary, National Carriers, Inc.(NCI), has concluded an examination of its U.S. federal incometaxes for fiscal year 2005.  Based on federal income tax statute oflimitations, NCI remains subject to examination of its income taxes for fiscalyears 2006 and 2007. USPB does not currentlyhave any ongoing income tax examinations with the Internal Revenue Service orother tax authorities. 

**(7)Legal Proceedings**

*Schumacher v. Tyson Foods, et al.* On July 1, 2002, a lawsuit was filed against FarmlandNational Beef Packing Company, L.P. (FNBPC or the predecessor to NBP), ConAgraBeef Company, Tyson Foods, Inc. and Excel Corporation in the United StatesDistrict Court for the District of South Dakota seeking certification of aclass of all persons who sold cattle to the defendants for cash, or on a basisaffected by the cash price for cattle, during the period from April 2, 2001through May 11, 2001 and for some period up to two weeks thereafter. The casewas filed by three named plaintiffs on behalf of a putative nationwide classthat plaintiffs estimate is comprised of hundreds or thousands of members. Thecomplaint alleged that the defendants, in violation of the Packers andStockyards Act of 1921, knowingly used, without correction or disclosure,incorrect and misleading boxed beef price information generated by the USDA topurchase cattle offered for sale by the plaintiffs at a price substantiallylower than was justified by the actual and correct price of boxed beef duringthis period. Plaintiffs also sought recovery against all defendants under atheory of unjust enrichment. The case was certified as a class-action matter inJune of 2004.  After a trial, at which the Company prevailed, a judgmentagainst the other defendants was reversed by the United States Court of Appealsfor the Eighth Circuit and the District Court has entered judgment for thedefendants.  The only remaining issue in the case is the amount of court coststo be assessed against the plaintiffs.  

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The Company’s wholly owned subsidiary, NCI,has various independent contractor drivers who are involved in accidents fromtime to time.  Management believes the ultimate resolution of such mattersshould not have a material adverse effect on the Company’s financial condition,results of operations, or liquidity.

The Company is also a party to a numberof other lawsuits and claims arising out of the operation of its business.  Managementbelieves the ultimate resolution of such matters should not have a materialadverse effect on the Company’s financial condition, results of operations, orliquidity.

During the fourteen week period ending May 31, 2008, NBP received approximately $3.4 million in income for a settlement of alawsuit related to corrugated packaging materials.  The settlement is includedin Other, net on the Consolidated Statements of Operations.

**(8)Earnings Per Unit**

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

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

The diluted loss per linked unit calculation in thefollowing table excludes the effect of the 20,000 unit purchase rights notedabove for thirty-nine week period ending May 26, 2007, as the effect ofincluding them would have been anti-dilutive to the loss per linked unitcalculation. 

| * *                                                                         |   |                                                     |         |                                                     |   |                                                     |   |                                                     |         |   |   |    |
|----------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------------|----------------------------------------------------------|--------|----------------------------------------------------------|--------|----------------------------------------------------------|--------------|--------|--------|---------|
| **Income (Loss) Per Linked Unit Calculation**           |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
|                                                                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| (In thousands, except unit and per unit data) |   | **14 weeks ended**

**May 31, 2008** |         | **13 weeks ended**

**May 26, 2007** |   | **40 weeks ended**

**May 31, 2008** |   | **39 weeks ended**

**May 26, 2007** |
|                                                                             |   | (unaudited)                                              |         | (unaudited)                                              |   | (unaudited)                                              |   | (unaudited)                                              |
| **Basic income (loss) per unit**                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| Income (loss) available to unitholders (numerator)      |   | $                                                        | 39,282  |                                                     | $      | 7,035                                               |   | $                                                        | 18,020  |   | $      | (7,657) |
|                                                                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| Weighted average outstanding units (denominator)             |   | 735,385                                             |         | 735,425                                             |   | 735,385                                             |   | 735,478                                             |
|                                                                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| Per unit amount                                                        |   | $                                                        | 53.42   |                                                     | $      | 9.57                                                |   | $                                                        | 24.50   |   | $      | (10.41) |
|                                                                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| **Diluted income (loss) per unit**                           |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| Income (loss) available to unitholders (numerator)      |   | $                                                        | 39,282  |                                                     | $      | 7,035                                               |   | $                                                        | 18,020  |   | $      | (7,657) |
|                                                                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| Weighted average outstanding units                                |   | 735,385                                             |         | 735,425                                             |   | 735,385                                             |   | 735,478                                             |
| Effect of dilutive securities - unit options       |   | 10,833                                              |         | 11,521                                              |   | 10,776                                              |   | -                                                   |
| Units (demoninator)                                                         |   | 746,218                                             |         | 746,946                                             |   | 746,161                                             |   | 735,478                                             |
|                                                                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |
| Per unit amount                                                        |   | $                                                        | 52.64   |                                                     | $      | 9.42                                                |   | $                                                        | 24.15   |   | $      | (10.41) |
|                                                                             |   |                                                     |         |                                                     |   |                                                     |   |                                                     |

** **

**(9)Subsequent Event**

On June 27, 2008, NBP amended its existing amended andrestated credit agreement with a consortium of banks.  The credit agreement wasamended by increasing the amount of permitted net capital expenditures (asdefined in the credit agreement) for fiscal year 2008 from $50.0 million to$60.0 million.

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

The following discussion shouldbe read in conjunction with our Consolidated Financial Statements and relatednotes and other financial information appearing elsewhere in this report.

**DisclosureRegarding Forward-Looking Statements**

This report contains“forward-looking statements,” which are subject to a number of risks anduncertainties, many of which are beyond our control. Forward-looking statementsare typically identified by the words “believe,” “expect,” “anticipate,”“intend,” “estimate” and similar expressions. Actual results could differmaterially from those contemplated by these forward-looking statements as aresult of many factors, including the satisfaction of all conditions to closethe transaction with JBS S.A.  (JBS) described below under *RecentDevelopments*, 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 BovineSpongiform Encephalopathy (BSE), competitive practices and consolidation in thecattle production and processing industries, actions of domestic or foreigngovernments, hedging risk, changes in interest rates and foreign currencyexchange rates, consumer demand and preferences, the cost of compliance withenvironmental and health laws, loss of key customers, loss of key employees, laborrelations, consolidation among our customers and the potential inability toreceive the anticipated benefits from the acquisition of the processingfacility in Brawley, CA.  

In light of these risks anduncertainties, there can be no assurance that the results and eventscontemplated by the forward-looking information contained in this report willin fact transpire. Readers are cautioned not to place undue reliance on theseforward-looking statements. We do not undertake any obligation to update orrevise any forward-looking statements. All subsequent written or oral forward-lookingstatements attributable to us or persons acting on our behalf are expresslyqualified in their entirety by these factors.  See also the *Risk Factors*in *Item 1A. Business* of the Company’s Annual Report for the yearended August 25, 2007 on Form 10-K and the *Risk Factors* section of theProxy Statement, which were filed with the Securities and Exchange Commission onNovember 14, 2007 and March 4, 2008, respectively, for other important factorsthat could cause actual results to differ materially from those in any suchforward-looking statements, and which should be read in conjunction with thisreport.

**Industry Outlook**

Continuedrising input costs at the cow-calf sector have resulted in further industrycontraction.  Liquidation of the beef cow herd in the United States (U.S.)remained active during the first six months of calendar year 2008 and willresult in a smaller U.S. beef herd going forward.  The new placement of cattleinto feed lots has slowed as producers look to minimize feed costs given the sharpincrease in grain prices.  With seasonal grass availability, steers and heiferswill likely remain on pasture longer into the summer quarter, which could resultin larger placements of heavier cattle in the late summer and early fall. Currently, deferred live cattle futures are pricing record high live cattle andbeef prices now and into the foreseeable future.  It remains unknown whetherthe beef industry will be able to pass these record high live cattle and beefprices through to the consumer given the current weak status of the U.S. economy and consumers’ available disposable income.

**Beef Export Markets**

Exportmarkets for U.S. beef products remain significantly constrained since thediscovery of a case of BSE in the State of Washington in December 2003, as wellas other isolated cases.  In July 2006, Japan agreed to reopen its market to U.S. beef from cattle aged 20 months and younger.  NBP’s Brawley facility was suspendedfrom shipping beef to Japan in April 2008 following the discovery of a shortloin, which included a portion of a spinal column, a specified risk material,prohibited by Japan.  We have supplied information, per their request, to theUnited States Department of Agriculture related to this shipment and we believethat the suspension will be lifted by the end of August, 2008, although therecan be no assurance that the ban will be lifted by then.  South Korea announced a provisional opening of its border to U.S. beef from animals 30months and younger in September 2006; however, its border was subsequentlyclosed on October 5, 2007.  South Korea re-opened its border and startedinspecting U.S. beef on June 27, 2008.  These constraints and uncertaintieshave had a negative impact on beef margins. 

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Wecannot presently assess the full economic impact of the consequences of BSE onthe U.S. beef packing industry or on its operations.  Existing or newimport restrictions or additional regulatory restrictions or disruptions indomestic consumer demand for beef may continue to have a material adverseaffect on our revenues and net income.

**Recent Developments**

*Collective Bargaining Agreement: *The collective bargaining agreement with the UnitedFood and Commercial Workers International Union and the Teamsters InternationalUnion for the Brawley, California facility that expired on May 31, 2008 was mutually extended by all partieswhile negotiations continue.  On June 27, 2008, a tentative agreement in principal was reached, subject to the preparationof an agreement in writing and ratification by the members at a date to bedetermined in July 2008.      

*ProductionCutbacks*:  On May 28, 2008, NBP announced production cutbacks from six to five production days a week at its beefprocessing facilities in Liberal and Dodge City, Kansas and in Brawley, California.  Production cuts began that week and have reduced slaughter byapproximately 15,000 head per week.  Management’s decision to regulateproduction hours is driven by market conditions.

*Membership Interest Purchase Agreement with JBS:*On February 29, 2008, JBS, NBP, USPB and the other holders of membership interests in NBP, including NBPCO Holdings, LLC and parties controlled by three executive officers, John R. Miller, Timothy M. Klein and Scott H. Smith, entered into a Membership Interest Purchase Agreement (the Agreement). Under the Agreement, JBS will acquire all of the outstanding membership interests in NBP (including the membership interests issuable pursuant to deferred equity incentive compensation agreements with NBP’s Chief Executive Officer and Chief Operating Officer) for a combination of approximately $465.0 million cash and $95.0 million in common stock of JBS (the Purchase Price).

Pursuant to the Agreement, at closing USPB and certain other members of NBP will receive their proportionate share of the Purchase Price with 80.0% to be paid in cash and 20.0% to be paid in shares of common stock of JBS (the JBS Stock), which will be freely transferable on the Novo Mercado segment of the BOVESPA stock exchange in Brazil. The number of shares of JBS Stock will be determined based on the volume weighted average of the closing per share price of the JBS Stock on the BOVESPA stock exchange during the 20 trading days prior to closing, subject to certain adjustments. Certain of NBP’s members have elected to receive or, under certain circumstances, have the right to receive their portion of the Purchase Price entirely in cash. If JBS is unable to deliver JBS Stock on an unencumbered and freely transferable basis at closing, the sellers entitled to receive the JBS Stock may still demand to close, but be paid their proportionate share of the Purchase Price entirely in cash.

Consummation of the Agreement is subject to customary conditions, including approval of the Agreement by the members of USPB and the shareholders of JBS and the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and possible approvals by certain foreign jurisdictions.  On March 14, 2008, at a Special Meeting of Members, USPB’s members approved the Agreement and the transactions contemplated under the Agreement.  The shareholders of JBS approved the Agreement on April 11, 2008.

The Agreement contains certain termination rights andprovides that under certain circumstances, JBS or NBP may be required to payNBP or JBS, respectively, a termination fee of $25 million plus certain costs. The parties have agreed on the payment of certain fees and expenses, includingthose related to antitrust filings and compliance.

**Resultsof Operations**

***Fourteen weeks ended May 31, 2008 compared to thirteen weeks ended May 26, 2007***

 

*General.* Net income for the fourteen weeks ended May 31, 2008 was $39.3 million compared to a net income of $7.0 million for the thirteen weeks ended May 26, 2007, an increase of $32.3 million.  Net sales were higher in the fourteen weeks ended May 31, 2008 compared to those of the prior period primarily due to the extra week in thecurrent reporting period as compared to last year.  While the average volume ofcattle processed per week fell by approximately 7.0%, average sales prices perhead increased approximately 3.4% during this reporting period.  Improveddemand of beef products during this quarter allowed the increase in salesprices to cover the continued high cost of live cattle that we processed ascompared to the same quarter of last year.

 

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Total costs and expenses of approximately $1,451.7million for the fourteen weeks ended May 31, 2008 were 94.9% as a percent of sales compared to approximately $1,457.1 million for the thirteen weeks ended May 26, 2007, or 98.5% as a percent of sales.  Lower live cattle prices by approximately5.8% put less strain on gross margin resulting in increased operating income ofapproximately $55.3 million for this fourteen week period of fiscal year 2008as compared to the thirteen week period of fiscal year 2007.   

*Net Sales*. Net sales were approximately $1,529.6 million for the fourteen weeks ended May 31, 2008 compared to approximately $1,479.7 million for the thirteen weeks ended May 26, 2007, an increase of approximately $49.9 million, or 3.4%.  The increase in netsales resulted primarily from an extra week of sales activity as compared tothe same period of last year.  Also contributing to the increase in sales wasan increase in average sales prices per head of about 3.4% during the currentfourteen week period of fiscal year 2008 as compared to the thirteen weekperiod of fiscal year 2007 while the average volume of cattle process per weekfell by approximately 7.0%. 

*Cost of Sales*. Cost of sales was approximately $1,428.1 million for the fourteen weeks ended May 31, 2008 compared to approximately $1,436.4 million for the thirteen weeks ended May 26, 2007, a decrease of approximately $8.3 million, or 0.6%.  The decrease resultedprimarily from an approximate 5.8% decrease in live cattle prices.  Althoughcattle prices declined in comparison of the current quarter to the same quarterof last year, cattle prices remain historically high due to tight supplies ofmarket-ready cattle.   Also contributing to this decrease was an approximate7.0% decrease in the number of live cattle purchased on a per week basis due tothe current reporting period reflecting an additional week compared to the sameperiod of last year.  Partially offsetting these decreases was an increase  inthe average cattle weights by approximately 2.1% during this fourteen weekperiod of fiscal year 2008 as compared to the thirteen week period of fiscalyear 2007.

*Selling, General and Administrative Expenses*.  Selling, general and administrative expenses wereapproximately $13.8 million for the fourteen weeks ended May 31, 2008 compared to approximately $12.5 million for the thirteen weeks ended May 26, 2007, an increase of approximately $1.3 million, or 10.4%.  While comparing the currentquarter of fiscal year 2008 to the comparable quarter of fiscal year 2007, payroll,bonus and related expenses increased by approximately $1.3 million, marketingexpense increased by approximately $0.5 million, and legal expenses increasedby approximately $0.1 million, while repairs and maintenance decreased by anapproximate $0.2 million. The increase in selling, general, and administrativeexpenses primarily reflects an extra week of expense in the current reportingperiod as compared to the same period of last year.   

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses wereapproximately $9.8 million for the fourteen weeks ended May 31, 2008 compared to approximately $8.2 million for the thirteen weeks ended May 26, 2007, an increase of approximately $1.6 million, or 19.5%.  Depreciation expense increased dueto assets being placed into service, primarily at the Dodge City and Liberalbeef plants, during fiscal year 2007 and to assets being placed into service atour Case Ready plants during the current quarter.  In addition, the currentreporting period reflects an extra week of expense as compared to the sameperiod of last year.

*Operating Income*.  Operating income was approximately $77.9 million for the fourteenweeks ended May 31, 2008 compared to approximately $22.6 million for thethirteen weeks ended May 26, 2007, an increase of approximately $55.3 million. The improved operating income resulted primarily from lower live cattle pricesduring the fourteen week period ended May 31, 2008, as compared to the thirteen week period ended May 26, 2007, and increased average selling prices of beefproducts.  In addition, the current reporting period reflects an extra week ofoperating income as compared to the same period of last year.

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*Interest Expense*.  Interest expense was approximately $8.7 million for the fourteenweeks ended May 31, 2008 compared to approximately $10.6 million for thethirteen weeks ended May 26, 2007, a decrease of approximately $1.9 million, or17.9%.  The decrease in interest expense was due primarily to lower interestrates on our variable rate debt, a decrease of approximately 345 basis points. In addition, our weighted average of variable rate debt decreased approximately$17.6 million at May 31, 2008 as compared to May 26, 2007.  Partially offsetting these decreases was an extra week of interest expense in the currentreporting period as compared to the same period of last year.

*Minority Owners’ Interest in Net Income of National BeefPacking Company, LLC*.  Minorityowners interest in the net income of NBP was $33.3 million for the fourteenweeks ended May 31, 2008 compared to $5.8 million for the thirteen weeks ended May 26, 2007, an increase of $27.5 million.  The increase in minority owners’ interest inthe net income of NBP was due to increased net income at NBP.

*Other, net. *Other,net non-operating income was approximately $4.3 million for the fourteen weeksended May 31, 2008 compared to approximately $0.9 million for the thirteenweeks ended May 26, 2007, an increase of approximately $3.4 million.  Theincrease in other, net non-operating income was primarily related to anapproximate $3.4 million in income for a settlement of a lawsuit related tocorrugated packaging materials.  

*Income Tax Expense*.  Income tax expense was approximately $1.0 million for the fourteenweeks ended May 31, 2008 compared to income tax expense of approximately $0.6 millionfor the thirteen weeks ended May 26, 2007, an increase in expense of approximately$0.4 million.  Beginning in calendar year 2008, some states in which we conductbusiness, modified their business taxes, using net income, or a modification ofnet income, as the basis.  The modification of these state taxes necessitatedthe inclusion of approximately $0.3 million of these business taxes in incometax expense during the current reporting period as compared to the same periodof last year.  The remaining increase in income taxes for the period ofapproximately $0.2 million is related to our subsidiary, National Carriers,Inc. (NCI).  Income tax expense is recorded on income from NCI, which isorganized as a C Corporation.

***Forty weeks ended May 31, 2008 compared to thirty-nine weeks ended May 26, 2007***

*General.* Net income for the forty weeks ended May 31, 2008 was approximately $18.0 million compared to a net loss of approximately $7.7 million for the thirty-nineweeks ended May 27, 2006, an increase of approximately $25.7 million.  Saleswere higher in the forty week period ended May 31, 2008 compared to the thirty-nine week period ended May 26, 2007 primarily due to increased averagesales prices per head of approximately 4.1%.  Also contributing to thisincrease in sales was an extra week during the current reporting period ascompared to the same period of last year.  Partially offsetting these increasesin sales was a slight decline in the number of cattle processed, about 0.8%,during the forty weeks of fiscal year 2008 as compared to the thirty-nine weeksof fiscal year 2007.  An overall improved demand for beef products drove anincrease in our operating income for this reporting period.

Total costs and expenses of approximately $4,176.1million for the forty weeks ended May 31, 2008 were 98.6% as a percent of sales compared to approximately $4,051.8 million for the thirty-nine weeks ended May 26, 2007, or 99.7% as a percent of sales.  Continued high cattle prices, about 1.0%higher in the current reporting period as compared to last year, and increaseddepreciation and amortization expense contributed to the increase in totalcosts and expenses for this forty week period of fiscal year 2008 as comparedto the thirty-nine week period of fiscal year 2007 as well as increaseddepreciation and amortization expense.

*Net Sales*. Net sales were approximately $4,233.7 million for the forty weeks ended May 31, 2008 compared to approximately $4,066.0 million for the thirty-nine weeks ended May 26, 2007, an increase of approximately $167.7 million, or 4.1%.  The moderate increasein net sales resulted primarily from an average increase in beef sales pricesper head of 4.1% in the forty week period ended May 31, 2008 as compared to the thirty-nine week period in the prior year while the volume of cattle processedper week decreased by approximately 3.3%.  In addition, the current reportingperiod reflects an extra week of sales activity as compared to the same periodof last year.  Partially offsetting these increases in net sales was anapproximate 0.8% decrease in the volume of cattle processed during the currentforty-week period of fiscal year 2008 as compared to the thirty-nine weekperiod of fiscal year 2007. 

*Cost of Sales*. Cost of sales was approximately $4,109.9 million for the forty weeks ended May 31, 2008 compared to approximately $3,994.0 million for the thirty-nine weeks ended May 26, 2007, an increase of approximately $115.9 million, or 2.9%.  The increase wasprimarily a result of an extra week of costs in the current reporting period ascompared to the same period of last year.  Also contributing to the increase incost of sales was increased live cattle prices that were approximately 1.0%higher due to the continued tight supply of market-ready cattle and to thecattle being heavier, at average weights 1.1% more, during the forty weekperiod of fiscal year 2008 than the thirty-nine week period of last year. Partially offsetting these increases was a decrease in the volume of cattleprocessed by approximately 0.8% during the forty week period of fiscal year2008 as compared to the thirty-nine week period of fiscal year 2007 

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*Selling, General, and Administrative Expenses*.  Selling, general and administrative expenses were approximately$38.7 million for the forty weeks ended May 31, 2008 compared to approximately $33.7 million for the thirty-nine weeks ended May 26, 2007, an increase of approximately $5.0 million, or 14.8%.  The increase for this period is primarilydue to an increase in payroll, option, bonus and benefit expenses ofapproximately $2.7 million and an increase in marketing expense ofapproximately $0.8 million.  The current reporting period reflects an extraweek of expense as compared to the same period of last year, which contributedto the increases in the payroll and benefit and marketing expenses discussedabove as well as the selling, general, and administrative expenses in general.

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses were approximately$27.4 million for the forty weeks ended May 31, 2008 compared to approximately $24.1 million for the thirty-nine weeks ended May 26, 2007, an increase of approximately $3.3 million, or 13.7%.  Depreciation expense increased due toassets being placed into service, primarily at the Dodge City and Brawley beefplants, during the fiscal year 2007 and to assets being placed into service atthe Case Ready plants during the third quarter of fiscal year 2008.  Inaddition, the current reporting period reflects an extra week of expense ascompared to the same period of last year.

*Operating Income*.  Operating income was approximately $57.6 million for the forty weeksended May 31, 2008 compared to approximately $14.2 million for the thirty-nineweeks ended May 26, 2007, an increase of approximately $43.4 million.  The improvementin operating income during the forty week period ended May 31, 2008 resulted primarily from increased demand and selling prices of beef products ascompared to the thirty-nine week period ended May 26, 2007.

*Interest Expense*.  Interest expense was approximately $27.1 million for the forty weeksended May 31, 2008 compared to approximately $29.8 million for the thirty-nineweeks ended May 26, 2007, a decrease of approximately $2.7 million, or 9.1%.  Thedecrease in interest expense during the forty week period of fiscal year 2008 ascompared to the thirty-nine week period of fiscal year 2007 was due primarilyto lower interest rates on our variable rate debt, a decrease of approximately 213basis points.  Offsetting this decrease in interest rates was an increase inthe weighted average of variable rate debt of approximately $16.0 million at May 31, 2008 as compared to May 26, 2007.  Also contributing to the offset, was an extraweek of interest expense in the current reporting period as compared to thesame period of last year.

*Minority Owners’ Interest in Net Income (Loss) ofNational Beef Packing Company, LLC*.  Minorityowners interest in the net income of NBP was $17.0 million for the forty weeksended May 31, 2008 compared to the minority owners interest in the net loss ofNBP of $6.5 million for the thirty-nine weeks ended May 26, 2007, an increase of $23.5 million.  The change in minority owners’ interest in the net income(loss) of NBP was due to increased net income at NBP.

*Other, net.* Other, net non-operating income was approximately $6.1 million for the fortyweeks ended May 31, 2008 compared to other, net non-operating income of approximately$1.6 million for the thirty-nine weeks ended May 26, 2007, an increase of approximately$4.5 million.  The forty weeks ended May 31, 2008 included approximately $3.4million in income for a settlement of a lawsuit related to corrugated packagingmaterials and about $1.3 million in income related to proceeds received inredemption of an investment interest in which our basis had previously beenwritten down to zero.  

*Income Tax Expense*.  Income tax expense was approximately $2.1 million for the fortyweeks ended May 31, 2008 compared to approximately $1.4 million for thethirty-nine weeks ended May 26, 2007, an increase of approximately $0.7million, or 50.0%.  Beginning in calendar year 2008, some states in which weconduct business, modified their business taxes, using net income, or amodification of net income, as the basis.  The modification of these statetaxes necessitated the inclusion of approximately $0.4 million of thesebusiness taxes in income tax expense during the current reporting period ascompared to the same period of last year.  The remaining increase in incometaxes for the period of approximately $1.0 million is related to oursubsidiary, National Carriers, Inc. (NCI).  Income tax expense is recorded onincome from NCI, which is organized as a C Corporation.

** **

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** **

**Liquidity and Capital Resources**

As of May 31, 2008, we had net working capital of $261.8million, which included $14.4 million in distributions payable, and cash andcash equivalents of $61.4 million.  As of August 25, 2007, we had net working capital of $280.5 million, which included$2.7 million in distributions payable, and cash and cash equivalents of $62.9 million. NBP’s primary sources of liquidity are cash flow from operations and availableborrowings under its amended and restated credit facility.

As of May 31, 2008, we had $417.0 million of long-termdebt, of which $4.6 million was classified as a current liability.  As of May31, 2008, NBP’s amended and restated credit facility consisted of a $202.6million term loan, all of which was outstanding, and a $200.0 million revolvingline of credit loan, which had outstanding borrowings of $16.0 million, outstandingletters of credit of $54.7 million and available borrowings of $129.3 million,based on the most restrictive financial covenant calculations.  Cash flows fromoperations and borrowings under the amended and restated credit facility havefunded working capital requirements, acquisitions, capital expenditures andother general corporate purposes.  NBP was in compliance with all of thefinancial covenants under its amended and restated credit facility as of May 31, 2008.

In addition to outstanding borrowings under theamended and restated credit facility, the Company had outstanding senior notesof $160.0 million, borrowings under industrial revenue bonds of $20.7 million,a term loan with CoBank, of which approximately $3.2 million was outstanding,and capital leases and other obligations of $14.3 million as of May 31, 2008.

NBP believes that available borrowings under itsamended and restated credit facility and cash provided by operating activitieswill be sufficient to support its working capital, capital expenditures anddebt service requirements for the foreseeable future.  NBP’s ability togenerate sufficient cash, however, is subject to certain general economic,financial, industry, legislative, regulatory and other factors beyond itscontrol.  For a review of the obligations that affect liquidity, please see the*Cash Payment Obligations* table in Item 7. *Management’s Discussion andAnalysis of Financial Condition and Results of Operations* of our AnnualReport on Form 10-K for the year ended August 25, 2007.

*OperatingActivities*

Net cash provided by operating activities in the fortyweeks ended May 31, 2008 was $58.9 million compared to net cash used inoperating activities of $46.6 million in the thirty-nine weeks ended May 26, 200 7.  The improvement was primarily due to net cash being provided primarily inoperating activities through accounts receivable, inventory, accounts payable,cattle purchases payable, and accrued compensation and benefits during theforty week period of the current year while net cash was used primarily inoperating activities through accounts receivable, accounts payable, accruedcompensation and benefits, accrued insurance, and other accrued expenses andliabilities during the thirty-nine week period of last year.

*InvestingActivities*

Net cash used in investing activities was $38.5million in the forty weeks ended May 31, 2008 compared to $29.4 million in the thirty-nine weeks ended May 26, 2007.  This increase in cash used wasprimarily attributable to an increase in expenditures for property, plant andequipment related to improving operating efficiencies, primarily at our Liberal,  Dodge City, and Case Ready facilities, in the current year.

*FinancingActivities*

Net cash used in financing activities was $21.8million in the forty weeks ended May 31, 2008 compared to net cash provided by financing activities of $78.0 million in the thirty-nine weeks ended May 26, 2007.  The change was primarily attributed to a $65.3 million difference in net revolvingcredit borrowings, the borrowing of $40.0 million on our term note in the 2007period that did not recur in the 2008 period and a $5.0 million change in the impactof overdraft balances.   These changes were partially offset by $7.4 million inrepayments on our term note, made in the 2007 period that did not recur in the2008 period, and a $3.9 million decrease in distributions paid during the fortyweek period ended May 31, 2008 as compared to the thirty-nine week period endedMay 26, 2007.

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*Amendedand Restated Senior Credit Facility*

Effective July 25, 2007, NBP amended and restated its existing senior credit facility with a consortium of banks.  The facility nowconsists of a $202.6 million term loan that matures in May 2016 and a $200.0million revolving line of credit loan that matures in July 2012 that is subjectto certain borrowing base limitations.  

Borrowingsunder the facility bear interest at LIBOR or the Base Rate, plus the applicablemargin.  The applicable margin for the revolving line of credit will be basedon borrowing base availability with grids greater than $150.0 million, $50.0 to$150.0 million and less than $50.0 million.  As of May 31, 2008, the interest rate for the revolving loan was approximately 4.6%.   The applicable marginfor the NBP’s term loan was also revised to a grid basis with different marginsfor Funded Debt to EBITDA Ratios greater than 3.50 to 1.00 and less than 3.50to 1.00.  As of May 31, 2008, the interest rate for the term loan was approximately5.1%.

Therevolving line of credit and the term loan have no financial covenants unlessthe borrowing base availability is less than $50.0 million for five consecutivebusiness days or less than $35.0 million on any single business day during anyfiscal quarter.  If the borrowing base availability falls below these amounts,a fixed charge ratio of 1:15 to 1:00 must be maintained at the end of eachsubsequent fiscal quarter until the borrowing base availability has beengreater than or equal to $50.0 million for 90 consecutive days.  NBP was notsubject to the fixed charge ratio test at May 31, 2008.  The advance rates under the borrowing base are 90% on eligible accounts and 70% on eligibleinventory.  

Theborrowings under the revolving loan are available for NBP’s working capitalrequirements, capital expenditures and other general corporate purposes.  Theamended and restated credit facility is secured by a first priority lien onsubstantially all of NBP’s assets.  The principal amount outstanding under theterm loan is due and payable in equal installments of approximately $3.5million on the last business day of each June and December commencing on June 30, 2011.  All outstanding amounts of the term loan are due and payable on May 30, 2016.  Prepayment is allowed at any time.

Theamended and restated credit facility contains customary affirmative covenants,including, without limitation, conduct of business, the maintenance ofinsurance, compliance with laws, maintenance of properties, keeping of booksand records, and the furnishing of financial statements.  The facility alsocontains customary negative covenants, including without limitation,restrictions on the following:  distributions, mergers, sale of assets,investments and acquisitions, encumbrances, indebtedness, affiliatetransactions, and ERISA matters.

Theamended and restated credit facility contains customary events of default,including without limitation, failure to make payment when due, materiallyincorrect representations and warranties, breach of covenants, events ofbankruptcy, default of other indebtedness that would permit acceleration ofsuch indebtedness, the occurrence of one or more unstayed or undischargedjudgments in excess of $3.0 million, changes in custody or control of NBP’sproperty, changes in control of NBP, the failure of any of the loan documentsto remain in full force, and NBP’s failure to properly fund its employeebenefit plans.  The facility also includes customary provisions protecting thelenders against increased cost or loss of yield resulting from changes in tax,reserve, capital adequacy and other requirements of law.

On June 27, 2008, NBP amended its amended and restated credit facility by increasing theamount of permitted net capital expenditures (as defined in the credit agreement) forfiscal year 2008 from $50.0 million to $60.0 million.

** **

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

The principal market risks affecting our business areexposure to changes in prices for commodities, such as livestock and boxedbeef, and interest rate risk.

 

 

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*Commodities.*NBPuses various raw materials, many of which are commodities. Raw materials aregenerally available from several different sources, and NBP presently believesthat it can obtain them as needed.  Commodities are subject to pricefluctuations that may create price risk. When appropriate, NBP may hedgecommodities in order to mitigate this price risk. While this may tend to limit NBP’sability to participate in gains from commodity price fluctuations, it alsotends to reduce the risk of loss from changes in commodity prices. NBP reflectscommodity contract gains and losses as adjustments to the basis of underlyingcommodities purchased; gains or losses are recognized in the statement ofoperations as a component of costs of goods sold.

NBP purchases cattle for use in its processingbusinesses. When appropriate, NBP enters into forward purchase contracts atprices determined prior to the delivery of the cattle. The commodity price riskassociated with these activities can be hedged by selling (or buying) theunderlying commodity, or by using an appropriate commodity derivativeinstrument. The particular hedging instrument NBP uses depends on a number offactors, including availability of appropriate derivative instruments.

NBP sells commodity beef products in its business.Commodity beef products are subject to price fluctuations that may create pricerisk. When appropriate, NBP enters into forward sales contracts at pricesdetermined prior to shipment. NBP may hedge the commodity price risk associatedwith these activities in order to mitigate this price risk. While this may tendto limit NBP’s ability to participate in gains from commodity pricefluctuations, it also tends to reduce the risk of loss from changes incommodity beef prices. NBP reflects commodity contract gains and losses asadjustments to the basis of underlying commodities sold; gains or losses arerecognized in the statement of operations as a component of net sales.

NBP may use futures contracts in order to reduceexposure associated with entering into firm commitments to purchase live cattleat prices determined prior to delivery of the cattle as well as firmcommitments to sell certain beef products at sales prices determined prior toshipment. In accordance with SFAS No. 133, *Accounting for DerivativeInstruments and Hedging Activities*, as amended, NBP accounts for futurescontracts and their related firm purchase commitments at fair value. Certainfirm commitments for live cattle purchases and all firm commitments for boxedbeef sales are treated as “normal purchases and sales” and not marked tomarket.  SFAS No. 133 imposes extensive recordkeeping requirements in order totreat a derivative instrument as a hedge for accounting purposes. Derivativesqualify for treatment as hedges when there is a high correlation between thechange in fair value of the instrument and the related change in fair value ofthe underlying commitment. For derivatives that qualify as effective hedges,the change in fair value has no net effect on earnings until the hedgedtransaction affects earnings. For derivatives that are not designated ashedging instruments, or for the ineffective portion of a hedging instrument,the change in fair value does affect current period net earnings.

While management believes each of these instrumentshelp mitigate various market risks, they are not designated and accounted foras hedges under SFAS No. 133 as a result of the extensive recordkeepingrequirements of that statement. Accordingly, the gains and losses associated withthe change in fair value of all futures contracts and the gains and lossesassociated with changes in the market value of certain of the firm commitments notdesignated as normal purchases are recorded to income and expense in the periodof change.

Weuse a sensitivity analysis to evaluate the effect that changes in the marketvalue of commodities will have on these commodity derivative instruments.  Asof May 31, 2008, the potential change in fair value of applicable commodityprices, assuming a hypothetical 10% decrease in the underlying commodity price,was $13.6 million.  As of August 25, 2007, the potential change in fair valueof applicable commodity prices, assuming a hypothetical 10% decrease in theunderlying commodity price, was $5.2 million. 

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

*Interest Rates.*As a result of our normal borrowing and leasing activities, ouroperating results are exposed to fluctuations in interest rates, which wemanage primarily through our regular financing activities. We generallymaintain 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 debtmaturing twelve months from the balance sheet date.  Our variable interestexpense is sensitive to changes in the general level of interest rates.  As of May 31, 2008, the weighted average interest rate on our $242.5 million of variable ratedebt was approximately 4.1%.

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We had total interest expense of approximately $27.1million during the forty week period ending May 31, 2008.  The estimated increase in interest expense from a hypothetical 200 basis point increase inapplicable variable interest rates would have been approximately $4.0 millionin the forty week period ending May 31, 2008.  

** **

**Item 4T.  Controls and Procedures.**

We maintain asystem of controls and procedures designed to provide reasonable assurance asto the reliability of the Consolidated Financial Statements and otherdisclosures included in this report, as well as to safeguard assets fromunauthorized use or disposition. We evaluated the effectiveness of the designand operation of our disclosure controls and procedures as defined in theSecurities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) undersupervision and with the participation of management, including our ChiefExecutive Officer and Chief Reporting and Compliance Officer. Based upon thatevaluation, as of the end of the period covered by this Quarterly Report onForm 10-Q, our Chief Executive Officer and Chief Reporting and ComplianceOfficer concluded that our disclosure controls and procedures were effective inalerting them, in a timely manner, to material information required to be includedin our periodic Securities and Exchange Commission filings.  There have been nochanges in our internal controls over financial reporting during the thirteenweeks ended May 31, 2008 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part uponcertain assumptions about the likelihood of future events. 

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**PARTII. OTHER INFORMATION**

**Item 1. Legal Proceedings.**

For informationregarding legal proceedings, see Note 7. *Legal Proceedings* to our ConsolidatedFinancial Statements included in Part I- *Item 1* of this Form 10-Q. 

**Item 1A. Risk Factors.**

Other than thesatisfaction of closing conditions to complete the Agreement, the risk factorsset forth in our Annual Report on Form 10-K for the fiscal year ended August 25,2007 have not materially changed.  Please refer to the Company’s report on Form10-K for the fiscal year ended August 25, 2007 to consider those risk factors.

**Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds.**

None.

**Item 3. Defaults Upon Senior Securities.**

None. 

**Item 4. Submission of Matters to a Vote ofSecurity Holders.**

None.

**Item 5. Other Information.**

USPB may purchasea portion of its outstanding Class A and Class B units from time to time inaccordance with the limits imposed under the CoBank Credit Agreement.

NBP may purchasea portion of its outstanding Senior Notes from time to time in accordance withthe limits imposed under its senior credit facility.        

**Item 6. Exhibits.**

| (A)    |   | Exhibits |
|--------|--------|----------|
|   |   |     |  
 

2.1

Membership Interest  Purchase Agreement dated February 29, 2008 between JBS S.A.; National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin Land and Cattle Co., LLC; TKK Investments, LLC; S‐B Enterprises V, LLC;  TMKCo, LLC; John R. Miller; Timothy M. Klein; and NBPCO Holdings, LLC  (incorporated by reference to Exhibit 20.1 to Form 8-K (File No. 333-115164)  filed with the Commission on March 4, 2008).

 
	 

 

 

 
	 

2.2

First Amendment of  Membership Interest Purchase Agreement dated as of March 24, 2008, among JBS, S.A.; National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin    Land and Cattle Co., LLC; TKK Investments, LLC; S-B Enterprises V, LLC;  TMKCO, LLC; John R. Miller; Timothy M. Klein and NBPCO Holdings, LLC (incorporated  by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q  for the quarter ended February 23, 2008, filed with the SEC on April 4, 2008).

 
 

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	2.3 

Second Amendment of Membership  Interest Purchase Agreement dated as of April 3, 2008, among JBS, S.A.;  National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin Land  and Cattle Co., LLC; TKK Investments, LLC; S-B Enterprises V, LLC; TMKCO,  LLC; John R. Miller; Timothy M. Klein and NBPCO Holdings, LLC (incorporated  by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q  for the quarter ended February 23, 2008, filed with the SEC on April 4, 2008).

 
 

 

 

 
 

10.1 

First Amendment to Sixth  Amended and Restated Credit Agreement dated as of June 27, 2008 by and among the Company and certain agents, lenders and issuers (incorporated by reference to  Exhibit 10.1 to Form 8-K (File No. 333-111407) filed by National Beef Packing  Company, LLC with the SEC on June 30, 2008).

 
 

 

 

 
 

31.1 

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

 
 

 

 

 
 

31.2  

Certification of the  Principal Financial and Accounting 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  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.

 
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** **

**SIGNATURES**

 

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

 

 

 

 

                                                             U.S. Premium Beef, LLC         
 

 

 

By: 

 

/s/ Steven D. Hunt

 

 

 

 

 

Steven D. Hunt*Chief Executive Officer*

*(Principal Executive Officer)*

 

 

 

 

By: 

 

/s/ Scott J. Miller

 

 

 

 

 

Scott J. Miller* Chief Reporting and Compliance Officer*

*(Principal Financial and Accounting Officer)*

 

 

 

Date: July11, 2008 

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