**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 February 24, 2007** |
| **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.  EmployerIdentification No.)** |

 

**12200North Ambassador Drive**

**KansasCity, 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     Noo

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  See definition of "accelerated filer and largeaccelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

LargeAccelerated Filer o                 Accelerated Filer o                Non-accelerated Filer þ

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

The registrant's unitsare not traded on an exchange or in any public market.  As of March 31, 2007,there were 735,505 Class A units and 735,505 Class B unitsoutstanding.     

----

|   | **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.

14
       
Item 4.

Controls and Procedures.

16
                              
**PART II.**

**OTHER INFORMATION**
                    
Item 1.

Legal Proceedings.

16
        
Item 1A.

Risk Factors.

16
      
Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

16
       
Item 3.

Defaults Upon Senior Securities.

16
       
Item 4.

Submission of Matters to a Vote of Security Holders.

16
       
Item 5.

Other Information.

17
      
Item 6.

Exhibits. 

17
                
Signatures.

18

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 "NationalBeef" refer to National Beef Packing Company, LLC (formerly known as FarmlandNational Beef Packing Company, LP), a Delaware limited liability company, and"USPB" refers to U.S. Premium Beef, LLC (formerly known U.S. Premium Beef,Ltd.) prior to consolidation. 

ii

 

**PART I.  FINANCIAL INFORMATION**

**Item 1.  Financial Statements.**

 

 

 

 

 

 

 

1
**U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated BalanceSheet**
(inthousands, except unit data)

** **

** **

**February 24,**

**August 26,**

**Assets**
**2007**

**2006**
 
**(unaudited)**  
Current  assets:

Cash  and cash equivalents

$

57,017 

$

58,434 

Accounts  receivable, less allowance for returns and doubtful accounts

of  $2,139 and $2,412, respectively

178,462 

173,233 

Due  from affiliates

3,309 

3,391 

Other  receivables

7,155 

5,943 

Inventories

150,032 

145,009 

Other  current assets

20,892 

20,171 

Total  current assets

416,867 

406,181 

Property,  plant and equipment, at cost

352,496 

331,500 

Less  accumulated depreciation

(84,223)

(69,490)

Net  property, plant and equipment

268,273 

262,010 

Goodwill

79,542 

79,411 

Other  intangible assets, net of accumulated amortization

of  $6,245 and $5,276, respectively

29,503 

30,562 

Other  assets

6,737 

6,594 

Total  assets

$

800,922 

$

784,758 

 

**Liabilities and Capital	Shares and Equities**

Current  liabilities:

Current  installments of long-term debt

$

3,400 

$

3,400 

Cattle  purchases payable

60,440 

58,320 

Accounts  payable - trade

59,062 

54,449 

Due  to affiliates

428 

878 

Accrued  compensation and benefits

14,252 

27,894 

Accrued  insurance

14,170 

17,651 

Other  accrued expenses and liabilities

10,347 

12,086 

Distributions  payable

1,137 

4,880 

Total  current liabilities

163,236 

179,558 

Long-term  liabilities:

Long-term  debt, excluding current installments

442,463 

380,496 

Other  liabilities

2,845 

2,961 

Total  long-term liabilities

445,308 

383,457 

Total  liabilities

608,544 

563,015 

Minority  interest in National Beef Packing Company and Kansas City Steak, LLC

63,570 

72,956 

Capital  shares and equities:

Members'  capital, 735,505 Class A units and 735,505 Class B units

authorized,  issued and outstanding

78,106 

98,092 

Patronage  notices

50,642 

50,642 

Accumulated  other comprehensive income

60 

53 

Total  capital shares and equities

128,808 

148,787 

Commitments  and contingencies

- 

- 

Total  liabilities and capital shares and equities

$

800,922 

$

784,758 

See accompanying notes to consolidated	financial statements.

 2

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

**Consolidated Statements of Operations**

**(in thousands, except unit and per unit data)**

 

** **

**13 weeks ended**

**13 weeks ended**

**26 weeks ended**

**26 weeks ended**
   
**February 24, 2007**

**February 25, 2006**

**February 24, 2007**

**February 25, 2006**
   
**(unaudited)**

**(unaudited)**

**(unaudited)**

**(unaudited)**
                                       
Net  sales

$

1,313,319 

$

1,080,026 

$

2,586,344 

$

2,175,764 
                                    
Costs  and expenses:

Cost  of sales

1,287,543 

1,070,719 

2,557,626 

2,155,264 

Selling,  general and administrative expenses

10,801 

9,205 

21,235 

18,595 

Depreciation  and amortization

7,949 

6,880 

15,817 

13,475 

Total  costs and expenses

1,306,293 

1,086,804 

2,594,678 

2,187,334 

Operating  income (loss)

7,026 

(6,778)

(8,334)

(11,570)

Other  income (expense):

Interest  income

537 

293 

1,094 

551 

Interest  expense

(9,807)

(7,797)

(19,156)

(15,170)

Minority  owners' interest in net loss

of  National Beef Packing Co., LLC

1,228 

6,656 

12,324 

12,261 

Minority  owners' interest in net income

of  Kansas City Steak, LLC

(300)

(54)

(352)

(68)

Equity  in loss of aLF Ventures, LLC

(25)

(33)

(54)

(80)

Other,  net

382 

740 

671 

1,244 

Loss  before taxes

(959)

(6,973)

(13,807)

(12,832)

Income  tax expense

(657)

(634)

(885)

(1,176)

Net loss

$

(1,616)

$

(7,607)

$

	(14,692)

$

	(14,008)
                                       Loss per linked unit:                                 Basic
$

(2.20)

$

(11.00)

$

(19.98)

$

(20.25)

Diluted

$

(2.20)

$

(11.00)

$

(19.98)

$

(20.25)

Outstanding  weighted-average Class A and Class B units:

Basic

735,505 

691,845 

735,505 

691,845 

Diluted

735,505 

691,845 

735,505 

691,845 

See  accompanying notes to consolidated financial statements.

 

3

 

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

**Consolidated Statements of Cash Flows**

(in thousands)

 

** **

**26 weeks ended**

**26 weeks ended**

**February 24, 2007**

**February 25, 2006**

**(unaudited)**

**(unaudited)**

Cash  flows from operating activities:

Net  loss

$

(14,692)

$

(14,008)

Adjustments  to reconcile net loss to net cash used in operating activities:

Depreciation  and amortization

15,817 

13,475 

Gain  on disposal of property, plant and equipment

(5)

(41)

Minority  interest

(12,111)

(12,193)

Changes  in assets and liabilities:

Accounts  receivable

(5,229)

36,700 

Due  from affiliates

82 

555 

Other  receivables

(2,460)

117 

Inventories

(5,023)

(26,854)

Other  assets

(905)

(2,988)

Cattle  purchases payable

3,920 

4,317 

Accounts  payable

(2,461)

817 

Due  to affiliates

(450)

(1,213)

Accrued  compensation and benefits

(13,642)

(5,328)

Accrued  insurance

(3,481)

(3,452)

Other  accrued expenses and liabilities

(1,855)

7,875 

Net  cash used in operating activities

(42,495)

(2,221)

Cash  flows from investing activities:

Capital  expenditures, including interest capitalized

(21,243)

(15,673)

Acquisition  of business, final purchase price adjustment

1,248 

- 

Acquistion  of intangible assets

- 

(613)

Proceeds  from sale of property, plant and equipment

137 

620 

Net  cash used in investing activities

(19,858)

(15,666)

Cash  flows from financing activities:

Net  receipts under revolving credit lines

71,022 

13,000 

Repayments  of other indebtedness / capital leases

(1,156)

(399)

Payments  of notes payable and fees

(7,899)

(514)

Change  in overdraft balances

5,274 

1,841 

Distributions  to minority interest owners in National Beef Packing Co.

(5,451)

(2,277)

Member  distributions

(861)

(1,197)

Net  cash provided by financing activities

60,929 

10,454 

Effect  of exchange rate changes on cash

7 

15 

Net  decrease in cash

(1,417)

(7,418)

Cash  and cash equivalents at beginning of the period

58,434 

54,428 

Cash  and cash equivalents at end of the period

$

57,017 

$

47,010 

Supplemental  cash disclosures:

Cash  paid during the period for interest

$

20,591 

$

14,147 

Cash  paid during the period for taxes

$

690 

$

134 

Supplemental  non-cash disclosures of investing activities:

Assets  acquired through capital lease

$

- 

$

4,342 

See  accompanying notes to consolidated financial statements.

 

 4
****
**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 26, 2006.  The results of operations for theinterim periods presented are not necessarily indicative of the results for afull fiscal year.  

In December 2004, Statement of Financial Accounting Standard(SFAS) No. 123 (revised 2004), Shared-Based Payment, was issued. SFAS 123Rrequires an entity to recognize, in the statement of operations, the grant-datefair-value of stock options and other equity-based compensation issued toemployees.  The Company was required to adopt SFAS 123R on August 28,2005. The adoption of SFAS 123R had no effect on the Company's ConsolidatedFinancial Statements.

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.

**(2)New Accounting Pronouncements**

In June 2006, the Financial Accounting Standards Board(FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertaintyin Income Taxes", to address uncertainty in income taxes recognized in anenterprise's financial statements.  Specifically, FIN 48 prescribes (a) aconsistent recognition threshold and (b) a measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return, and provides related guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition.  FIN 48 will apply to fiscal yearsbeginning after December 15, 2006, with earlier adoption permitted.  TheCompany is in the initial stage of evaluating the impact FIN 48 may have, ifany, on its Consolidated Financial Statements.

In September 2006, the SEC staff issued StaffAccounting Bulletin No. 108 (SAB 108), "Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements."  Traditionally there have been two widely recognized methods forquantifying the effects of financial statement misstatements:  the "roll-over"method and the "iron curtain" method.  The roll-over method focuses primarilyon the impact of a misstatement on the income statement, including thereversing effect of prior year misstatements.  The iron-curtain method focusesprimarily on the effect of correcting the period-end balance sheet with lessemphasis on the reversing effects of prior year errors on the incomestatement.  In SAB 108, the SEC staff established an approach that is commonlyreferred to as a "dual approach" as the SEC now requires quantification oferrors under both the iron curtain and the roll-over methods.  SAB 108 wasadopted by the Company during the first quarter of fiscal year 2007.  Theadoption of SAB 108 did not have any effect on the Company's financialposition, net earnings or prior year financial statements.

 

 5
****
In September 2006, the FASB issued Statement ofFinancial Accounting Standard No. 157 (SFAS 157), "Fair Value Measurements". 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 defines fair value as "theprice that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurementdate".  SFAS 157 will apply to fiscal years beginning after November 15, 2007,and interim periods within those fiscal years.  The Company is currentlyevaluating the impact SFAS 157 may have, if any, on its Consolidated FinancialStatements.

In February 2007, the FASB issued Statement ofFinancial Accounting Standard No. 159 (SFAS 159), "The Fair Value Option forFinancial Assets and Financial Liabilities".  This statement provides companieswith an option to report selected financial assets and liabilities at fair value. SFAS 159 will apply to fiscal years beginning after November 15, 2007.  TheCompany is currently evaluating the impact SFAS 159 may have, if any, on itsConsolidated Financial Statements.

**(3)Inventories**

Inventories at February 24, 2007 and August26, 2006 consisted of the following (in thousands):

** **

**February 24,**

**August 26,**

**2007**

**2006**

Dressed and boxed  beef

$

120,879 

$

117,712 

Beef by-products

16,599 

15,180 

Supplies

12,554 

12,117 

Total inventories

$

150,032 

$

145,009 

** **

** (4)Comprehensive Loss**

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

**13 weeks ended**

**13 weeks ended**

**26 weeks ended**

**26 weeks ended**

**February 24, 2007**

**February 25, 2006**

**February 24, 2007**

**February 25, 2006**

Net loss

$

(1,616)

$

(7,607)

$

(14,692)

$

(14,008)

Other  comprehensive (loss) income:

Foreign currency  translation adjustments

(1)

14 

7 

15 

Comprehensive  loss

$

(1,617)

$

(7,593)

$

(14,685)

$

(13,993)

** **

**(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.  NBP accounts for changes in the redemption value of these interestsby accreting the change in value over the current period through the earliestredemption date of the respective interests. At February 24, 2007, the minorityinterest in National Beef was revalued by an independent appraisal process, andthe value was determined to be $77.5 million, which was in excess of itscarrying value.  Accordingly, the carrying value of the minority interest inNational Beef increased by approximately $1.9 million through accretion duringthe thirteen weeks ended February 24, 2007, resulting in a carrying value of $62.6million, which is included in the accompanying Consolidated Balance Sheet as ofFebruary 24, 2007.  

 

 6
****
**(6)Contingencies**

*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 matterin June of 2004. The plaintiffs claimed damages against FNBPC in the amount ofapproximately $4.5 million plus prejudgment interest, attorneys' fees and courtcosts.  The claim is subject to reduction in an unknown amount by the number ofclass members who have opted out of the class.  Trial began March 31, 2006.  On April 13, 2006, the jury returned a verdict infavor of FNBPC but against the other defendants.  The court has not yet entereda final judgment or appealable order as to FNBPC and, until it does, the timefor plaintiffs to file an appeal against FNBPC does not begin to run.  However,the court did enter a final order granting judgments against the other threedefendants on the jury's verdict and those defendants have filed an appeal inthe United States Court of Appeals for the Eighth Circuit.  

 NBP's wholly owned subsidiary, NationalCarriers, Inc., has various independent contractor drivers who are involved inaccidents from time to time, which in the aggregate could result in a materialliability for the Company.

The Company is also a party to a numberof other lawsuits and claims arising out of the operation of its business.Management believes the ultimate resolution of such matters should not have amaterial adverse effect on the Company's financial condition, results ofoperations, or liquidity.

**(7)United States BSE Outbreak**

On December 23, 2003, it was announced by the UnitedStates Department of Agriculture (USDA) that a single Holstein dairy cow wasdiscovered in the state of Washington to have tested positive for bovinespongiform encephalopathy (BSE).  The origin of the animal was subsequentlytraced to a farm in Canada.  Shortly after the announcement, several countries,including Japan, representing a substantial share of NBP's export business,closed their borders to the importation of edible beef products from the UnitedStates.  Certain by-products have been classified as Specified Risk Materials(SRMs), and have been banned from use in feedstocks and the human food chain.Some of these products previously enjoyed a market in foreign countries.  Theclosure of most foreign markets to U.S. beef following the discovery of thiscow in Washington state, and lack of alternative U.S. markets for many productswhich previously were exported, negatively impacted the revenue per headrealized by the U.S. beef packing industry.

The reopening of U.S. export markets was furtherhampered by discovery in 2005 of a second case of BSE in the U.S. as well asadditional precautions required by some other importing countries.  In December2005, Japan opened their border to U.S. beef but subsequently closed it a shorttime later as a result of a U.S. packer erroneously shipping a product notapproved for export to Japan.  On July 26, 2006, Japan agreed to reopen itsmarket to U.S. beef aged 20 months and younger after an inspection of U.S. beefprocessing plants.  Shipments of U.S. beef to Japan commenced in August 2006. In September 2006, Korea announced a provisional opening of their border toU.S. beef, but restrictions imposed with the reopening have created uncertaintyregarding amounts of beef that may qualify.

 

 7
****
Neither USPB nor NBP can presentlyassess the full economic impact of the consequences of BSE on the U.S. beefpacking industry or on the Company's operations.  Existing or new importrestrictions or additional regulatory restrictions or disruptions in domesticconsumer demand for beef may continue to have a material adverse affect on theCompany's revenues and net income.

**(8)Earnings Per Unit**

Basic EPU excludesdilution and is computed by dividing income or loss available to unitholders bythe weighted-average number of linked Class A and Class B units outstanding forthe period.  Class A units and Class B units shall be issued, redeemed, andtransferred together on a one for one basis until the Board of Directorsdetermines the extent and conditions under which Class A units and Class Bunits 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 the Company,the CEO may convert the contractual unit appreciation rights to up to 20,000Class A and Class B units.  The diluted EPU reflects the circumstances oftermination of the CEO employment agreement, and the election of CEO oragreement by the Board of the Company and the CEO for the CEO to purchase orconvert contractual rights to the maximum 20,000 units at $55 per linked ClassA and Class B unit for the periods as provided 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 the periods ending February 24, 2007 and February 25, 2006,respectively, as the effect of including them would have been anti-dilutive tothe loss per linked unit calculation. 

**Income (Loss) Per Linked Unit Calculation**

(In thousands,  except unit and per unit data)

13 Weeks Ended

26 Weeks Ended

February 24, 2007

February 25, 2006

February 24, 2007

February 25, 2006

(unaudited)

(unaudited)

(unaudited)

(unaudited)

**Basic income  (loss) per unit**

Income available  to unitholders (numerator)

$

(1,616)

$

(7,607)

$

(14,692)

$

(14,008)
Outstanding units  (denominator)   
735,505 
      
691,845 
      
735,505 
      
691,845 

     Per unit amount

$

(2.20)
$

(11.00)
$

(19.98)
$

(20.25)
**Diluted income  (loss) per unit**

Income available  to unitholders (numerator)

$

(1,616)

$

(7,607)

$

(14,692)

$

(14,008)

Outstanding units

735,505 

691,845 

735,505 

691,845 

Effect of  dilutive securities - unit options

- 

- 

- 

- 

     Units  (demoninator)

735,505 

691,845 

735,505 

691,845 

     Per unit amount

$

(2.20)
$

(11.00)
$

(19.98)
$

(20.25)
* *

**(9)Subsequent Events**

OnMarch 21, 2007, NBP amended its credit facility to increase the availablecredit under the facility by $50.0 million.  As a result of this amendment, theCompany's term loan was increased by $40.0 million to $202.6 million and therevolving line of credit was increased by $10.0 million to $170.0 million.  Therelated refinancing charges of $0.1 million are being amortized over the lifeof the loan.  

OnFebruary 26, 2007, the Company made a cash distribution to each of its unitholdersin the amount of $1.20 for the linked combination of each Class A unit andClass B unit held by such unitholders.  The distribution was approved bythe Company's Board of Directors on February 23, 2007 and was paid to all unitholdersof record as of December 31, 2006.   

 

 8
****
**Item 2.  Management'sDiscussion and Analysis of Financial Condition and Results of Operations.**

**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 economic conditions generally and in ourprincipal markets, the availability and prices of live cattle and commodities,food safety, livestock disease, including the identification of cattle withBSE, competitive practices and consolidation in the cattle production andprocessing industries, actions of domestic or foreign governments, hedgingrisk, changes in interest rates and foreign currency exchange rates, consumerdemand and preferences, the cost of compliance with environmental and healthlaws, loss of key customers, loss of key employees, labor relations,consolidation among our customers and the potential inability to receive theanticipated benefits from the acquisition of the processing facility inBrawley, 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 oralforward-looking statements attributable to us or persons acting on our behalfare expressly qualified in their entirety by these factors.  Please review the *RiskFactors* in Item 1*. Business* of the Company's Annual Report forthe year ended August 26, 2006 on Form 10-K filed with the Securities andExchange Commission for other important factors that could cause actual resultsto differ materially from those in any such forward-looking statements, andwhich should be read in conjunction with this report.

**Industry Outlook**

Continued relatively high fedcattle prices, along with limited access to key export markets, has resulted ina difficult environment for beef industry participants.  In general, domesticcattle supplies have been anticipated to improve over the next two to threeyears, however, recent increases in feeding costs have threatened the speed andmagnitude at which the cattle supply is expected to grow.  With uncertaintyregarding international market access and the realization of improved cattlesupplies, the timing of margin improvements remains uncertain.

**Recent Developments**

On December 23, 2003, it was announced by the UnitedStates Department of Agriculture (USDA) that a single Holstein dairy cow wasdiscovered in the state of Washington to have tested positive for bovinespongiform encephalopathy (BSE).  The origin of the animal was subsequentlytraced to a farm in Canada.  Shortly after the announcement, several countries,including Japan, representing a substantial share of NBP's export business,closed their borders to the importation of edible beef products from the UnitedStates.  Certain by-products have been classified as Specified Risk Materials(SRMs), and have been banned from use in feedstocks and the human food chain.Some of these products previously enjoyed a market in foreign countries.  Theclosure of most foreign markets to U.S. beef following the discovery of thiscow in Washington state, and lack of alternative U.S. markets for many productswhich previously were exported, negatively impacted the revenue per headrealized by the U.S. beef packing industry.

The reopening of U.S. export markets was furtherhampered by discovery in 2005 of a second case of BSE in the U.S. as well asadditional precautions required by some other importing countries.  In December2005, Japan opened their border to U.S. beef but subsequently closed it a shorttime later as a result of a U.S. packer erroneously shipping a product notapproved for export to Japan.  On July 26, 2006, Japan agreed to reopen itsmarket to U.S. beef aged 20 months and younger after an inspection of U.S. beefprocessing plants.  Shipments of U.S. beef to Japan commenced in August 2006. In September 2006, Korea announced a provisional opening of their border toU.S. beef, but restrictions imposed with the reopening have created uncertaintyregarding amounts of beef that may qualify.

 

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Neither USPB nor NBP can presentlyassess the full economic impact of the consequences of BSE on the U.S. beefpacking industry or on the Company's operations.  Existing or new importrestrictions or additional regulatory restrictions or disruptions in domesticconsumer demand for beef may continue to have a material adverse affect on theCompany's revenues and net income.

**Resultsof Operations**

***Thirteen weeks ended February 24, 2007 compared to thirteen weeks endedFebruary 25, 2006***

*General.*  Net loss for the thirteen weeks ended February 24,2007 was $1.6 million compared to net loss of $7.6 million for the thirteenweeks ended February 25, 2006, a change of $6.0 million.  Sales were higher inthe thirteen weeks ended February 24, 2007 compared to those of the priorperiod due to an increase in the number of cattle processed of approximately24.9%, the majority of which came as a result of the acquisition of BrawleyBeef, LLC during the fourth quarter of fiscal 2006.  Improved customer demand forbeef products also contributed to higher sales for the current thirteen weekperiod as compared to the same period of last year. 

Total costs and expenses of $1,306.3 million and $1,086.8million for the thirteen weeks ended February 24, 2007 and February 25, 2006,respectively, were 99.5% as a percent of sales for the thirteen weeks ended February24, 2007 compared to 100.6% for the thirteen weeks ended February 25, 2006.  Higherplant capacity utilization and a small decline in cattle prices contributed toan improvement in gross margin resulting in an improvement in operating incomeof $13.8 million.

*Net Sales*. Net sales were $1,313.3 million for the thirteen weeks ended February 24, 2007compared to $1,080.0 million for the thirteen weeks ended February 25, 2006, anincrease of $233.3 million, or 21.6%.  The increase in net sales resultedprimarily from a 24.9% increase in the number of cattle processed, the majorityof which came as a result of the acquisition of Brawley Beef, LLC, at averageweights about 1.6% higher than the same period of last year.  Improved customerdemand for beef products also contributed to the increase in net sales for thecurrent thirteen week period as compared to the same period of last year. 

*Cost of Sales*. Cost of sales was $1,287.5 million for the thirteen weeks ended February 24,2007 compared to $1,070.7 million for the thirteen weeks ended February 25,2006, an increase of $216.8 million, or 20.2%.  The increase resulted primarilyfrom an increase in the number of live cattle purchased, mostly due to theacquisition of Brawley Beef, LLC, of approximately 24.9% and cattle weightsapproximately 1.6% higher, somewhat offset by an approximate 5.5% decrease inlive cattle prices.

*Selling, General and Administrative Expenses*.  Selling, general and administrative expenses were $10.8million for the thirteen weeks ended February 24, 2007 compared to $9.2 millionfor the thirteen weeks ended February 25, 2006, an increase of $1.6 million, or17.4%.  The increase primarily reflects an increase in payroll, bonus andrelated expenses of approximately $0.8 million, due mainly to increases insalaries, an increase in legal expense of approximately $0.3 million and anincrease of approximately $0.2 million in advertising expense.   Theacquisition of Brawley Beef, LLC on May 30, 2006 has contributed to theincreased selling, general and administrative expenses incurred during thecurrent thirteen week period as compared to the same period of last year.

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses were $7.9million for the thirteen weeks ended February 24, 2007 compared to $6.9 millionfor the thirteen weeks ended February 25, 2006, an increase of $1.0 million, or14.5%.  The acquisition of Brawley Beef, LLC contributed significantly to theincrease in depreciation expense for this period.  Depreciation expense alsoincreased due to assets being placed into service, primarily at the Dodge Cityand Liberal beef plants, during the third and fourth quarters of fiscal year2006 and the first and second quarters of fiscal year 2007.

*Operating Income (Loss)*.  Operating income was $7.0 million for the thirteenweeks ended February 24, 2007 compared to a loss of $6.8 million for thethirteen weeks ended February 25, 2006, an improvement of $13.8 million.  Theincreased operating income resulted primarily from improved customer demand ofbeef products during the second quarter of fiscal year 2007 as compared to thesame period of last year.  

 

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*Interest Expense*.  Interest expense was $9.8 million for the thirteen weeks ended February24, 2007 compared to $7.8 million for the thirteen weeks ended February 25,2006, an increase of $2.0 million, or 25.6%.  The increase in interest expense wasdue primarily to an increase in the weighted average of variable rate debt ofapproximately $83.0 million for the thirteen weeks ended February 24, 2007, ascompared to the same period in fiscal year 2006, mostly as a result of theBrawley Beef, LLC acquisition.  Interest expense also increased due to higherinterest rates on our variable rate debt, an increase of approximately 100basis points, for the thirteen weeks February 24, 2007 as compared to the sameperiod of last year.

*Other, net. *Other,net non-operating income was $0.4 million for the thirteen weeks ended February24, 2007 compared to non-operating income of $0.7 million for the thirteenweeks ended February 25, 2006, a decrease of $0.3 million.  The thirteen weeksended February 25, 2006 included $0.6 million in income received for asettlement of a lawsuit related to corrugated packaging materials.

*Income Tax Expense*.  Income tax expense was $0.7 million for the thirteen weeks endedFebruary 24, 2007 compared to income tax expense of $0.6 million for thethirteen weeks ended February 25, 2006, an increase in expense of $0.1million.  Income tax expense increased due to more income recorded by NationalCarriers, Inc., which is organized as a C Corporation, in the current periodcompared to the same period last year.

***Twenty-six weeks ended February 24, 2007 compared to twenty-six weeksended February 25, 2006***

*General*. Net loss for the twenty-six weeks ended February 24, 2007 was $14.7 millioncompared to a net loss of $14.0 million for the twenty-six weeks ended February25, 2006, a change of $0.7 million.  Sales and cost of sales were both higherin the twenty-six weeks ended February 24, 2007 than those of the prior yearperiod primarily due to an increase in the number of cattle processed of approximately18.5%, the majority of which was the result of the acquisition of Brawley Beef,LLC during the fourth quarter of fiscal year 2006.  

Total costs and expenses of $2,594.7 million and $2,187.3million for the twenty-six weeks ended February 24, 2007 and February 25, 2006,respectively, were 100.3% as a percent of sales for the twenty-six weeks endedFebruary 24, 2007 compared to 100.5% for the twenty-six weeks ended February25, 2006.  Improved customer demand of beef products and greater plant capacityutilization contributed to a slight improvement in the gross margin for thecurrent twenty-six week period as compared to the same period of last year. The improvement experienced in gross margin was offset by increased interestexpense as a result of increased borrowings at higher interest rates.

*Net Sales*. Net sales were $2,586.3 million for the twenty-six weeks ended February 24, 2007compared to $2,175.8 million for the twenty-six weeks ended February 25, 2006,an increase of $410.5 million, or 18.9%.  The increase resulted primarily froman increase of approximately 18.5% in the number of cattle processed, mostlydue to the acquisition of Brawley Beef, LLC, in the twenty-six weeks ended February24, 2007 at weights that averaged approximately 1.5% higher than the sameperiod in the prior year.  Improved customer demand of beef products alsocontributed to the increase in net sales for the twenty-six week period endedFebruary 24, 2007 as compared to the same period of last year.   

*Cost of Sales*. Cost of sales was $2,557.6 million for the twenty-six weeks ended February 24,2007 compared to $2,155.3 million for the twenty-six weeks ended February 25,2006, an increase of $402.3 million, or 18.7%.  The increase resulted primarilyfrom an increase in the number of cattle purchased, mostly due to theacquisition of Brawley Beef, LLC, of approximately 18.5% during this twenty-sixweek period of 2007 at average cattle weights approximately 1.5% higher, whichwas offset by an approximate 1.7% decrease in live cattle prices as compared tothe same period in fiscal year 2006.

*Selling,General and Administrative Expenses*. Selling, general and administrative expenses were $21.2 million for the twenty-sixweeks ended February 24, 2007 compared to $18.6 million for the twenty-sixweeks ended February 25, 2006, an increase of $2.6 million, or 14.0%.  Theincrease for this period is primarily due to an increase in payroll and benefitexpenses of approximately $1.1 million, an increase in advertising expense ofapproximately $0.4 million, an approximate $0.3 million increase in bad debtexpense, and an increase in travel and related expenses of approximately $0.3million.  The acquisition of Brawley Beef, LLC on May 30, 2006 has contributedto the increased selling, general and administrative expenses incurred duringthe current twenty-six week period as compared to the same period of last year.

 

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*Depreciation and Amortization Expense*.  Depreciation and amortization expenses were $15.8million for the twenty-six weeks ended February 24, 2007 compared to $13.5million for the twenty-six weeks ended February 25, 2006, an increase of $2.3million, or 17.0%.  The addition of the Brawley plant contributed significantlyto the increase in depreciation expense for this twenty-six week period ascompared to the same period of last year.  Depreciation expense also increaseddue to assets being placed into service, primarily at the Dodge City andLiberal beef plants, during the third and fourth quarters of fiscal year 2006and the first and second quarters of fiscal year 2007.

*Operating Loss*. Operating loss was $8.3 million for the twenty-six weeks ended February 24,2007 compared to $11.6 million for the twenty-six weeks ended February 25,2006, a decreased loss of $3.3 million.  The improvement in the currenttwenty-six week period resulted primarily from improved customer demand of beefproducts as compared to the same period of last year.  

*Interest Expense*.  Interest expense was $19.2 million for the twenty-six weeks endedFebruary 24, 2007 compared to $15.2 million for the twenty-six weeks endedFebruary 25, 2006, an increase of $4.0 million, or 26.3%.  The increase was dueprimarily to an increase in the weighted average of variable rate debt ofapproximately $73.6 million, mostly as a result of the Brawley Beef, LLCacquisition, for the twenty-six weeks ended February 24, 2007, as compared tothe same period in fiscal year 2006.  Interest expense also increased due tohigher interest rates on our variable rate debt, an increase of approximately 125basis points, in the first twenty-six weeks of fiscal year 2007 as compared tothe same period of last year.

*Other, net.* Other, net non-operating income was $0.7 million for the twenty-six weeks endedFebruary 24, 2007 compared to non-operating income of $1.2 million for thetwenty-six weeks ended February 25, 2006, a decrease of $0.5 million.  Thetwenty-six weeks ended February 25, 2006 included $0.6 million in incomereceived for a settlement of a lawsuit related to corrugated packagingmaterials.

*Income Tax Expense*.  Income tax expense was $0.9 million for the twenty-six weeks endedFebruary 24, 2007 compared to $1.2 million for the twenty-six weeks endedFebruary 25, 2006, a decrease of $0.3 million, or 25.0%.  Income tax expense isrecorded on income from National Carriers, Inc., which is organized as a CCorporation.

**Liquidity****and Capital Resources**

As of February 24, 2007, we had net working capital of$253.7 million, which included $1.1 million in distributions payable, and cashand cash equivalents of $57.0 million, including $4.1 million restricted to IRBapproved expenditures. As of August 26,2006 we had net working capital of $226.6 million, which included $4.9 millionin distributions payable, and cash and cash equivalents of $58.4 million,including $4.0 million restricted to IRB approved expenditures.  NBP's primarysources of liquidity are cash flow from operations and available borrowingsunder its amended and restated credit facility.

As of February 24, 2007, we had $445.9 million oflong-term debt, of which $3.4 million was classified as a current liability. Asof February 24, 2007, NBP's amended and restated credit facility consisted of $162.6million term loan and a $160.0 million revolving line of credit loan, which hadoutstanding borrowings of $89.9 million, outstanding letters of credit of $56.2million and available borrowings of $13.9 million, based on the mostrestrictive financial covenant calculations.  On March 21, 2007, NBP amendedits credit facility to increase the available credit under the facility by$50.0 million, $40.0 million of which was added to the term loan and theremaining $10.0 million under the revolving line of credit.  Had this amendmentbeen in place on February 24, 2007, NBP's available borrowings based on themost restrictive financial covenant calculations would have been $63.9 million. Cash flow from operations and borrowings under NBP's amended and restatedcredit facility have funded its working capital requirements, acquisitions, capitalexpenditures and other general corporate purposes.  NBP was in compliance withall of the financial covenants under its amended and restated credit facilityas of February 24, 2007.

 

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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 $4.7 million was outstanding,and capital lease and other obligations of $8.0 million as of February 24, 2007. 

*OperatingActivities*

Net cash used in operating activities in the twenty-sixweeks ended February 24, 2007 was $42.5 million compared to net cash used inoperating activities of $2.2 million in the twenty-six weeks ended February 25,2006. The increase in net cash used in operating activities was primarily dueto an increase in working capital requirements in the current period resultingfrom the acquisition of the Brawley plant, higher beef inventory volumes andhigher accounts receivable balances combined with a larger net loss in thecurrent year compared to the same period last year.

*InvestingActivities*

Net cash used in investing activities was $19.9 millionin the twenty-six weeks ended February 24, 2007 compared to $15.7 million inthe twenty-six weeks ended February 25, 2006.  This increase in cash used wasprimarily attributable to an increase in expenditures for property, plant andequipment related to improving operating efficiencies, primarily at our Liberaland Dodge City facilities in the current year.

*FinancingActivities*

Net cash provided by financing activities was $60.9million in the twenty-six weeks ended February 24, 2007 compared to net cash providedby financing activities of $10.5 million in the twenty-six weeks ended February25, 2006.  The change was primarily attributed to a $58.0 million difference inrevolving credit borrowings, partially offset by $7.4 million in repayments ofNBP's term note in the twenty-six week change in fiscal year 2007 as comparedto the twenty-six week change in fiscal year 2006.

*Amendedand Restated Senior Credit Facility*

Effective June 1, 2006, NBP amended and restated itsexisting senior credit facility with a consortium of banks consisting of a$170.0 million term loan that matures in May 2016 and a $160.0 millionrevolving line of credit loan that matures in May 2011 that is subject tocertain borrowing base limitations.   The term loan contains a provisionwhereby a portion of annual unallocated cash flow proceeds will be used to paydown certain outstanding borrowings under the facility.  In December 2006, thisamount was calculated to be $7.4 million, and accordingly, this amount was usedto reduce the amount outstanding under the term loan.  On March 21, 2007, NBPamended its credit facility further to exercise a provision to expand theavailable credit under the facility by $50.0 million.  NBP's term loan was increased by $40.0 million to $202.6million and the revolving line of credit was increased by $10.0 million to$170.0 million. 

The borrowings under the revolving loan are availablefor NBP's working capital requirements, acquisitions, capital expenditures andother general corporate purposes.  NBP's amended and restated credit facilityis secured by a first priority lien on substantially all of NBP's assets.  Theprincipal amount outstanding under the term loan is payable in semi-annualinstallments on the last business day of each June and December commencing June30, 2011 in equal installments of approximately $3.5 million, with any and allremaining principal outstanding being due and payable on the maturity date. Prepayment is allowed at any time.

 

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NBP's amended and restated credit facility containscovenants that limit NBP's ability to incur additional indebtedness, sell ordispose of assets, pay certain dividends and prepay or amend certainindebtedness, among other matters.  NBP's amended and restated credit facilityalso contains a provision for a conversion to more favorable interest rates andmore restrictive financial covenants on the earlier of (a) August 25, 2007or (b) NBP's election (Conversion Date).  Currently, the interest rate forthe term loan is (a) the Base Rate (as defined in the credit agreement) plus 75basis points or (b) the LIBOR Rate (as defined in the credit agreement) plus275 basis points, or a combination of these rates at NBP's election.  As of February24, 2007, the interest rate for the term loan was equal to 8.125%.  Currently,the interest rate for the revolving loan is (a) the Base Rate plus 50 basispoints or (b) the LIBOR Rate plus 250 basis points, or a combination of theserates at NBP's election.  As of February 24, 2007, the interest rate for therevolving loan was equal to 8.117%.  After the Conversion Date, the interestrate for the term loan and revolving loan will be determined by reference to amatrix of rates keyed to NBP's funded debt to EBITDA (as defined in the creditagreement) ratio.

NBP's amended and restated credit facility imposescertain financial covenants.  From May 30, 2006 until February 28, 2007, NBP wasrequired to (i) have as of the end of each fiscal quarter a minimumfour-quarter rolling EBITDA of $50.0 million and (ii) maintain at alltimes a minimum Borrowing Base Availability (as defined in the creditagreement) of at least $25.0 million.  After February 28, 2007 until theConversion Date, NBP is required to (i) have as of the end of each fiscalquarter a minimum four-quarter rolling EBITDA of $60.0 million and(ii) maintain at all times a minimum Borrowing Base Availability of atleast $25.0 million.  After the Conversion Date, NBP is required to maintain atall times a specified maximum funded debt to EBITDA ratio, a maximum seniorsecured funded debt to EBITDA ratio, a minimum four-quarter rolling EBITDA anda minimum four-quarter rolling debt service coverage ratio.  In addition, NBP'sannual net capital expenditures are limited to $50 million in each fiscal year.

NBP's amended and restated credit facility containscustomary affirmative covenants, including furnishing financial statements,maintenance of insurance, conduct of business, maintenance of properties, andcompliance with laws.  The facility also contains customary negative covenants,including covenants restricting NBP's ability to pay certain distributions,incur additional indebtedness, merge with another entity, sell or disposeassets, and make investments or acquire assets, among other restrictions.

The Company believes that available borrowings underNBP's fifth amended and restated credit facility and cash provided by operatingactivities will be sufficient to support its working capital, capitalexpenditures and debt service requirements for the foreseeable future.  NBP'sability to generate sufficient cash, however, is subject to certain generaleconomic, financial, industry, legislative, regulatory and other factors beyondtheir control.  For a review of the Company's obligations that affectliquidity, please see the "Cash Payment Obligations" table in "Item 7.Management's Discussion and Analysis of Financial Condition and Results ofOperations" of our Annual Report on Form 10-K for the year ended August 26,2006.

** **

**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.

*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.

 

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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. We 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 boxed beefsales are treated as "normal purchases and sales" and not marked to market. SFAS No. 133 imposes extensive recordkeeping requirements in order to treat aderivative instrument as a hedge for accounting purposes. Derivatives qualifyfor treatment as hedges when there is a high correlation between the change infair value of the instrument and the related change in fair value of theunderlying commitment. For derivatives that qualify as effective hedges, thechange in fair value has no net effect on earnings until the hedged transactionaffects earnings. For derivatives that are not designated as hedginginstruments, or for the ineffective portion of a hedging instrument, the changein 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 this statement. Accordingly, the gains and losses associatedwith the change in fair value of the instrument and the offsetting gains andlosses associated with changes in the market value of certain of the firmcommitments related to the futures contracts are recorded to income and expensein the period of change.

NBP uses a sensitivity analysis to evaluate the effectthat changes in the market value of commodities will have on these commodityderivative instruments.  As of February 24, 2007, the potential change in fairvalue of applicable commodity prices, assuming a hypothetical 10% decrease inthe underlying commodity price, was $0.5 million.  As of August 26, 2006, thepotential change in fair value of applicable commodity prices, assuming ahypothetical 10% decrease in the underlying commodity price, was $1.4 million. 

*Foreign Operations*.  Transactions denominated in a currency other than an entity'sfunctional currency may expose that entity to currency risk.  Although NBP operatesin international markets including Japan and South Korea, product sales arepredominately made in United States dollars, and therefore, currency risks arelimited.

*Interest Rates*.As a result of the Company's normal borrowing and leasing activities, ouroperating results are exposed to fluctuations in interest rates, which we manageprimarily through our regular financing activities. We generally maintainlimited 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. 

Our exposure to interest rate risk has not materiallychanged since August 26, 2006.

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**Item 4.  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 beincluded in our periodic Securities and Exchange Commission filings.  Therehave been no changes in our internal controls over financial reporting duringthe twenty-six weeks ended February 24, 2007 that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.  The design of any system of controls and procedures is based inpart upon certain assumptions about the likelihood of future events. 

** **

**PARTII. OTHER INFORMATION**

**Item 1. Legal Proceedings.**

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

**Item 1A. Risk Factors.**

The risk factorsset forth in our Annual Report on Form 10-K for the fiscal year ended August 26,2006 have not materially changed.  Please refer to the Company's report on Form10-K for the fiscal year ended August 26, 2006 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.

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**Item 5. Other Information.**

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

**Item 6. Exhibits.**

(A)

Exhibits     

10.1

First Amendment to the  Fifth Amended and Restated Credit Agreement dated as of March 21, 2007 by and  among National Beef Packing Company, LLC and certain agents, lenders and  issuers (incorporated by reference to Exhibit 10.1 (File No. 333-111407) to  Form 8-K filed with the SEC on March 27, 2007).
                             
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: April 5, 2007 

 

 

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