**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 November 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.  Employer Identification 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 No o

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-acceleratedFiler þ

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 December 29, 2007,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.                                    | 13           |
|                  |                                                                                           |         |
| Item 4T.              | Controls and Procedures.                                                                       | 14           |
|                  |                                                                                           |         |
|                  |                                                                                           |         |
| PART II.              | OTHER INFORMATION                                                                              |         |
|                  |                                                                                           |         |
| Item 1.               | Legal Proceedings.                                                                             | 15           |
|                  |                                                                                           |         |
|    Item 1A. | Risk Factors.                                                                                  | 15           |
|                  |                                                                                           |         |
| Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds.                                   | 15           |
|                  |                                                                                           |         |
| Item 3.               | Defaults Upon Senior Securities.                                                               | 15           |
|                  |                                                                                           |         |
| Item 4.               | Submission of Matters to a Vote of Security Holders.                                           | 15           |
|                  |                                                                                           |         |
| Item 5.               | Other Information.                                                                             | 15           |
|                  |                                                                                           |         |
| Item 6.               | Exhibits.                                                                                 | 16           |
|                  |                                                                                           |         |
|                  | Signatures.                                                                                    | 17           |

 

 

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. 

**                                                                                               **

| ii |
|----|

 

----

 

 

 

 

 

 

**PART I.  FINANCIAL INFORMATION**

** **

**Item 1.  Financial Statements.**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

| 1 |
|---|

                                                                                                

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| ** **                                                                                                                                                  |                                                                                                                |                                                                            |                  |          |                |         |          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|-----------------------|---------------|---------------------|--------------|---------------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                                                                                        |
| **Consolidated Balance Sheets**                                                                                                                   |
| (in thousands, except unit information)                                                                                                 |
|                                                                                                                                                        |                                                                                                                |                                                                            |                  |          |                |
|                                                                                                                                                        |                                                                                                                |                                                                            | **November 24,** |          | **August 25,** |
| **Assets**                                                                                                                                                  | **2007**                                                                                                            |                                                                            | **2007**              |
|                                                                                                                                                        |                                                                                                                |                                                                            | **(unaudited)**       |          |                |
| Current assets:                                                                                                                                        |                                                                                                                |                                                                            |                  |
|                                                                                                                                                        | Cash and cash equivalents                                                                            | $                                                                               | 53,720           |          | $                   | 62,869  |
|                                                                                                                                                        | Accounts receivable, less allowance for returns and doubtful accounts       |                                                                            |                  |          |
|                                                                                                                                                        |                                                                                                                | of $4,400 and $4,642, respectively                          | 174,961          |          | 189,728        |
|                                                                                                                                                        | Due from affiliates                                                                                       | 4,206                                                                      |                  | 4,609    |
|                                                                                                                                                        | Other receivables                                                                                              | 9,931                                                                      |                  | 8,389    |
|                                                                                                                                                        | Inventories                                                                                                         | 189,258                                                                    |                  | 177,244  |
|                                                                                                                                                        | Other current assets                                                                                      | 14,769                                                                     |                  | 14,144   |
|                                                                                                                                                        |                                                                                                                | Total current assets                                                  | 446,845          |          | 456,983        |
| Property, plant, and equipment, at cost                                                                                            | 383,950                                                                                                        |                                                                            | 372,404          |
|                                                                                                                                                        | Less accumulated depreciation                                                                             | (107,865)                                                                       |                  | (99,575)      |
|                                                                                                                                                        |                                                                                                                | Net property, plant, and equipment                          | 276,085          |          | 272,829        |
| Goodwill                                                                                                                                                    | 80,042                                                                                                         |                                                                            | 80,042           |
| Other intangible assets, net of accumulated amortization                                                                      |                                                                                                                |                                                                            |                  |
|                                                                                                                                                        | of $7,737 and $7,214, respectively                                                              | 28,243                                                                     |                  | 28,659   |
| Other assets                                                                                                                                           | 9,593                                                                                                          |                                                                            | 10,104           |
|                                                                                                                                                        |                                                                                                                | Total assets                                                               | $                     | 840,808  |                | $            | 848,617  |
|                                                                                                                                                        |                                                                                                                |                                                                            |                  |          |                |
| **Liabilities and Capital Shares and Equities**                                                                                    |                                                                                                                |                                                                            |                  |
| Current liabilities:                                                                                                                                   |                                                                                                                |                                                                            |                  |
|                                                                                                                                                        | Current installments of long-term debt                                                          | $                                                                               | 4,543            |          | $                   | 4,421   |
|                                                                                                                                                        | Cattle purchases payable                                                                                  | 79,604                                                                     |                  | 62,995   |
|                                                                                                                                                        | Accounts payable - trade                                                                             | 72,822                                                                     |                  | 60,257   |
|                                                                                                                                                        | Due to affiliates                                                                                         | 122                                                                        |                  | 977      |
|                                                                                                                                                        | Accrued compensation and benefits                                                                    | 15,167                                                                     |                  | 18,785   |
|                                                                                                                                                        | Accrued insurance                                                                                              | 14,873                                                                     |                  | 14,550   |
|                                                                                                                                                        | Other accrued expenses and liabilities                                                          | 17,590                                                                     |                  | 11,757   |
|                                                                                                                                                        | Distributions payable                                                                                          | 254                                                                        |                  | 2,708    |
|                                                                                                                                                        |                                                                                                                | Total current liabilities                                             | 204,975          |          | 176,450        |
| Long-term liabilities:                                                                                                                                 |                                                                                                                |                                                                            |                  |
|                                                                                                                                                        | Long-term debt, excluding current installments                                                  | 427,411                                                                    |                  | 438,544  |
|                                                                                                                                                        | Other liabilities                                                                                              | 2,384                                                                      |                  | 2,559    |
|                                                                                                                                                        |                                                                                                                | Total long-term liabilities                                           | 429,795          |          | 441,103        |
|                                                                                                                                                        |                                                                                                                | Total liabilities                                                          | 634,770          |          | 617,553        |
| Minority interest in National Beef Packing Company, LLC and Kansas City Steak Company, LLC | 66,315                                                                                                         |                                                                            | 77,890           |
| Capital shares and equities:                                                                                                                 |                                                                                                                |                                                                            |                  |
|                                                                                                                                                        | Members' capital, 735,385 Class A units and 735,385 Class B units |                                                                            |                  |          |
|                                                                                                                                                        |                                                                                                                | authorized, issued and outstanding                               | 89,016           |          | 102,472        |
|                                                                                                                                                        | Patronage notices                                                                                              | 50,642                                                                     |                  | 50,642   |
|                                                                                                                                                        | Accumulated other comprehensive income                                                               | 65                                                                         |                  | 60       |
|                                                                                                                                                        |                                                                                                                | Total capital shares and equities                           | 139,723          |          | 153,174        |
| Commitments and contingencies                                                                                                                     | -                                                                                                              |                                                                            | -                |
|                                                                                                                                                        |                                                                                                                | Total liabilities and capital shares and equities | $                     | 840,808  |                | $            | 848,617  |
|                                                                                                                                                        |                                                                                                                |                                                                            |                  |          |                |
| See accompanying notes to consolidated financial statements.                                                                  |

** **

** **

| 2 |
|---|

                                                                                                

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| ** **                                                                                             |                                                                                           |                                    |                        |                            |            |                            |    |     |
|--------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|-----------------------------------------|-----------------------------|---------------------------------|-----------------|---------------------------------|---------|----------|
| **U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES**                                   |
| **Consolidated Statements of Operations**                                               |
| (in thousands, except per unit data)                                          |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
|                                                                                                   |                                                                                           |                                    |                        | **13 weeks ended**    |            | **13 weeks ended**    |
|                                                                                                   |                                                                                           |                                    |                        | **November 24, 2007** |            | **November 25, 2006** |
|                                                                                                   |                                                                                           |                                    |                        | **(unaudited)**                 |            | **(unaudited)**                 |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
| Net sales                                                                                         |                                                                                           | $                                       | 1,398,102              |                            | $               | 1,273,025                  |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
| Costs and expenses:                                                                          |                                                                                           |                                    |                        |
|                                                                                                   | Cost of sales                                                                        | 1,393,692                          |                        | 1,269,925                  |
|                                                                                                   | Selling, general, and administrative expenses                              | 11,659                             |                        | 10,434                     |
|                                                                                                   | Depreciation and amortization                                                        | 8,829                              |                        | 7,868                      |
|                                                                                                   |                                                                                           | Total costs and expenses | 1,414,180              |                            | 1,288,227  |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
|                                                                                                   |                                                                                           |                                    | Operating loss         | (16,078)                        |            | (15,202)                        |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
| Other income (expense):                                                                      |                                                                                           |                                    |                        |
|                                                                                                   | Interest income                                                                           | 528                                |                        | 557                        |
|                                                                                                   | Interest expense                                                                          | (9,220)                                 |                        | (9,349)                         |
|                                                                                                   | Minority owners' interest in net loss of National Beef |                                    |                        |                            |
|                                                                                                   |                                                                                           | Packing Company, LLC          | 11,390                 |                            | 11,097     |
|                                                                                                   | Minority owners' interest in net income of Kansas City |                                    |                        |                            |
|                                                                                                   |                                                                                           | Steak Company, LLC            | (25)                        |                            | (52)            |
|                                                                                                   | Equity in loss of aLF Ventures, LLC                              | (25)                                    |                        | (29)                            |
|                                                                                                   | Other, net                                                                                | 267                                |                        | 131                        |
|                                                                                                   |                                                                                           |                                    | Loss before taxes | (13,163)                        |            | (12,847)                        |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
| Income tax expense                                                                           | (549)                                                                                          |                                    | (228)                       |
|                                                                                                   |                                                                                           |                                    | Net loss               | $                               | (13,712)        |                            | $       | (13,075) |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
| Net loss per Class A and Class B linked unit:             |                                                                                           |                                    |                        |
|                                                                                                   | Basic                                                                                          |                                    | $                           | (18.65)                         |            | $                               | (17.78) |
|                                                                                                   | Diluted                                                                                        |                                    | $                           | (18.65)                         |            | $                               | (17.78) |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
| Outstanding weighted-average Class A and Class B linked units: |                                                                                           |                                    |                        |
|                                                                                                   | Basic                                                                                          |                                    | 735,385                |                            | 735,505    |
|                                                                                                   | Diluted                                                                                        |                                    | 735,385                |                            | 735,505    |
|                                                                                                   |                                                                                           |                                    |                        |                            |            |                            |
| 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)

                     |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       |                                                               | **13 weeks ended**    |        | **13 weeks ended**    |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       |                                                               | **November 24, 2007** |        | **November 25, 2006** |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       |                                                               | **(unaudited)**                 |        | **(unaudited)**                 |
| Cash flows from operating activities:                                                   |                                                                                                                               |                                                                                               |                                                       |
|                                                                                                        | Net loss                                                                                                                      |                                                                                               | $                                                          | (13,712)                                                           |                            | $           | (13,075)                        |
|                                                                                                        | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                               |                                                       |                                                               |
|                                                                                                        |                                                                                                                               | Depreciation and amortization                                                            | 8,829                                                 |                                                               | 7,868                      |
|                                                                                                        |                                                                                                                               | (Gain) losss on disposal of property, plant, and equipment | (2)                                                        |                                                               | 27                         |
|                                                                                                        |                                                                                                                               | Minority interest                                                                             | (11,373)                                                   |                                                               | (11,045)                        |
|                                                                                                        |                                                                                                                               | Changes in assets and liabilities:                                             |                                                       |                                                               |                            |
|                                                                                                        |                                                                                                                               |                                                                                               | Accounts receivable                                   | 14,767                                                        |                            | 9,001  |
|                                                                                                        |                                                                                                                               |                                                                                               | Due from affiliates                              | 403                                                           |                            | 792    |
|                                                                                                        |                                                                                                                               |                                                                                               | Other receivables                                     | (1,542)                                                            |                            | 1,321  |
|                                                                                                        |                                                                                                                               |                                                                                               | Inventories                                                | (12,014)                                                           |                            | 6,298  |
|                                                                                                        |                                                                                                                               |                                                                                               | Other assets                                          | (229)                                                              |                            | (1,649)     |
|                                                                                                        |                                                                                                                               |                                                                                               | Cattle purchases payable                         | 6,679                                                         |                            | 4,604  |
|                                                                                                        |                                                                                                                               |                                                                                               | Accounts payable                                      | 2,520                                                         |                            | (2,933)     |
|                                                                                                        |                                                                                                                               |                                                                                               | Due to affiliates                                | (855)                                                              |                            | (492)       |
|                                                                                                        |                                                                                                                               |                                                                                               | Accrued compensation and benefits           | (3,618)                                                            |                            | (13,124)    |
|                                                                                                        |                                                                                                                               |                                                                                               | Accrued insurance                                     | 323                                                           |                            | 109    |
|                                                                                                        |                                                                                                                               |                                                                                               | Other accrued expenses and liabilities | 6,124                                                         |                            | 2,264  |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       | Net cash used in operating activities     | (3,700)                         |        | (10,034)                        |
| Cash flows from investing activities:                                                   |                                                                                                                               |                                                                                               |                                                       |
|                                                                                                        | Capital expenditures, including interest capitalized                                                           | (11,558)                                                                                           |                                                       | (9,931)                                                            |
|                                                                                                        | Proceeds from sale of property, plant, and equipment                                            | 6                                                                                             |                                                       | 55                                                            |
|                                                                                                        |                                                                                                                               | Net cash used in investing activities                                     | (11,552)                                                   |                                                               | (9,876)                         |
| Cash flows from financing activities:                                                   |                                                                                                                               |                                                                                               |                                                       |
|                                                                                                        | Net (payments) receipts under revolving credit lines                                                 | (9,648)                                                                                            |                                                       | 15,536                                                        |
|                                                                                                        | Payments of term notes payable                                                                                 | (257)                                                                                              |                                                       | (258)                                                              |
|                                                                                                        | Repayments of other indebtedness / capital leases                                                    | (1,106)                                                                                            |                                                       | (823)                                                              |
|                                                                                                        | Change in overdraft balances                                                                                        | 19,975                                                                                        |                                                       | 13,184                                                        |
|                                                                                                        | Distributions to minority interest owners in National Beef Packing Company, LLC  | (2,866)                                                                                            |                                                       | (5,039)                                                            |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       | Net cash provided by financing activities | 6,098                      |        | 22,600                     |
|                                                                                                        | Effect of exchange rate changes on cash                                                              | 5                                                                                             |                                                       | 8                                                             |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       | Net (decrease) increase in cash                | (9,149)                         |        | 2,698                      |
| Cash and cash equivalents at beginning of the period                | 62,869                                                                                                                        |                                                                                               | 58,434                                                |
| Cash and cash equivalents at end of the period                      | $                                                                                                                                  | 53,720                                                                                        |                                                       | $                                                                  | 61,132                     |
| Supplemental cash disclosures:                                                                    |                                                                                                                               |                                                                                               |                                                       |
|                                                                                                        | Cash paid during the period for interest                                                             | $                                                                                                  | 5,428                                                 |                                                               | $                               | 7,123  |
|                                                                                                        | Cash paid during the period for taxes, net of refunds                                 | $                                                                                                  | 525                                                   |                                                               | $                               | 53     |
| Supplemental non-cash disclosures of investing and financing activities: |                                                                                                                               |                                                                                               |                                                       |
|                                                                                                        | Receivable for final Brawley purchase price adjustment                                               | $                                                                                                  | -                                                     |                                                               | $                               | 1,302  |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       |                                                               |                            |        |                            |
| See accompanying notes to consolidated financial statements.                  |
|                                                                                                        |                                                                                                                               |                                                                                               |                                                       |                                                               |                            |        |                            |

** **

| 4 |
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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.  Certain prior year amounts have been reclassified in orderto conform to the current year presentation, as further discussed in the mostrecent Annual Report on Form 10-K.

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 September 2006, the Financial Accounting StandardsBoard (FASB) issued Statement of Financial Accounting Standard No. 157 (SFAS157), *Fair Value Measurements*.  This statement establishes a singleauthoritative definition of fair value, sets out a framework for measuring fairvalue, and requires additional disclosures about fair value measurements.  SFAS157 defines fair value as “the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between marketparticipants at the measurement date.”  SFAS 157 will apply to fiscal yearsbeginning after November 15, 2007, and interim periods within those fiscalyears.  The Company is currently evaluating the impact SFAS 157 may have, ifany, on its Consolidated Financial Statements.

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 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.

** **

** **

** **

** **

** **

| 5 |
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**(3)Inventories**

Inventories at November 24, 2007 and August25, 2007 consisted of the following (in thousands):

|   |   | **November 24, 2007**   
**August 25, 2007**
 

 

 

 

 

Dressed and boxed meat products

$

155,410 

 

$

144,766 

Beef by-products

18,584 

 

19,540 

Supplies

15,264 

 

12,938 

 

Total inventories

$

189,258 

 

$

177,244 

 

 

 

 

 

** **

**(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**

**November 24, 2007**

 

**13 weeks ended**

**November 25, 2006**

Net loss

$

(13,712)

 

$

(13,075)

Other comprehensive income:

 

 

 

     Foreign currency translation adjustments

5 

 

8 

 

Comprehensive loss

$

(13,707)

 

$

(13,067)

 

 

 

 

 

** **

**(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 November 24, 2007, theminority interest in National Beef was revalued by an independent appraisalprocess, and the value was determined to be $66.2 million, which was in excessof its carrying value.  Accordingly, the carrying value of the minorityinterest in National Beef increased by approximately $0.2 million throughaccretion during the thirteen weeks ended November 24, 2007, resulting in acarrying value of $65.3 million, which is included in the accompanyingConsolidated Balance Sheet as of November 24, 2007.  

**(6)Income Taxes**

OnAugust 26, 2007, the Company adopted FASB Interpretation No. 48 (FIN 48), *Accountingfor Uncertainty in Income Taxes*.  FIN48 provides guidance on the financial statement recognition and measurement ofa tax position taken or expected to be taken in a tax return.  FIN 48 alsoprovides guidance on derecognition, classifications, interest and penalties,accounting in interim periods, disclosures and transition.  As a result of the adoption, tax reserves in theamount of approximately $0.5 million were reversed. 

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.   

TheCompany’s subsidiary, National Carriers, Inc. (NCI), has concluded anexamination of its U.S. federal income taxes for fiscal year 2005.  Based onfederal income tax statute of limitations, NCI remains subject to examinationof its income taxes for fiscal years 2006 and 2007. USPB does not currently have any ongoing income taxexaminations with the Internal Revenue Service or other tax authorities. 

6

                                                                                                

 

 

** **

**(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. 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. OnApril 13, 2006, the jury returned a verdict in favor of FNBPC but against theother defendants. The other defendants have filed an appeal in the UnitedStates Court of Appeals for the Eighth Circuit. The appeal was argued onNovember 14, 2007.  No decision has been made.  The plaintiffs did not appealthe verdict for the Company but no final judgment will be entered until afterthe appeal is decided.  

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.

 

 

 

 

7

                                                                                                

 

 

 

**(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 the 13 week period ending November 24, 2007 and November 25, 2006,respectively, as the effect of including them would have been anti-dilutive tothe loss per linked unit calculation. 

* *

 

 

 

 

 

**Loss Per Linked Unit Calculation**

 

 

 

 

 

 

 

(In thousands, except unit and per unit data)

**13 weeks ended**

**November 24, 2007**

 

**13 weeks ended**

**November 25, 2006**

 

(unaudited)

 

(unaudited)

**Basic loss per unit**

 

 

 

Loss available to unitholders (numerator)

$

(13,712)

 

$

(13,075)

 

 

 

 

Weighted average outstanding units (denominator)

735,385 

 

735,505 

 

 

 

 

Per unit amount

$

(18.65)

 

$

(17.78)

 

 

 

 

**Diluted loss per unit**

 

 

 

Loss available to unitholders (numerator)

$

(13,712)

 

$

(13,075)

 

 

 

 

Weighted average outstanding units

735,385 

 

735,505 

Effect of dilutive securities - unit options

- 

 

- 

Units (demoninator)

735,385 

 

735,505 

 

 

 

 

Per unit amount

$

(18.65)

 

$

(17.78)

 

 

 

 

** **

8

                                                                                                

 

 

 

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

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 economic conditions generally and in our principalmarkets, the availability and prices of live cattle and commodities, foodsafety, 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 oralforward-looking statements attributable to us or persons acting on our behalfare expressly qualified in their entirety by these factors.  See also the *RiskFactors* in *Item 1A. Business* of the Company’s Annual Report forthe year ended August 25, 2007 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**

The cattle herd in the UnitedStates (U.S.) remains in a no-growth phase.  Following the drought of 2006 inthe central region of the U.S., an extreme dryness in the southeastern regionof the U.S. resulted in cow herd liquidation in the southeastern region during2007.  Retention of females to replenish and grow the U.S. cattle herd remainsslow, resulting in long-term cattle supplies that show no appreciable sign ofgrowth in overall fed cattle supplies over the next two to three years. Meanwhile, cattle on feed supplies have returned to approximately the samelevel as the same time last year. Anticipated higher live cattle weights shouldsupport expectations for year over year beef production gains during the firsthalf of 2008 before trending back below 2007 levels for the remainder of 2008.

**RecentDevelopments**

            Negotiationsfor the Collective Bargaining Agreement with the United Food and CommercialWorkers Union, Local 2, for the Liberal, Kansas facility, to replace the prioragreement that expired on December 16, 2007, were completed in December 2007. The newly ratified agreement provides for a five-year term expiring in December2012.  The new agreement includes changes in wages and benefits that allow usto continue to be cost competitive within the beef industry while ensuring theability to attract and retain employees.  

**BeefExport Markets**

            Export markets for U.S. beef products remain significantlyconstrained since the discovery of a case of BSE in the State of Washington inDecember 2003, as well as several other isolated cases.  In July 2006, Japanagreed to reopen its market to U.S. beef from cattle aged 20 months andyounger.  In September 2006, South Korea announced a provisional opening of itsborder to U.S. beef from animals 30 months and younger; however, restrictionsimposed with the reopening have prompted further border closings from time totime.  These constraints and uncertainties have had a negative impact on beefmargins.

9

                                                                                                

 

 

 

 

The Company cannot presently assess the full economicimpact of the consequences of BSE on the U.S. beef packing industry or on itsoperations.  Existing or new import restrictions or additional regulatoryrestrictions or disruptions in domestic consumer demand for beef may continueto have a material adverse affect on the Company’s revenues and net income.

**Resultsof Operations**

***Thirteen weeks ended November 24, 2007 compared to thirteen weeks endedNovember 25, 2006***

*General.* Net loss for the thirteen weeks ended November 24, 2007 was $13.7 millioncompared to net loss of $13.1 million for the thirteen weeks ended November 25,2006, an increased loss of $0.6 million.  Sales and cost of sales were bothhigher in the thirteen weeks ended November 24, 2007 than those of the prioryear period primarily due to an increase of approximately 5.9% in the number ofcattle processed, higher live cattle prices that were approximately 4.9% moreand heavier cattle at average weights 0.8% more than the same period of fiscalyear 2007.  

Although sales increased by approximately 9.8%compared to the same period in the prior year, cost of sales also increased byapproximately 9.8%, along with an approximate 12.5% increase in selling,general, and administrative expenses and an approximate 11.4% increase indepreciation expense, resulting in an increase in operating loss of $0.9million.  The increase in cost of sales was primarily due to an increase incattle processed at live cattle prices that were approximately 4.9% higher andcattle weighing an average of 0.8% more than the same period in the prioryear.  Total costs and expenses of $1,414.2 million and $1,288.2 million forthe thirteen weeks ended November 24, 2007 and November 25, 2006, respectively,were 101.2% as a percent of sales for both periods.  

*Net Sales*. Net sales were $1,398.1 million for the thirteen weeks ended November 24, 2007compared to $1,273.0 million for the thirteen weeks ended November 25, 2006, anincrease of $125.1 million or 9.8%.  The increase in net sales principally resultedfrom an approximate 5.9% increase in the number of cattle processed during thethirteen weeks ended November 24, 2007.  

*Cost of Sales*. Cost of sales was $1,393.7 million for the thirteen weeks ended November 24,2007 compared to $1,269.9 million for the thirteen weeks ended November 25, 2006,an increase of $123.8 million or 9.8%.  The increase was a result of acombination of increased cattle processing of approximately 5.9%, higher livecattle prices that were approximately 4.9% more and heavier cattle at averageweights 0.8% more than the same period of fiscal year 2007.  The 4.9% increasein cattle prices for this period resulted from a continued tight supply ofmarket-ready cattle.

*Selling, General, and Administrative Expenses*.  Selling, general, and administrative expenses were$11.7 million for the thirteen weeks ended November 24, 2007 compared to $10.4million for the thirteen weeks ended November 25, 2006, an increase of $1.3million or 12.5%.  The increase reflects an increase in payroll and relatedexpenses of approximately $0.7 million, an increase in marketing andadvertising expense of approximately $0.3 million, an approximate $0.3 millionincrease in legal fees, an approximate $0.1 million increase in dues andsubscription expense, and an increase in travel expenses of approximately $0.1million, which were offset by a decrease of approximately $0.2 million in baddebt expense and a decrease in repairs and maintenance expense of approximately$0.2 million.

*Depreciation and Amortization Expense*.  Depreciation and amortization expenses were $8.8million for the thirteen weeks ended November 24, 2007 compared to $7.9 millionfor the thirteen weeks ended November 25, 2006, an increase of $0.9 million or 11.4%. Most of the increase was due to increased depreciation expense resulting from assetsbeing placed into service, primarily at the Dodge City and Brawley beef plants,during fiscal year 2007.

*Operating Loss.* An operating loss of $16.1 million was incurred for the thirteen weeks endedNovember 24, 2007 compared to an operating loss of $15.2 million for thethirteen weeks ended November 25, 2006, an increased loss of $0.9 million or5.9%.  The increase resulted primarily from a lower sales volume at our portioncontrol meat facility.  

10

                                                                                                

 

 

 

 

 

*Interest Expense*.  Interest expense was $9.2 million for the thirteen weeks endedNovember 24, 2007 compared to $9.3 million for the thirteen weeks endedNovember 25, 2006, a slight decrease of $0.1 million or 1.1%.  The decrease ininterest expense during the thirteen weeks ended November 24, 2007 as comparedto the same period in fiscal year 2007 was due primarily to lower interestrates on our variable rate debt, a decrease of approximately 53 basis points, duringthe thirteen weeks ended November 24, 2007 as compared to the same period infiscal year 2007.  Offsetting this decrease in interest rates was an increasein the weighted average of variable rate debt outstanding of approximately$38.0 million at November 24, 2007 as compared to November 25, 2006.  

*Income Tax Expense*.  Income tax expense was $0.5 million for the thirteen weeks endedNovember 24, 2007 compared to $0.2 million for the thirteen weeks endedNovember 25, 2006.  Income tax expense is recorded on income from NationalCarriers, Inc., which is organized as a Subchapter C Corporation.

**Liquidity and Capital Resources**

As of November 24, 2007, we had net working capital of$241.8 million, which included $0.3 million in distributions payable, and cashand cash equivalents of $53.7 million.  Asof 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 $62.9million.  NBP’s primary sources of liquidity are cash flow from operations andavailable borrowings under its amended and restated credit facility.

As of November 24, 2007, we had $432.0 million oflong-term debt, of which $4.5 million was classified as a current liability.  Asof November 24, 2007, NBP’s amended and restated credit facility consisted of a$202.6 million term loan, all of which was outstanding, and a $200.0 millionrevolving line of credit loan, which had outstanding borrowings of $28.7million, outstanding letters of credit of $55.3 million and availableborrowings of $116.0 million, based on the most restrictive financial covenantcalculations.  Cash flows from operations and borrowings under the amended andrestated credit facility have funded working capital requirements, acquisitions,capital expenditures and other general corporate purposes.  NBP was incompliance with all of the financial covenants under its amended and restatedcredit facility as of November 24, 2007.

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 $3.9 million was outstanding,and capital leases and other obligations of $16.1 million as of November 24,2007.

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 is authorized topurchase up to $50.0 million of its outstanding Senior Notes from time to timein accordance with the limits imposed under the amended and restated creditfacility.  NBP’s ability to generate sufficient cash, however, is subject tocertain general economic, financial, industry, legislative, regulatory andother factors beyond its control.  For a review of the obligations that affectliquidity, please see the*Cash Payment Obligations* table in Item 7. *Management’sDiscussion and Analysis of Financial Condition and Results of Operations* ofour Annual Report on Form 10-K for the year ended August 25, 2007.

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.

*OperatingActivities*

Net cash used in operating activities in the thirteenweeks ended November 24, 2007 was $3.7 million compared to net cash used in operatingactivities of $10.0 million in the thirteen weeks ended November 25, 2006. The $6.3million change was primarily due to a larger decrease in working capital itemsin the current period, as compared to the same period a year ago, resultingprimarily from an increase in accounts receivable collections, partially offsetby an increase in beef inventory levels and a smaller decrease in accruedcompensation.

11

                                                                                                

 

 

 

 

 

*InvestingActivities*

Net cash used in investing activities was $11.6 millionin the thirteen weeks ended November 24, 2007 compared to $9.9 million in the thirteenweeks ended November 25, 2006.  This increase in cash used was primarilyattributable to an increase in expenditures for property, plant, and equipmentin the current year.

*FinancingActivities*

Net cash provided by financing activities was $6.1million in the thirteen weeks ended November 24, 2007 compared to $22.6 millionin the thirteen weeks ended November 25, 2006.  The change was primarilyattributed to $9.6 million in net payments in revolving credit borrowingsduring the current thirteen week period as compared to $15.5 million in netreceipts in revolving credit borrowings during the same period of last year,partially offset by a $6.8 million change in the overdraft balance.

*Amendedand Restated Senior Credit Facility*

Effective July 25, 2007, NBP amended and restated itsexisting 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 and 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 November 24, 2007, theinterest rate for the revolving loan was approximately 6.7%.   The applicablemargin for the term loan was also revised to a grid basis with differentmargins for Funded Debt to EBITDA Ratios greater than 3.50 to 1.00 and lessthan 3.50 to 1.00.  As of November 24, 2007, the interest rate for the termloan was approximately 6.8%.

The revolving line of credit and the term loan will have no financial covenantsunless the borrowing base availability is less than $50.0 million for fiveconsecutive business days or less than $35.0 million on any single business dayduring any fiscal quarter.  If the borrowing base availability falls belowthese amounts, a fixed charge ratio of 1:15 to 1:00 must be maintained at theend of each subsequent fiscal quarter until the borrowing base availability hasbeen greater than or equal to $50.0 million for 90 consecutive days.  NBP was not subject to the fixed charge ratio testat November 24, 2007.  The advance rates underthe borrowing base are 90% on eligible accounts and 70% on eligible inventory.

Theborrowings under the revolving loan are available for the 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 June30, 2011.  All outstanding amounts of the term loan are due and payable on May30, 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.

The amended and restated credit facility containscustomary events of default, including without limitation, failure to makepayment when due, materially incorrect representations and warranties, breachof covenants, events of bankruptcy, default of other indebtedness that wouldpermit acceleration of such indebtedness, the occurrence of one or moreunstayed or undischarged judgments in excess of $3.0 million, changes incustody or control of the Company’s property, changes in control of theCompany, the failure of any of the loan documents to remain in full force, andthe Company’s failure to properly fund its employee benefit plans.  Thefacility also includes customary provisions protecting the lenders againstincreased cost or loss of yield resulting from changes in tax, reserve, capitaladequacy and other requirements of law.

 

12

                                                                                                

 

 

 

**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 derivative instrument.The particular hedging instrument NBP uses depends on a number of factors,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 associatedwith the 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.

NBP uses a sensitivity analysis to evaluate the effectthat changes in the market value of commodities will have on these commodityderivative instruments.  As of November 24, 2007, the potential change in fairvalue of applicable commodity prices, assuming a hypothetical 10% decrease inthe underlying commodity price, was $16.3 million.  As of August 25, 2007, thepotential change in fair value of applicable commodity prices, assuming ahypothetical 10% decrease in the underlying commodity price, was $5.2 million. 

13

                                                                                                

 

 

 

 

 

*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 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 November24, 2007, the weighted average interest rate on our $255.9 million of variablerate debt was approximately 6.6%.

We had total interest expense of approximately $9.2million during the thirteen week period ending November 24, 2007.  Theestimated increase in interest expense from a hypothetical 200 basis pointincrease in applicable variable interest rates would have been approximately $1.2million in the thirteen week period ending November 24, 2007. 

** **

**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 beincluded in our periodic Securities and Exchange Commission filings.  Therehave been no changes in our internal controls over financial reporting duringthe thirteen weeks ended November 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. 

 

 

** **

14

                                                                                                

 

 

 

 

 

**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.**

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.**

TheAnnual Meeting of members of USPB was held on December 14, 2007. Other thanapproval of the minutes from the previous annual meeting, the only proposalpresented for member consideration at the Annual Meeting was the election of three(3) directors to serve for three-year terms expiring after the 2010 fiscalyear.  The four nominees who stood for election to the Board of Directors wereincumbent directors Mark Gardiner, Doug Laue, and Jerry Bohn and new candidate JoeMorgan.  Biographical information regarding Messrs. Gardiner, Laue, Bohn, and Morganhas previously been included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 25, 2007.   

At the Annual Meeting,under procedures established by the Company’s Nominating Committee, Messrs.Gardiner, Laue, Bohn, and Morgan stood for election for the three open seats onthe USPB Board of Directors.  USPB’s members elected Mark Gardiner, Doug Laue, andJoe Morgan to serve as directors on the Board of Directors for a term that willexpire after fiscal year 2010.  The election of the nominees was by amajority of the members present and voting at the Annual Meeting, expressed bya written ballot.  In the election, out of 110 valid ballots, Mr. Gardinerreceived a total of 97 votes, Mr. Laue received a total of 96 votes, Mr. Bohnreceived a total of 47 votes and Mr. Morgan received a total of 63 votes.  Theother members of the Board of Directors, Mr. Fairleigh, Ms. Keiser, Mr. McCloy,and Mr. Ramsey continued in service as members of the USPB Board of Directorsfollowing the Annual Meeting.

** **

**Item 5. Other Information.**

None.         

 

15

                                                                                                

 

 

 

 

 

**Item 6. Exhibits.**

(A)

              

Exhibits

 
          
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.

** **

 

 

 

 

16

                                                                                                

 

 

 

**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: January 8, 2008 

 

 

 

 

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