** **

**UNITEDSTATES****SECURITIES AND EXCHANGE COMMISSION****WASHINGTON,D.C. 20549**

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**FORM10-Q**

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**x****                                ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**                                               ****For the quarterly periodended August 26, 2007**

**OR**

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

**                                               ****For the transitionperiod from          to          .**

**CommissionFile Number 000-51035**

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**UAPHolding Corp.**(Exact Name of Registrant as Specified in ItsCharter)

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| **Delaware**                               | ** ** | **11-3708834**      |
|--------------------------------------------|------------|---------------------|
| (State or Other  Jurisdiction of           |       | (I.R.S. Employer    |
| Incorporation or  Organization)            |       | Identification No.) |
|                                       |       |                |
| **7251 W. 4th Street, Greeley,  Colorado** | ** ** | **80634**           |
| (Address of Principal  Executive Offices)  |       | (Zip Code)          |

**(970)356-4400**(Registrant’s Telephone Number, Including AreaCode)

**Notapplicable**(Former Name, Former Address and Former FiscalYear, if Changed Since Last Report)

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

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.

| Large accelerated filer x |   | Accelerated filer o |   | Non-accelerated filer o |
|---------------------------|--------|---------------------|--------|-------------------------|

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes o  Nox

Indicate the number of shares outstanding of each of registrant’sclasses of common stock, as of the latest practicable date.

As of October 3, 2007, there were 52,455,267 shares ofthe registrant’s Common Stock, $0.001 par value, outstanding.

 

 

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* *

*TABLE OF CONTENTS*

* *
| ***Part I. Financial Information***                                                                      | **3**      |
|---------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** |
| **ITEM 1. FINANCIAL STATEMENTS**                                                                         | **3**      |
| **Report of Independent  Registered Public Accounting Firm**                                                  | **3**      |
| **Consolidated Balance Sheets**                                                                               | **4**      |
| **Consolidated Statements of  Earnings**                                                                      | **5**      |
| **Consolidated Statements of Cash  Flows**                                                                    | **6**      |
| **Consolidated Statement of  Stockholders’ Equity**                                                      | **7**      |
| **Notes to Consolidated Financial  Statements**                                                               | **8**      |
| ** **                                                                                                    | ** ** |
| **ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS** | **18**     |
| ** **                                                                                                    | ** ** |
| **ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                  | **28**     |
| ** **                                                                                                    | ** ** |
| **ITEM 4.  CONTROLS AND PROCEDURES**                                                                     | **29**     |
| ** **                                                                                                    | ** ** |
| ***Part II. Other  Information***                                                                             | **30**     |
| ** **                                                                                                    | ** ** |
| **ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**                                              | **30**     |
| ** **                                                                                                    | ** ** |
| **ITEM 6. EXHIBITS**                                                                                     | **31**     |
| ** **                                                                                                    | ** ** |
| ***SIGNATURES***                                                                                              | **32**     |

 

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**PART I.    FINANCIAL INFORMATION**

**ITEM 1.****                             ****FINANCIAL STATEMENTS**

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of UAPHolding Corp.

Greeley, Colorado

We have reviewed the accompanying consolidated balancesheets of UAP Holding Corp. and subsidiaries (the “Company”) as of August26, 2007, and August 27, 2006, the related consolidated statements ofearnings for the thirteen and twenty-six week periods ended August26, 2007, and August 27, 2006, the consolidated statements of cashflows for the twenty-six week periods ended August 26, 2007, and August 27,2006, and the consolidated statement of stockholders’ equity for the twenty-sixweek period ended August 26, 2007. These interim financial statements are theresponsibility of the Company’s management.

We conducted our reviews in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Areview of interim financial information consists principally of applyinganalytical procedures and making inquiries of persons responsible for financialand accounting matters. It is substantially less in scope than an auditconducted in accordance with the standards of the Public Company AccountingOversight Board (United States), the objective of which is the expression of anopinion regarding the financial statements taken as a whole. Accordingly, we donot express such an opinion.

Based on our reviews, we are not aware of any materialmodifications that should be made to such consolidated interim financialstatements for them to be in conformity with accounting principles generallyaccepted in the United States of America.

We have previously audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheet of UAP Holding Corp. and subsidiaries as of February25, 2007, and the related consolidated statements of earnings, stockholders’equity, and cash flows for the year then ended (not presented herein); and inour report dated April 24, 2007, we expressed an unqualified opinion onthose consolidated financial statements. In our opinion, the information setforth in the accompanying consolidated balance sheet as of February 25, 2007,is fairly stated, in all material respects, in relation to the consolidatedbalance sheet from which it has been derived.

DELOITTE & TOUCHE LLP

Denver, Colorado

October 3, 2007

 

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**UAP HOLDING CORP.**

**CONSOLIDATEDBALANCE SHEETS**(in thousands, except share data)**UNAUDITED**
| ** **                                                                                                                                 | ** ** | **August 26, 2007** | ** ** | **February 25, 2007** | ** ** | **August 27, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------------|------------|--------------------------|------------|
| **ASSETS**                                                                                                                                 | ** ** | ** **               | ** ** | ** **                      | ** ** | ** **               | ** ** |
| Current assets:                                                                                                                            |       |                     |       |                            |       |                     |       |
| Cash and cash  equivalents                                                                                                                 |       | $                        | 12,079     |                            | $          | 19,506                   |       | $ | 7,249 |   |
| Receivables, net                                                                                                                           |       | 1,061,679                |       | 338,229                         |       | 943,188                  |       |
| Inventories                                                                                                                                |       | 613,003                  |       | 883,033                         |       | 570,648                  |       |
| Deferred income  taxes                                                                                                                     |       | 29,224                   |       | 28,046                          |       | 23,332                   |       |
| Vendor prepay                                                                                                                              |       | 30,135                   |       | 64,700                          |       | 13,725                   |       |
| Other current  assets                                                                                                                      |       | 8,983                    |       | 8,547                           |       | 4,911                    |       |
| Total current  assets                                                                                                                      |       | 1,755,103                |       | 1,342,061                       |       | 1,563,053                |       |
| Property, plant  and equipment                                                                                                             |       | 160,154                  |       | 145,455                         |       | 122,998                  |       |
| Less accumulated  depreciation                                                                                                             |       | (41,487                  | )          | (35,234                         | )          | (29,490                  | )          |
| Property, plant  and equipment, net                                                                                                        |       | 118,667                  |       | 110,221                         |       | 93,508                   |       |
| Intangible  assets, net                                                                                                                    |       | 49,783                   |       | 50,076                          |       | 31,230                   |       |
| Goodwill                                                                                                                                   |       | 46,821                   |       | 45,138                          |       | 36,852                   |       |
| Deferred income  taxes                                                                                                                     |       | 6,080                    |       | 4,448                           |       | 8,239                    |       |
| Debt issuance  costs, net                                                                                                                  |       | 4,844                    |       | 5,445                           |       | 6,047                    |       |
| Other assets                                                                                                                               |       | 1,830                    |       | 1,797                           |       | 1,639                    |       |
| Total assets                                                                                                                               |       | $                        | 1,983,128  |                            | $          | 1,559,186                |       | $ | 1,740,568 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                             | ** ** | ** **               | ** ** | ** **                      | ** ** | ** **               | ** ** |
| Current  liabilities:                                                                                                                      |       |                     |       |                            |       |                     |       |
| Accounts payable                                                                                                                           |       | $                        | 936,123    |                            | $          | 926,632                  |       | $ | 1,028,304 |   |
| Short-term debt                                                                                                                            |       | 402,484                  |       | 184,739                         |       | 191,765                  |       |
| Income taxes  payable                                                                                                                      |       | 46,205                   |       | —                          |       | 12,981                   |       |
| Accrued payroll  and related liabilities                                                                                                   |       | 23,229                   |       | 5,820                           |       | 18,241                   |       |
| Deferred income  taxes                                                                                                                     |       | 2,132                    |       | 2,200                           |       | 2,049                    |       |
| Other accrued  liabilities                                                                                                                 |       | 89,133                   |       | 72,631                          |       | 90,183                   |       |
| Total current  liabilities                                                                                                                 |       | 1,499,306                |       | 1,192,022                       |       | 1,343,523                |       |
| Long-term debt                                                                                                                             |       | 171,515                  |       | 172,390                         |       | 174,952                  |       |
| Deferred income  taxes                                                                                                                     |       | 16,086                   |       | 17,953                          |       | 19,116                   |       |
| Other  non-current liabilities                                                                                                             |       | 10,963                   |       | 6,567                           |       | 4,087                    |       |
| Commitments and  contingencies (Note 14)                                                                                                   |       |                     |       |                            |       |                     |       |
| Stockholders’  equity:                                                                                                                |       |                     |       |                            |       |                     |       |
| Common stock,  $.001 par value, 90,000,000 shares authorized, 52,052,180, 51,194,620, and  50,967,958 issued and outstanding, respectively |       | 52                       |       | 51                              |       | 51                       |       |
| Management stock  — rabbi trust                                                                                                       |       | —                   |       | —                          |       | 1,978                    |       |
| Additional  paid-in capital                                                                                                                |       | 154,019                  |       | 138,569                         |       | 124,106                  |       |
| Retained  earnings                                                                                                                         |       | 125,454                  |       | 27,801                          |       | 67,523                   |       |
| Accumulated other  comprehensive income                                                                                                    |       | 5,733                    |       | 3,833                           |       | 5,232                    |       |
| Stockholders’  equity                                                                                                                 |       | 285,258                  |       | 170,254                         |       | 198,890                  |       |
| Total  liabilities and stockholders’ equity                                                                                           |       | $                        | 1,983,128  |                            | $          | 1,559,186                |       | $ | 1,740,568 |   |
|                                                                                                                                            |            |                          |            |                                 |            |                          |            |  |  |  |  |  |  |  |

The accompanying notesare an integral part of the financial statements.

 

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** **

**UAP HOLDING CORP.**

**CONSOLIDATEDSTATEMENTS OF EARNINGS**(in thousands,except share data)**UNAUDITED**
|                                                      | ** ** | **Thirteen Weeks Ended**      | ** **         | **Twenty-Six Weeks Ended**    | ** ** |
|-----------------------------------------------------------|------------|-------------------------------|--------------------|-------------------------------|------------|
|                                                      | ** ** | **August 26, 2007** | ** **         | **August 27, 2006** | ** ** | **August 26, 2007** | **  ** | **August 27, 2006** | ** ** |
| Net sales                                                 |       | $                             | 862,532            |                          | $          | 767,792 |     | $ | 2,467,550 |   | $ | 2,165,815 |   |
| Cost of goods  sold                                       |       | 724,375                       |     | 659,446                       |       | 2,089,392 |     | 1,871,820 |   |
| Gross profit                                              |       | 138,157                       |               | 108,346                       |       | 378,158 |   | 293,995 |   |
| Selling, general  and administrative expenses             |       | 79,357                        |               | 66,235                        |       | 178,330 |   | 155,209 |   |
| Royalties,  service charges and other income and expenses |       | (9,959                        | )                  | (7,946                        | )          | (19,257 | ) | (15,294 | ) |
| Operating income                                          |       | 68,759                        |               | 50,057                        |       | 219,085 |   | 154,080 |   |
| Interest  expense, net                                    |       | 11,148                        |               | 8,869                         |       | 19,144 |   | 17,158 |   |
| Finance related  and other charges                        |       | —                        |               | 47,366                        |       | — |   | 47,848 |   |
| Income (loss)  before income taxes                        |       | 57,611                        |               | (6,178                        | )          | 199,941 |   | 89,074 |   |
| Income tax  expense (benefit)                             |       | 22,592                        |               | (1,880                        | )          | 77,239 |   | 35,056 |   |
| Net income  (loss)                                        |       | $                             | 35,019             |                          | $          | (4,298 | ) | $ | 122,702 |   | $ | 54,018 |   |
| Earnings (loss)  per share:                               |       |                          |               |                          |       |   |   |   |   |
| Basic                                                     |       | $                             | 0.67               |                          | $          | (0.08 | ) | $ | 2.37 |   | $ | 1.06 |   |
| Diluted                                                   |       | $                             | 0.66               |                          | $          | (0.08 | ) | $ | 2.32 |   | $ | 1.03 |   |
| Cash dividends  declared per share of common stock        |       | $                             | 0.225              |                          | $          | 0.1875 |   | $ | 0.45 |   | $ | 0.375 |   |
| Weighted average  shares outstanding:                     |       |                          |               |                          |       |   |   |   |   |
| Basic                                                     |       | 51,987,499                    |               | 50,967,958                    |       | 51,706,743 |   | 50,909,734 |   |
| Diluted                                                   |       | 53,123,669                    |               | 50,967,958                    |       | 52,963,884 |   | 52,401,271 |   |
|                                                      |       |                          |               |                          |       |   |   |   |   |

The accompanying notesare an integral part of the financial statements.

 

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** **

**UAP HOLDING CORP.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**(in thousands)**UNAUDITED**
| ** **                                                                      | ** ** | **Twenty-Six Weeks Ended** | ** **               |
|---------------------------------------------------------------------------------|------------|--------------------------------------|--------------------------|
| ** **                                                                      | ** ** | **August 26, 2007**             | ** **               | **August 27, 2006** | ** ** |
| **Operations**                                                                  |       |                                 |      |   |   |
| Net income                                                                      |       | $                                    | 122,702                  |   | $ | 54,018 |   |
| Adjustments to  reconcile net income to net cash used for operating activities: |       |                                 |                     |   |   |
| Depreciation                                                                    |       | 6,406                                |                     | 5,709 |   |
| Stock  compensation                                                             |       | 7,122                                |                     | 1,704 |   |
| Amortization of  intangibles                                                    |       | 3,627                                |                     | 736 |   |
| Deferred income  taxes                                                          |       | (4,746                               | )                        | (185 | ) |
| Write-off of  debt issuance costs                                               |       | —                               |                     | 15,930 |   |
| Premium paid to  tender notes payable                                           |       | —                               |                     | 31,575 |   |
| Other                                                                           |       | (1,562                               | )                        | 1,391 |   |
| Change in  operating assets and liabilities, net of effects of acquisitions:    |       |                                 |                     |   |   |
| Increase in  receivables, net                                                   |       | (724,029                             | )                        | (654,011 | ) |
| Increase in  current liabilities and non-current liabilities                    |       | 113,371                              |                     | 257,378 |   |
| Decrease in  inventory                                                          |       | 272,131                              |                     | 165,488 |   |
| Decrease in  other operating assets                                             |       | 35,044                               |                     | 54,761 |   |
| Net cash used  for operations                                                   |       | (169,934                             | )                        | (65,506 | ) |
| **Investing**                                                                   |       |                                 |                     |   |   |
| Additions to  property, plant and equipment                                     |       | (13,642                              | )                        | (10,462 | ) |
| Additions to  purchase price of previous acquisitions                           |       | (4,212                               | )                        | — |   |
| Addition of  other long-lived assets                                            |       | (2,612                               | )                        | (1,928 | ) |
| Acquisitions,  net of cash acquired                                             |       | (2,508                               | )                        | (15,088 | ) |
| Proceeds from  sales of assets                                                  |       | 138                                  |                     | 9,324 |   |
| Net cash used  for investing                                                    |       | (22,836                              | )                        | (18,154 | ) |
| **Financing**                                                                   |       |                                 |                     |   |   |
| Net borrowings  on revolving line of credit                                     |       | 217,745                              |                     | 190,015 |   |
| Dividends and  dividend equivalents paid                                        |       | (21,355                              | )                        | (19,102 | ) |
| Checks not yet  presented                                                       |       | (20,159                              | )                        | 4,687 |   |
| Excess income  tax benefits from stock-based compensation arrangements          |       | 8,268                                |                     | 3,145 |   |
| Proceeds from  common stock options exercised                                   |       | 1,777                                |                     | 300 |   |
| Long-term debt payments  and redemption                                         |       | (875                                 | )                        | (336,212 | ) |
| Long-term debt  issued                                                          |       | —                               |                     | 175,000 |   |
| Debt issuance  costs                                                            |       | —                               |                     | (6,348 | ) |
| Net cash  provided by financing                                                 |       | 185,401                              |                     | 11,485 |   |
| Net effect of  exchange rates on cash and cash equivalents                      |       | (58                                  | )                        | 256 |   |
| Net change in  cash and cash equivalents                                        |       | (7,427                               | )                        | (71,919 | ) |
| Cash and cash  equivalents at beginning of period                               |       | 19,506                               |                     | 79,168 |   |
| Cash and cash  equivalents at end of period                                     |       | $                                    | 12,079                   |   | $ | 7,249 |   |
| Supplemental  disclosure of cash flow information:                              |       |                                 |                     |   |   |
| Cash paid during  the period for interest                                       |       | $                                    | 18,578                   |   | $ | 15,487 |   |
| Cash paid for  prior years’ accreted discount on notes payable             |       | $                                    | —                   |   | $ | 20,968 |   |
| Cash paid during  the period for income taxes                                   |       | $                                    | 13,543                   |   | $ | 9,757 |   |
| Dividends and  dividend equivalents declared but not yet paid                   |       | $                                    | 12,224                   |   | $ | 9,556 |   |

 

The accompanying notes are an integral part of thefinancial statements.

 

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** **

**UAP HOLDING CORP.**

**CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY**(in thousands)**UNAUDITED**

 
| **Twenty-Six Weeks Ended August 26, 2007**                    | ** ** | **Common  Stock** | ** **   | **Additional  Paid-in  Capital** | ** **   | **Retained  Earnings** | ** **         | **Accumulated  Other  Comprehensive  Income** | ** **         | **Total  Stockholders’  Equity** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------|--------------|----------------------------------|--------------|------------------------|--------------------|-----------------------------------------------|--------------------|---------------------------------------|------------|
| Balance at  February 25, 2007                                           |       | $                 | 51           |                             | $            | 138,569                |               | $                                             | 27,801             |                                  | $          | 3,833 |   | $ | 170,254 |   |
| Adoption of FASB  Interpretation No. 48                                 |       | —            |         | —                           |         | (1,247                 | )                  | —                                        |               | (1,247                                | )          |
| Adjusted balance  at beginning of period                                |       | 51                |    | 138,569                          |    | 26,554                 |               | 3,833                                         |               | 169,007                               |       |
| Comprehensive  income:                                                  |       |              |         |                             |         |                   |               |                                          |               |                                  |       |
| Net income                                                              |       | —            |         | —                           |         | 122,702                |               | —                                        |     | 122,702                               |       |
| Cash flow hedges                                                        |       | —            |         | —                           |    | —                 |     | (35                                           | )                  | (35                                   | )          |
| Foreign currency  translation adjustment                                |       | —            |         | —                           |         | —                 |               | 1,935                                         |               | 1,935                                 |       |
| Total  comprehensive income                                             |       | —            |         | —                           |         | —                 |               | —                                        |               | 124,602                               |       |
| Exercise of  stock options                                              |       | 1                 |         | 1,776                            |         | —                 |               | —                                        |               | 1,777                                 |       |
| Stock  compensation — stock options and restricted stock units     |       | —            |         | 7,567                            |         | —                 |               | —                                        |               | 7,567                                 |       |
| Excess income  tax benefits from stock-based compensation arrangements  |       | —            |         | 8,268                            |         | —                 |               | —                                        |               | 8,268                                 |       |
| Holdback for  payroll taxes on restricted stock units vested and issued |       | —            |         | (2,161                           | )            | —                 |               | —                                        |               | (2,161                                | )          |
| Dividends and  dividend equivalents                                     |       | —            |         | —                           |         | (23,802                | )                  | —                                        |               | (23,802                               | )          |
| Balance at  August 26, 2007                                             |       | $                 | 52           |                             | $            | 154,019                |               | $                                             | 125,454            |                                  | $          | 5,733 |   | $ | 285,258 |   |

The accompanying notesare an integral part of the financial statements.

 

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**UAPHOLDING CORP.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS****For the Thirteen and Twenty-Six Week PeriodsEnded August 26, 2007, and August 27, 2006**

**UNAUDITED**

**1. Description of the Business andSignificant Accounting Policies**

***Interim FinancialStatements.***Theaccompanying unaudited consolidated financial statements of UAP Holding Corp.and its subsidiaries (the “Company,” “UAP,” “we,” “us,” and “our”) have beenprepared in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”) for interim financial information and reflectall adjustments (consisting of normal recurring accruals and changes inestimates) which, in the opinion of management, are necessary for a fairpresentation of the financial position, operating results, and cash flows forthe periods presented. The results reported in these interim financialstatements are not necessarily indicative of the results that may be reportedfor the entire year. These financial statements should be read in conjunction withthe consolidated and combined financial statements and notes thereto containedin our Annual Report on Form 10-K for the fiscal year ended February 25, 2007.

***Business.***UAP Holding Corp. is the largestindependent distributor of agricultural and professional non-crop inputs in theUnited States and Canada. We market a comprehensive line of products includingchemicals, fertilizer, and seed to farmers, commercial growers, and regionaldealers. We have approximately 370 distribution, storage, and sales locations.We also have three formulation facilities where we blend products primarily forsale by our distribution facilities.

***Fiscal Year.***Our fiscal year includes a fifty-two orfifty-three week period ending on the last Sunday in February. The fifty-two weeks ending onFebruary 24, 2008, will be referred to as “fiscal 2008,” and the fifty-twoweeks ended February 25, 2007will be referred to as “fiscal 2007.”

***Seasonality.*** Our business is seasonal based upon theplanting, growing, and harvesting cycles of our customers’ operations. Becauseof this seasonality, we experience significant fluctuations in our revenues,income, and net working capital levels. During the last three years, as aresult of the condensed nature of the planting season, more than 75% of our netsales occurred during the first and second fiscal quarters. Weather conditionsand changes in the mix of crops planted can also cause quarterly results tovary.

***Use of Estimates.*** The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions. Theseestimates or assumptions affect reported amounts of assets, liabilities,revenue, and expenses as reflected in the financial statements. Actual resultscould differ from those estimates and the differences could be material.

***Vendor RebateReceivables.***We receive vendor rebates, primarily from our chemical and seed suppliers.These rebates are usually covered by binding agreements and published programsbut can also be open-ended, subject to future definition or revision. Rebatesearned are generally based on achieving targeted sales, purchases, volumetiers, or on achieving targeted sales growth or market share growth rates.

Rebates typically cover performance during the cropyear, which is based on the planting, growing, and harvesting cycles anddiffers from our fiscal year. The crop year for fiscal 2008 began as early asSeptember 2006 and will end as late as December 31, 2007, depending on thesupplier. Because of the timing of the crop year relative to our fiscal yearand because our vendor programs are typically not multi-year programs, therebate income earned and recognizable for the crop year ended during thecurrent fiscal year will largely be received and recorded by our fiscalyear-end. Since we estimate rebates earned from our vendors throughout theyear, changes in estimates can impact our margin percentages by quarter. Theprograms that start late in one fiscal year and conclude in the subsequentfiscal year typically will not result in significant income in the startingfiscal year because sales activity during that period, the winter season, issignificantly less.

Rebates that are probable and can be reasonablyestimated are accrued at expected rates based on total estimated crop yearperformance. Rebates that are not probable or estimable are accrued whencertain milestones are achieved. Rebates not covered by binding agreements orpublished vendor programs are accrued when conclusive documentation of right ofreceipt is obtained.

 

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Rebates based on the amount of materials purchasedreduce cost of goods sold as inventory is sold. Rebates that are based on salesvolume are offset to cost of goods sold when we determine they have been earnedbased on our sales volume of related products.

***Earnings Per Share.*** Earnings per share are based on theweighted average number of shares of common stock outstanding during the periodas follows:
| ** **                                                                                      | ** ** | **Thirteen Weeks Ended**               | ** ** | **Twenty-Six Weeks Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------|------------|
| **Earnings (loss) per share**                                                                   | ** ** | **August 26, 2007**               | ** ** | **August 27, 2006**   | ** ** | **August 26, 2007** | ** ** | **August 27, 2006** | ** ** |
| ** **                                                                                      | ** ** | **(in  thousands, except share data)** | ** ** |
| Net income  (loss)                                                                              |       | $                                      | 35,019     |                       | $          | (4,298 | ) | $ | 122,702 |   | $ | 54,018 |   |
|                                                                                            |       |                                   |       |                       |       |   |   |   |   |
| Weighted average  shares of common stock outstanding used in computing basic earnings per share |       | 51,987,499                             |       | 50,967,958                 |       | 51,706,743 |   | 50,909,734 |   |
| Net effect of  dilutive stock options and restricted stock units                                |       | 1,136,170                              |       | —                     |       | 1,257,141 |   | 1,491,537 |   |
|                                                                                            |       |                                   |       |                       |       |   |   |   |   |
| Weighted average  shares of common stock used in computing diluted earnings per share           |       | 53,123,669                             |       | 50,967,958                 |       | 52,963,884 |   | 52,401,271 |   |
|                                                                                            |       |                                   |       |                       |       |   |   |   |   |
| Basic earnings  (loss) per share                                                                |       | $                                      | 0.67       |                       | $          | (0.08 | ) | $ | 2.37 |   | $ | 1.06 |   |
|                                                                                            |       |                                   |       |                       |       |   |   |   |   |
| Diluted earnings  (loss) per share                                                              |       | $                                      | 0.66       |                       | $          | (0.08 | ) | $ | 2.32 |   | $ | 1.03 |   |

 

**2. Accounting Developments**

***Adoption of NewAccounting Pronouncement.***

In June 2006, the Financial Accounting Standards Board(“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes” (“FIN No. 48”), which clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements in accordancewith Statement of Financial Accounting Standards No. 109, “Accounting forIncome Taxes” (“SFAS 109”). This interpretation prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.This interpretation also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. FIN No. 48 was effective for fiscal years beginning afterDecember 15, 2006.

We adopted the provisions of FIN No. 48 at thebeginning of our current fiscal year. The cumulative effect of adoption was a$1.2 million reduction of retained earnings. At February 25, 2007, the totalamount of unrecognized tax benefits was $4.4 million, all of which would impactthe effective tax rate, if recognized. Upon adoption, approximately $4.1million of the unrecognized tax benefits were reflected in “Other non-currentliabilities.”

Interest and penalties associated with uncertain taxpositions are recognized as components of “Income tax expense.” The Company’saccrual for interest and penalties was $0.2 million upon adoption of FINNo. 48.

The U.S. Joint Committee of Taxation has approved therequest for refund we made during the IRS examination of fiscal year 2004 andfiscal year 2005. The results of the IRS examination have been reflected in thefinancial statements. The Company is subject to U.S. and Canadian income taxaudits by federal, state and local taxing authorities for fiscal 2004 throughfiscal 2007. It is reasonably possible that the amount of unrecognized taxbenefits could change in the next 12 months but an estimate of the range cannotbe made at this time.

***Recent AccountingPronouncements.***

In September 2006, the FASB issued Statement ofFinancial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS157”). This standard defines fair value, establishes a framework for measuringfair value in generally accepted accounting principles, and expands disclosuresabout fair value measurements. SFAS 157 is effective for fiscal years beginningafter November 15, 2007, and interim periods within such years. We willadopt SFAS 157 in our first quarter of fiscal 2009, as required. We arecurrently reviewing the requirements of this statement and, at this point intime, we cannot

 

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determine the impact, if any, that this statement mayhave on our business, financial condition, cash flow, results of operations, orliquidity.

In February 2007, the FASB issued Statement ofFinancial Accounting Standard No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities, including an amendment to FASBStatement No. 115” (“SFAS 159”). This statement permits entities to choose tomeasure many financial instruments and certain other items at fair value thatare not currently required to be measured at fair value. The objective is toimprove financial reporting by providing entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. This statement requires a business entity to report unrealizedgains and losses on items for which the fair value option has been elected inearnings at each subsequent reporting date. An entity may decide whether toelect the fair value option for each eligible item on its election date,subject to certain requirements described in the statement. This statement iseffective as of the beginning of each reporting entity’s first fiscal year thatbegins after November 15, 2007. We will adopt SFAS 159 in our firstquarter of fiscal 2009, as required. We are currently reviewing therequirements of this statement and, at this point in time, we cannot determinethe impact, if any, that this statement may have on our business, financialcondition, cash flow, results of operations, or liquidity.

**3. Acquisitions and Divestitures**

During the twenty-six weeks ended August 26, 2007, we acquiredtwo businesses and paid $2.5 million in purchase price.

During fiscal 2007, we acquired eleven businesses at atotal initial purchase price of $82.1 million, net of cash received, andassumed liabilities of approximately $47 million. We also paid an additional$4.2 million in the twenty-six weeks ended August 26, 2007 for certain items,primarily customary working capital adjustments, related to these fiscal 2007acquisitions. Our major acquisitions in fiscal 2007 were (a) the first fiscalquarter purchase of the remaining 50% share of our joint venture in UAPTimberland LLC (“Timberland”), (b) the third fiscal quarter purchase of TerralAgriServices, Inc. and certain assets of Terral FarmService, Inc. and WisnerElevator, Inc. (collectively, “Terral”), and (c) the fourth fiscal quarterpurchase of certain retail and service assets of AGSCO, Inc. and AG Depot,Inc., and certain retail distribution assets of Boettcher Enterprises. Forthese fiscal 2007 acquisitions that occurred in the twenty-six weeks endedAugust 26, 2006, we paid $15.1 million in purchase price, net of cash received.Although we are still finalizing our purchase accounting for several of theacquisitions completed in late fiscal 2007, any future adjustment to the purchaseprice allocations of these acquisitions is expected to be immaterial.

In the twenty-six weeks ended August 27, 2006, we solda portion of our retail locations in western Canada for total consideration of $7.6million.

**4. Royalties, Service Charges and OtherIncome and Expenses**

Royalties, service charges and other income andexpenses consist of the following:
| ** **                                                                             | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-Six Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| **Royalties, service charges and other income  and expenses** | ** ** | **August 26, 2007** | ** ** | **August 27, 2006**   | ** ** | **August 26, 2007** | ** ** | **August 27, 2006** | ** ** |
| ** **                                                                             | ** ** | **(in  thousands)**      | ** ** |
| Royalty income                                                                         |       | $                        | (3,148     | )                          | $          | (2,109 | ) | $ | (6,877 | ) | $ | (5,319 | ) |
| Service charges  income                                                                |       | (5,025                   | )          | (3,954                     | )          | (7,774 | ) | (5,796 | ) |
| Other income and  expenses                                                             |       | (1,786                   | )          | (1,883                     | )          | (4,606 | ) | (4,179 | ) |
|                                                                                   |       |                     |       |                       |       |   |   |   |   |
| **Total**                                                                              | ** ** | **$**                    | **(9,959** | **)**                      | **$**      | **(7,946** | **)** | **$** | **(19,257** | **)** | **$** | **(15,294** | **)** |

 

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** **

**5. Certain Asset Accounts**

***Receivables, net.***Our receivables include receivables fromcustomers, net of allowances for doubtful accounts; vendor rebates receivable,and miscellaneous receivables as follows: 
| **Receivables and Allowance for Doubtful Accounts** | ** ** | **August 26, 2007**     | ** **    | **February 25, 2007** | ** ** | **August 27, 2006** | ** ** |
|-----------------------------------------------------|------------|-------------------------|---------------|----------------------------|------------|---------------------|------------|
| ** **                                          | ** ** | **(in thousands)** | ** **    |
| Receivables from  customers                         |       | $                       | 841,896       |                       | $          | 289,160             |       | $ | 729,146 |   |
| Allowance for  doubtful accounts                    |       | (23,588                 | )             | (15,735                    | )          | (17,892             | )          |
| Receivables from  customers, net                    |       | 818,308                 |          | 273,425                    |       | 711,254             |       |
| Vendor rebates  receivable                          |       | 228,568                 |          | 47,439                     |       | 218,493             |       |
| Miscellaneous  receivables                          |       | 14,803                  |          | 17,365                     |       | 13,441              |       |
| **Total**                                           | ** ** | **$**                   | **1,061,679** | ** **                 | **$**      | **338,229**         | ** ** | **$** | **943,188** | ** ** |

***Inventories.***Inventories consist primarily ofchemicals, fertilizer, and seed products purchased from our suppliers orproduced by one of our three formulation facilities, for resale to ourcustomers. We record inventory at the lower of cost or market. We maintain aperpetual inventory system, which we reconcile to physical counts at eachlocation periodically.

Each fiscal quarter, we analyze our inventory againsthistorical sales of inventory products to determine which items may be obsoleteor slow-moving. Inventory is then reduced for the difference between our costand the net realizable value of inventory. 

Inventories are comprised of the following:
| **Inventory**                      | ** ** | **August 26, 2007**     | ** **  | **February 25, 2007** | ** ** | **August 27, 2006** | ** ** |
|------------------------------------|------------|-------------------------|-------------|----------------------------|------------|---------------------|------------|
| ** **                         | ** ** | **(in thousands)** | ** **  |
| Raw materials  and work in process |       | $                       | 12,859      |                       | $          | 18,129              |       | $ | 12,417 |   |
| Finished goods                     |       | 600,144                 |        | 864,904                    |       | 558,231             |       |
| **Total**                          | ** ** | **$**                   | **613,003** | ** **                 | **$**      | **883,033**         | ** ** | **$** | **570,648** | ** ** |

***Intangible Assets.***Intangible assets consist primarily ofassets acquired in our business acquisitions and are recorded at theirrespective fair values in accordance with SFAS No. 141, “BusinessCombinations.” Our intangible assets consist of finite- and indefinite-livedassets. Finite-lived intangible assets are amortized based on their estimated usefullives, ranging from 3 to 10 years, depending on the type of asset. Amortizationexpense for the thirteen weeks ended August 26, 2007, and August 27, 2006, was$1.8 million and $0.3 million, respectively. For the twenty-six weeks endedAugust 26, 2007, and August 27, 2006, amortization expense was $3.6 million and$0.7 million, respectively. Indefinite-lived assets are not amortized buttested for impairment in accordance with SFAS No. 142, “Goodwill and OtherIntangible Assets.”

During the thirteen and twenty-six week period endedAugust 26, 2007, we recorded $3.3 million of intangibles, primarily related toproduct registration costs and business acquisitions completed in fiscal 2008.  At August 26, 2007, February 25, 2007,and August 27, 2006, net intangible assets totaled $49.8 million, $50.1million, and $31.2 million, respectively.

***Goodwill.*** Goodwill represents the excess of thepurchase price paid over the fair value of the net assets acquired in businessacquisitions plus acquisition costs. Goodwill is not amortized. In accordancewith SFAS No. 142, “Goodwill and Other Intangible Assets,” we testgoodwill for impairment annually and whenever events or changes incircumstances indicate that the carrying amount may not be fully recoverable.We completed our latest goodwill impairment test at November 26, 2006, anddetermined that there was no impairment at that date. We may be subject toearnings volatility if goodwill impairment occurs at a future date. During thetwenty-six weeks ended August 26, 2007, we recorded $1.0 million ofgoodwill related to acquisitions completed in fiscal 2008 and $0.7 millionfor finalization of purchase accounting for previous acquisitions. At August 26, 2007,February 25, 2007, and August 27, 2006, goodwill totaled$46.8 million, $45.1 million, and $36.9 million, respectively.

***Debt Issuance Costs***. Our debt issuance costs net ofamortization were $4.8 million, $5.4 million, and $6.0 million at August 26, 2007,February 25, 2007, and August 27, 2006, respectively. In June 2006,we wrote off approximately $16.0 million of debt issuance costs related to ourprevious debt instruments at the time they were paid off. Our debt issuancecosts at August 26, 2007 and August 27, 2006, consist of costs related toreplacing our credit facility and establishing a new senior secured creditfacility. Debt issuance costs are being amortized on a straight-line basis,which approximates the effective

 

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interest method, over the terms of the related debt.The related amortization is recognized as interest expense and otheramortization expense.

**6. Hedging Activities**

In July 2006, in compliance with the terms of our newcredit facility, we entered into two interest rate swaps to manage exposure tochanges in cash flows related to changes in the variable interest rate on aportion of our long-term debt. Under the terms of the swaps, we pay adesignated fixed rate and receive a variable rate, which is based on LIBOR. Therate received is expected to offset the variable rate to be paid on thelong-term debt which is also based on LIBOR.

At August 26, 2007, the notional value of the interestrate swaps was $165 million. The notional values of these amortizing swaps willdecline to $90 million prior to expiration in July 2011. The fair value of theinterest rate swaps at August 26, 2007, was ($2.6) million and wasclassified as “Other non-current liabilities” on the balance sheet. Themark-to-market loss, net of taxes, deferred in other comprehensive income atAugust 26, 2007, was $1.6 million. During the twenty-six weeks ended August 26,2007, the critical terms of the hedge and the hedged items did not change andthere has been no adverse change in the risk of default by counterparties tothe swap since inception. As a result, no gain or loss has been recognized dueto hedge ineffectiveness.

**7. Stock-Based Compensation**

Our stock-based compensation programs includenon-qualified stock options, restricted stock units, and deferred compensation.At August 26, 2007, our stock compensation programs were in accordance with theequity compensation plans maintained by the company: the 2004 Long-TermIncentive Plan (the “2004 LTIP”), the 2003 Stock Option Plan (the “2003 Plan”),the 2004 Non-Executive Director Stock Option Plan (the “Director Option Plan”),and the Director Deferred Compensation Plan (the “Director DCP”). At our annualmeeting in July 2007, our stockholders ratified the 2007 Long-Term IncentivePlan (the “2007 LTIP”). There will be no further awards under each of the 2003Plan, the 2004 LTIP, and the Director Option Plan, and future awards will bemade pursuant to the 2007 LTIP.

***Stock Options.*** Stock options were granted to certainemployees under the 2003 Plan and to members of our board of directors underthe Director Option Plan. The following table summarizes information aboutstock options for the twenty-six weeks ended August 26, 2007, and August 27,2006:

 
| ** **                                                                   | ** ** | ** **              | ** ** | **Weighted-**             | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
| ** **                                                                   | ** ** | **Shares Subject** | ** ** | **Average Exercise** | ** ** |
| **Stock options**                                                            | ** ** | **to Options**          | ** ** | **Price Per Share**       | ** ** |
| Balance at  February 26, 2006 (2,321,756 shares vested and exercisable) |       | 2,841,272               |       | $                         | 2.56       |   |
| Granted                                                                      |       | —                  |       | —                    |       |
| Exercised                                                                    |       | (117,254                | )          | $                         | 2.56       |   |
| Forfeited                                                                    |       | —                  |       | —                    |       |
| **Balance  at August 27, 2006 (2,214,391 shares vested and exercisable)**    | ** ** | **2,724,018**           | ** ** | **$**                     | **2.56**   | ** ** |
| ** **                                                                   | ** ** | ** **              | ** ** | ** **                | ** ** |
| Balance at  February 25, 2007 (2,161,639 shares vested and exercisable) |       | 2,511,278               |       | $                         | 2.56       |   |
| Granted                                                                      |       | —                  |       | —                    |       |
| Exercised                                                                    |       | (694,543                | )          | $                         | 2.56       |   |
| Forfeited                                                                    |       | (2,343                  | )          | $                         | 2.56       |   |
| **Balance  at August 26, 2007 (1,476,985 shares vested and exercisable)**    | ** ** | **1,814,392**           | ** ** | **$**                     | **2.56**   | ** ** |

** **

** **

At August 26, 2007, there was $0.1 million of unrecognized compensationcost related to unvested stock options. The weighted-average remainingcontractual life at August 26, 2007, was 4.2 years, for both outstanding andexercisable options. The total intrinsic value (market value of the stock lessthe option exercise price) of options exercised in the twenty-six weeks endedAugust 26, 2007, and August 27, 2006 was $17.7 million and $2.1 million,respectively. The intrinsic value of exercisable options at August 26, 2007,based on the closing market price on August 24, 2007, was $40.7 million.

 

 

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***Restricted StockUnits.*** Wegranted restricted stock units (“RSUs”) to eligible employees, management, andmembers of our board of directors pursuant to the 2004 LTIP which are convertedinto shares of UAP common stock. The following is a summary of RSU activity forthe twenty-six weeks ended August 26, 2007, and August 27, 2006:

 
| ** **                            | ** ** | ** **           | ** ** | **Weighted-**       | ** ** |
|---------------------------------------|------------|----------------------|------------|---------------------|------------|
| ** **                            | ** ** | **Restricted**       | ** ** | **Average Grant**   | ** ** |
| **Restricted Stock Units**            | ** ** | **Stock Units** | ** ** | **Price per Share** | ** ** |
| Balance at  February 26, 2006    |       | 224,050              |       | $                   | 15.94      |   |
| Granted                               |       | 515,350              |       | $                   | 21.12      |   |
| Vested and  converted to common stock |       | (56,074              | )          | $                   | 15.94      |   |
| Cancelled                             |       | (8,115               | )          | $                   | 19.26      |   |
| **Balance  at August 27, 2006**       | ** ** | **675,211**          | ** ** | **$**               | **19.85**  | ** ** |
| ** **                            | ** ** | ** **           | ** ** | ** **          | ** ** |
| Balance at  February 25, 2007    |       | 672,107              |       | $                   | 19.87      |   |
| Granted                               |       | 845,445              |       | $                   | 26.09      |   |
| Vested and  converted to common stock |       | (231,057             | )          | $                   | 20.01      |   |
| Cancelled                             |       | (21,634              | )          | $                   | 22.12      |   |
| **Balance  at August 26, 2007**       | ** ** | **1,264,861**        | ** ** | **$**               | **23.84**  | ** ** |

 

We recognize compensation expense over the vestingperiods of the awards.  The recordedamounts for the thirteen weeks ended August 26, 2007, and August 27, 2006, were$5.1 million and $0.7 million, respectively; for the twenty-six weeks endedAugust 26, 2007, and August 27, 2006, the recorded amounts were $7.2million and $1.7 million, respectively. The total fair values of RSUs that vested during the twenty-six weeksended August 26, 2007, and August 27, 2006, were $6.0 million and $1.2 million,respectively.

At August 26, 2007, there was approximately $19.7million of unrecognized compensation expense, before taxes and net of estimatedforfeitures, related to RSU grants, which will be recognized over theweighted-average remaining vesting period of 3.2 years.

**8.Income Taxes**

We adopted FIN No. 48 on February 26, 2007. Thisinterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This interpretation also providesguidance on subsequent adjustment of recorded amounts, classification ofinterest and penalties, accounting in interim periods, disclosure, andtransition.  Refer to “Adoption of New Accounting Pronouncement” inNote 2 for the discussion regarding the cumulative effect of adopting FIN No.48.

**9. Debt**

In June 2006, our wholly owned subsidiary, United AgriProducts, Inc. replaced both its revolving credit facility and senior notes andentered into a new senior secured credit facility. The new senior securedcredit facility provides for (a) a new six-year $175 million term loanfacility and, (b) a five-year senior secured asset based revolving creditfacility in an aggregate principal amount of $675 million, including $50million for letters-of-credit (jointly referred to hereafter as “the new creditfacility,” or the “senior secured credit facility”). Availability of therevolving credit facility is subject to a borrowing base formula, whichincludes availability of an over-advance during certain periods. The new creditfacility provides that interest rates are based on, at United Agri Products, Inc.’soption, (a) LIBOR plus the applicable margin or (b) the base rate,which will be the higher of (i) the rate publicly quoted by the WallStreet Journal as the base rate on corporate loans posted by at least 75% ofthe nation’s 30 largest banks or (ii) the Federal Funds rate plus 0.50%,plus the applicable margin.

The applicable margin for the term facility is 2.00% for LIBOR advancesand 0.75% for base rate advances. The applicable margin for the revolvingfacility is 1.25% for LIBOR advances and 0.00% for base rate advances. Therevolving facility is secured by a first-priority lien on all accounts,inventory, general intangibles related to accounts and inventory, and allproceeds of the foregoing (“Current Asset Collateral”) of UAP Holding Corp. andits subsidiaries, and a second priority lien (subject to certain exclusions andexceptions) on other assets and proceeds of such other assets. The termfacility is secured by a first-priority lien (subject to certain exclusions andexceptions) in all assets of UAP Holding Corp. and its subsidiaries, and allproceeds thereof other than the Current Asset Collateral, and a second-prioritylien in the Current Asset Collateral.

 

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In June 2006, UAP Holding Corp. and United Agri Products, Inc.consummated the tender offers and consent solicitations for the 103⁄4% SeniorDiscount Notes due 2012 issued by UAP Holding Corp. and the 81⁄4% SeniorNotes due 2011 issued by United Agri Products, Inc. (collectively, the “SeniorNotes”). The companies accepted for purchase $123.1 million principal amount atmaturity of the 103⁄4% Senior Discount Notes (representing 98.5% of the previouslyoutstanding 103⁄4%Senior Discount Notes) and $203.5 million principal amount of the 81⁄4% SeniorNotes representing approximately 99.9% of the previously outstanding 81⁄4% SeniorNotes. Total consideration paid for the notes tendered plus accrued interestthereon was $120.6 million for the 103⁄4% Senior Discount Notes and $227.2 million forthe 81⁄4%Senior Notes. These payments and related expenses were financed throughborrowings under the new senior secured credit facility.

 

Subsequently,UAP Holding Corp. repurchased in brokered market transactions all of the $1.9million principal amount at maturity of its 103⁄4% Senior Discount Notes due 2012 that had remained outstandingfollowing the closing on June 1, 2006, of the tender offer and consentsolicitation. Accordingly, all of the 103⁄4% Senior DiscountNotes previously issued and authenticated under the indenture dated as ofJanuary 26, 2004, as supplemented (the “Indenture”), between UAP HoldingCorp. and The Bank of New York (formerly JPMorgan Chase Bank, N.A.), as trustee(the “Trustee”), had been delivered by UAP Holding Corp. to the Trustee andcancelled. In accordance with Section 11.01 of the Indenture, UAP HoldingCorp. satisfied and discharged the Indenture, which satisfaction and dischargewas acknowledged by the Trustee on November 24, 2006. Upon satisfactionand discharge, the Indenture ceased to be of further effect (except for certainrights of the Trustee).

 

At August 26, 2007, therewas $675.0 million of total borrowing capacity under the revolving creditfacility and United Agri Products, Inc. had aggregate borrowing availabilitythereunder of $258.9 million (after giving effect to $400.7 million ofrevolving loans and $15.4 million of letters of credit under the sub-facility).

At August 26, 2007, we believe that the permitteddistributions available to pay dividends under the restricted payment covenantof the senior secured credit facility would be approximately $119 million,before giving effect to the September 4, 2007 dividend payment of$11.7 million.

Our weighted average interest rate on short-termborrowings outstanding at August 26, 2007, was 6.6%.

Our senior secured credit facility contains certaincustomary representations, warranties, and affirmative covenants. AtAugust 26, 2007, we were in compliance with all covenants under oursenior secured credit facility.

Total current and long-term debt at August 26,2007, February 25, 2007, and August 27, 2006, consisted of the following:
| **Debt**                                              | ** ** | **August 26, 2007**     | ** **  | **February 25, 2007** | ** ** | **August 27, 2006** | ** ** |
|-------------------------------------------------------|------------|-------------------------|-------------|----------------------------|------------|---------------------|------------|
| ** **                                            | ** ** | **(in thousands)** | ** **  |
| **Total  debt**                                       |       |                    |        |                       |       |                |       |
| Senior Secured  Asset Based Revolving Credit Facility |       | $                       | 400,734     |                       | $          | 182,989             |       | $ | 190,015 |   |
| Term Loan  Facility                                   |       | 173,250                 |        | 174,125                    |       | 175,000             |       |
| 81⁄4% Senior Notes                                 |       | 15                      |        | 15                         |       | 15                  |       |
| 103⁄4% Senior Discount Notes, at accreted value    |       | —                  |        | —                     |       | 1,687               |       |
| **Total  debt**                                       | ** ** | **573,999**             | ** **  | **357,129**                | ** ** | **366,717**         | ** ** |
| **Less:  current portion**                            |       |                    |        |                       |       |                |       |
| Senior Secured  Asset Based Revolving Credit Facility |       | $                       | 400,734     |                       | $          | 182,989             |       | $ | 190,015 |   |
| Term Loan  Facility                                   |       | 1,750                   |        | 1,750                      |       | 1,750               |       |
| **Total  long-term debt**                             | ** ** | **$**                   | **171,515** | ** **                 | **$**      | **172,390**         | ** ** | **$** | **174,952** | ** ** |

 

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Maturities of debtin the remainder of fiscal 2008 and each of the five subsequent years are asfollows:
| **Fiscal Year Ending** | ** ** | **At August 26, 2007** | ** **  |
|----------------------------------|------------|-----------------------------|-------------|
| ** **                       | ** ** | **(in thousands)**     | ** **  |
| 2008                             |       | $                           | 401,609     |   |
| 2009                             |       | 1,750                       |        |
| 2010                             |       | 1,750                       |        |
| 2011                             |       | 1,750                       |        |
| 2012                             |       | 1,750                       |        |
| 2013 and thereafter              |       | 165,390                     |        |
| **Total**                        | ** ** | **$**                       | **573,999** | ** ** |

**10.Incentive-Based Compensation Plan**

We have an incentive-based compensation plan forofficers and key employees.  Factorsconsidered in the plans include growth, profitability, and key performancemetrics of both individual and overall company operating performance. Amountscharged to expense totaled ($3.2) million and $10.1 million in the thirteen andtwenty-six weeks ended August 26, 2007, respectively, and ($7.2) million and$4.5 million in the thirteen and twenty-six weeks ended August 27, 2006,respectively.

**11.Dividends**

On March 1, 2007, we paid an $0.1875 per sharedividend, and on June 1, 2007, we paid a $0.225 per share dividend.

On July 11, 2007, our board of directors declareda quarterly dividend on our common stock in the amount of $0.225 per share ofcommon stock. We paid this dividend on September 4, 2007, to shareholders ofrecord at August 15, 2007.

In addition to dividends to our stockholders, the RSUsthat we grant to eligible employees, management, and members of our board ofdirectors, generally include the right to receive dividend equivalent paymentson each RSU that are equal to dividends paid on each share of our common stock.

**12.Business Segment and Related Information**

The company has one reporting segment engaged in thesale of agricultural inputs to growers and regional dealers.

Net sales and long-lived assets by geographical area are as follows:

 
| ** **    | ** ** | **Thirteen Weeks Ended** | ** **  | **Twenty-Six Weeks Ended** | ** ** |
|---------------|------------|--------------------------|-------------|----------------------------|------------|
| **Net sales** | ** ** | **August 26, 2007**      | ** **  | **August 27, 2006**        | ** ** | **August 26, 2007** | ** ** | **August 27, 2006** | ** ** |
| ** **    | ** ** | **(in  thousands)**      | ** **  |
| United States |       | $                        | 837,647     |                       | $          | 746,307 |   | $ | 2,414,667 |   | $ | 2,117,690 |   |
| Canada        |       | 24,885                   |        | 21,485                     |       | 52,883 |   | 48,125 |   |
| **Total**     | ** ** | **$**                    | **862,532** | ** **                 | **$**      | **767,792** | ** ** | **$** | **2,467,550** | ** ** | **$** | **2,165,815** | ** ** |

 
| **Long-lived assets** | ** ** | **August 26, 2007**     | ** **  | **February 25, 2007** | ** ** | **August 27, 2006** | ** ** |
|----------------------------|------------|-------------------------|-------------|----------------------------|------------|---------------------|------------|
| ** **                 | ** ** | **(in thousands)** | ** **  |
| United States              |       | $                       | 226,816     |                       | $          | 216,238             |       | $ | 176,710 |   |
| Canada                     |       | 1,209                   |        | 887                        |       | 805                 |       |
| **Total**                  | ** ** | **$**                   | **228,025** | ** **                 | **$**      | **217,125**         | ** ** | **$** | **177,515** | ** ** |

 

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Long-lived assets consist of property, plant and equipment, net ofdepreciation; goodwill, indefinite-life and amortizable intangibles; and otherassets. Long-lived assets by geographical area are based on the location offacilities.

Net sales by product category are as follows:
| ** **                         | ** ** | **Thirteen Weeks Ended** | ** **  | **Twenty-Six Weeks Ended** | ** ** |
|------------------------------------|------------|--------------------------|-------------|----------------------------|------------|
| **Net  sales by product category** | ** ** | **August 26,****2007**   | ** **  | **August 27,****2006**     | ** ** | **August 26,****2007** | ** ** | **August 27,****2006** | ** ** |
| ** **                         | ** ** | **(in  thousands)**      | ** **  |
| Chemicals                          |       | $                        | 609,416     |                       | $          | 566,813 |   | $ | 1,341,450 |   | $ | 1,280,762 |   |
| Fertilizer                         |       | 198,665                  |        | 156,471                    |       | 678,792 |   | 490,801 |   |
| Seed                               |       | 27,057                   |        | 21,601                     |       | 384,634 |   | 343,216 |   |
| Other                              |       | 27,394                   |        | 22,907                     |       | 62,674 |   | 51,036 |   |
| **Total**                          | ** ** | **$**                    | **862,532** | ** **                 | **$**      | **767,792** | ** ** | **$** | **2,467,550** | ** ** | **$** | **2,165,815** |   |

 

**13. Related Party Transactions**

** **

The predecessor of UAP Holding Corp. was initially formed by ConAgraFoods, Inc. (“ConAgra”) through a series of acquisitions, beginning in May 1978.  In 2003 Apollo Management V, L.P. (“Apollo”),through UAP Holding Corp., acquired part of ConAgra Foods’ United States andCanadian Agricultural Products Businesses from ConAgra.  In 2004 we consummated the initial publicoffering of our common stock. 

In March 2006, certain funds affiliated with Apolloand current and former employees, including certain members of our managementsold 9,322,858 of UAP Holding Corp.’s common shares in a secondary offeringpursuant to a shelf registration statement. The sale, from which UAP HoldingCorp. received no proceeds, represented approximately 18.5% of the currentshares outstanding. Immediately following this sale, Apollo beneficially ownedapproximately 17% of UAP Holding Corp.’s outstanding common stock and ourmanagement team’s beneficial ownership of UAP Holding Corp., including vestedoptions, decreased to approximately 6.0%.

In November 2006, certain funds affiliated with Apolloand current and former employees, including certain members of our managementsold an additional 9,322,857 of UAP Holding Corp.’s common shares in asecondary offering pursuant to a shelf registration statement. The sale, fromwhich UAP Holding Corp. received no proceeds, represented approximately 18.3%of the current shares outstanding. Immediately following this sale, Apollo nolonger beneficially owned any of UAP Holding Corp.’s outstanding common stockand our management team’s beneficial ownership of UAP Holding Corp., includingvested options, decreased to approximately 4.4%.

**14.Commitments and Contingencies**

As part of our ongoing operations, we enter intoarrangements that obligate us to make future payments under contracts such aslease agreements, debt agreements, and unconditional purchase obligations(i.e., obligations to transfer funds in the future for fixed or minimumquantities of goods or services at fixed or minimum prices, such as “take-or-pay”contracts). We enter into unconditional purchase obligation arrangements in thenormal course of business to ensure that adequate levels of sourced product areavailable to us.

Tax contingencies are provided for under FIN No. 48.See Note 2 and Note 8.

We are a party to a number of lawsuits and claimsarising out of the operation of our businesses. Our management believes theultimate resolution of such matters should not have a material adverse effecton our business, financial condition, cash flow, results of operations, or liquidity.

In some cases, pursuant to indemnity agreements, thirdparties (including government reimbursement funds and insurers) may contributeto the costs of cleanup at certain sites. Pursuant to the asset purchaseagreement dated November 24, 2003, in which ConAgra sold United Agri Productsand its related businesses to UAP Holding Corp., ConAgra has agreed to provideus with a partial reimbursement of costs that we may incur relating to anycleanup requirements due to environmental conditions at our Greenville,Mississippi facility prior to our purchase of the site from them in November2003. Additionally, on October 14, 2002, December 23, 2002, andDecember 31, 2002, three separate lawsuits were filed in the Circuit Courtof Washington County, Mississippi against our subsidiary, Platte ChemicalCompany (“Platte”), and certain former employees of Platte, relating to allegedreleases from Platte’s Greenville, Mississippi facility. The plaintiffs in suchsuits are seeking compensation for alleged personal injury and property damage.In connection with the Acquisition, ConAgra agreed to partially reimburse us,subject to a cap, for fees and expenses we incur in connection with suchlawsuits. Subsequent to November 23, 2003, another lawsuit not covered bythe ConAgra cost sharing agreement was filed in the Circuit Court of WashingtonCounty, Mississippi against us, which lawsuit relates to the same allegedreleases from the Greenville,

 

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Mississippifacility. While discovery in the Greenville litigations is not yet complete,based on information available to us at this time we do not believe that suchlitigations, if adversely determined, would have a material adverse effect onour business, financial condition, cash flow, results of operations, andliquidity.

**15.Subsequent Events**

**Debt**. On September 4, 2007, we announced our intention toamend our existing credit facility to increase the senior secured term loanfacility (such increase, the “Term Loan Add-on”) by $150 million.  The proceeds of the Term Loan Add-on will beused to refinance outstanding balances under our revolving credit facility,which will provide additional liquidity to fund future acquisition and capitalexpansion opportunities as they arise, and to pay fees and expenses. We haveentered into a commitment letter (the “Commitment Letter”) with a financialinstitution (the “Lead Arranger”), whereby the Lead Arranger agreed to provide andsyndicate the Term Loan Add-on. The Lead Arranger’s commitment under theCommitment Letter terminates on the earlier of the date the definitive loandocuments related to the Amended Credit Facilities become effective or October31, 2007. On October 4, 2007, we announced that we expect the amount ofthe Term Loan Add-on to be increased from $150 million to$225 million. Notwithstanding the Commitment Letter, we make no assurancethat the Term Loan Add-on will be consummated on the terms in the CommitmentLetter or at all.  

 

**Dividends.** On October 4, 2007, our board of directors declared aquarterly dividend on our common stock in the amount of $0.225 per share.  The record date for the dividend payment willbe November 15, 2007, and the payment date will be December 3, 2007.

 

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** **

**ITEM 2.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

*Unless the context requiresotherwise, all references to “Company,” “we,” “us,” “ours,” and “UAP” referspecifically to UAP Holding Corp. and its consolidated subsidiaries.Additionally, all references to “United Agri Products” refer specifically onlyto United Agri Products, Inc., and its subsidiaries, and all references to “UnitedAgri Products, Inc.” refer specifically to United Agri Products, Inc.,excluding its subsidiaries.*

*We intend for this Management’sDiscussion and Analysis of Financial Condition and Results of Operations (“MD&A”)to provide the reader with information that will assist in understanding ourbusiness, financial condition, cash flow, results of operations, or liquidityfor the periods presented. You should read this MD&A in conjunction withour consolidated financial statements and the accompanying notes theretoappearing elsewhere in this report. The results of operations for the thirteen andtwenty-six weeks ended August 26, 2007, are not necessarily indicative of theresults to be expected for other interim periods or for the full fiscal year.This section should also be read in conjunction with our Annual Report onForm 10-K for the fiscal year ended February 25, 2007.*

*We operate on a fifty-two orfifty-three week fiscal year. Fiscal years are identified in this reportaccording to the calendar year in which they ended. The fifty-two weeks endingon February 24, 2008, will be referred to as “fiscal 2008,”and thefifty-two weeks ended February 25, 2007, will be referred to as “fiscal2007.”*

*In addition, the statements in thediscussion and analysis regarding industry outlook, our expectations regardingthe performance of our business, our liquidity and capital resources, and theother non-historical statements in the discussion and analysis are forward-lookingstatements. See “Forward-Looking Statements.”*

**Our Business**

We are the largest independent distributor ofagricultural inputs and professional non-crop products in the United States andCanada. Our customers include farmers, commercial growers, regional dealers,and consumers in the professional non-crop market.

We market a comprehensive line of products, includingchemicals, fertilizer, and seed manufactured and/or marketed by the world’sleading agricultural input companies, including BASF, Bayer, ConAgraInternational Fertilizer Company, Dow AgroSciences, DuPont, Monsanto, andSyngenta. In addition to our product offering, we provide a broad array ofvalue-added services including crop management, biotechnology advisoryservices, custom fertilizer blending, seed treatment, inventory management, andcustom applications of crop inputs. The products and services we offer arecritical to our customers because they lower the overall cost of cropproduction and improve crop quality and yield.

Our operations entail a network of approximately 370sales and distribution facilities and three formulation plants strategicallylocated in major crop-producing areas of the United States and Canada. Ourbusiness is highly seasonal based upon the planting, growing, and harvestingcycles of our customers’ operations. As a result of this seasonality, weexperience significant fluctuations in our revenues, net income, and networking capital levels throughout our fiscal year.  During the last three years, because of thecondensed nature of the planting season, more than 75% of our net salesoccurred during the first and second fiscal quarters of each year.  Weather conditions and changes in the mix ofcrops planted can also cause quarterly results to vary.

**Acquisitions**

One of our strategic initiatives is to grow our retailbusiness by leveraging our size and leading market share across North America.We study our market share by state, county, and customer, and develop salesinitiatives at local and regional levels to address any gaps and opportunitieswe have in our distribution network for chemicals, fertilizer, and seed. Whereour data indicates an opportunity, we have the potential to add sales personneland/or locations and assets, or acquire businesses to fill gaps in ourcoverage.

During the twenty-six weeks ended August 26, 2007, wecompleted the acquisition of two businesses and paid $2.5 million in purchaseprice.

 

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During fiscal 2007, we completed eleven acquisitions,including the following:

•                  During the first fiscal quarter of 2007,we purchased the remaining 50% share of our joint venture in UAP Timberland andwe acquired a retail distribution location from an independent retaildistributor.

•                  During the third fiscal quarter of 2007,we acquired Terral AgriServices, Inc. and certain assets of Terral FarmService,Inc. and Wisner Elevator, Inc. (collectively, “Terral”). In addition to theTerral acquisition, we acquired three retail distribution locations fromindependent retail distributors.

•                  During the fourth fiscal quarter of 2007,we acquired certain retail and service assets of AGSCO, Inc. and AG Depot, Inc.In addition, we acquired certain retail distribution assets of BoettcherEnterprises, and three retail distribution locations from independent retaildistributors.

For these acquisitions, we paid $82.1 million infiscal 2007 and an additional $4.2 million in fiscal 2008. We also assumedliabilities of approximately $47 million related to these acquisitions.

We will continue to analyze and pursue additionalacquisition candidates as appropriate opportunities arise.

**Other Factors Impacting Our Results**

According to the June 29, 2007 “Acreage and GrainStocks” report published by the National Agricultural Statistics Service of theUSDA, the 2007 planted corn acreage of 92.9 million acres increased19 percent from the 78.3 million acres planted in 2006. In contrast,soybean acres were down 15 percent from the record high acres planted in2006 and planted cotton acres were the lowest since 1989, down 28 percentfrom 2006.  Our fiscal 2008 first half resultsreflect this shift in our customers’ acreage of specific crops.  Theimpact of higher corn production, primarily resulting from increased demandassociated with ethanol production, is reflected in increased fertilizer salesfor the first half of fiscal 2008.  Our operations in the Midwest portionsof the United States are experiencing the most significant sales increases fromincreased corn acreage.  However, the decrease in both soybean and cottonplanted acres for fiscal 2008 have resulted in lower sales from inputs on thosecrops. Our operations, particularly in the Southern portion of the UnitedStates, will experience lower input sales due to lower planted acreage ofcotton, as cotton requires more intensive inputs than corn.  The impact ofthese fluctuations in planted acres on the agricultural distribution industryand other industries (such as livestock production, fertilizer manufacturing,textiles, and food processing) on the remainder of fiscal 2008 and future yearsis difficult to predict and will continue to evolve over time.

 

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**RESULTSOF OPERATIONS**

**Analysis of Consolidated Statementsof Earnings**
| ** **                                                | ** ** | **Thirteen  Weeks Ended**              | ** ** | ** **               | ** ** | **Twenty-Six  Weeks Ended** | ** ** | ** **                | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **                                                | ** ** | **August 26, 2007**               | ** ** | **August 27, 2006** | ** ** | **Percent  Change**         | ** ** | **August  26, 2007** | ** ** | **August  27, 2006** | ** ** | **Percent  Change** | ** ** |
| ** **                                                | ** ** | **(in  thousands, except share data)** |
| ** **                                                | ** ** | ** **                             | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                 |       | $                                      | 862,532    |                     | $          | 767,792                     |       | 12.3                      | %          | $ | 2,467,550 |   | $ | 2,165,815 |   | 13.9 | % |
| Cost of goods  sold                                       |       | 724,375                                |       | 659,446                  |       | 9.8                         | %          | 2,089,392                 |       | 1,871,820 |   | 11.6 | % |
| Gross profit                                              |       | 138,157                                |       | 108,346                  |       | 27.5                        | %          | 378,158                   |       | 293,995 |   | 28.6 | % |
| Selling, general  and administrative expenses             |       | 79,357                                 |       | 66,235                   |       | 19.8                        | %          | 178,330                   |       | 155,209 |   | 14.9 | % |
| Royalties,  service charges and other income and expenses |       | (9,959                                 | )          | (7,946                   | )          | 25.3                        | %          | (19,257                   | )          | (15,294 | ) | 25.9 | % |
| Operating income                                          |       | 68,759                                 |       | 50,057                   |       | 37.4                        | %          | 219,085                   |       | 154,080 |   | 42.2 | % |
| Interest  expense, net                                    |       | 11,148                                 |       | 8,869                    |       | 25.7                        | %          | 19,144                    |       | 17,158 |   | 11.6 | % |
| Finance related  and other charges                        |       | —                                 |       | 47,366                   |       | NM                          |       | —                    |       | 47,848 |   | NM |   |
| Income (loss)  before income taxes                        |       | 57,611                                 |       | (6,178                   | )          | NM                          |       | 199,941                   |       | 89,074 |   | 124.5 | % |
| Income tax  expense (benefit)                             |       | 22,592                                 |       | (1,880                   | )          | NM                          |       | 77,239                    |       | 35,056 |   | 120.3 | % |
| **Net  income (loss)**                                    | ** ** | **$**                                  | **35,019** | ** **               | **$**      | **(4,298**                  | )          | NM                        | ** ** | **$** | **122,702** | ** ** | **$** | **54,018** | ** ** | **127.2** | **%** |
| Earnings (loss)  per share:                               |       |                                   |       |                     |       |                        |       |                      |       |   |   |   |   |
| Basic                                                     |       | $                                      | 0.67       |                     | $          | (0.08                       | )          | NM                        |       | $ | 2.37 |   | $ | 1.06 |   | 123.6 | % |
| Diluted                                                   |       | $                                      | 0.66       |                     | $          | (0.08                       | )          | NM                        |       | $ | 2.32 |   | $ | 1.03 |   | 125.2 | % |
| Effective tax  rate                                       |       | 39.2                                   | %          | 30.4                     | %          |                        |       | 38.6                      | %          | 39.4 | % |   |   |
| Comparison as a  percent of Net sales:                    |       |                                   |       |                     |       |                        |       |                      |       |   |   |   |   |
| Gross margin                                              |       | 16.0                                   | %          | 14.1                     | %          |                        |       | 15.3                      | %          | 13.6 | % |   |   |
| Selling, general  and administrative expenses             |       | 9.2                                    | %          | 8.6                      | %          |                        |       | 7.2                       | %          | 7.2 | % |   |   |
| Operating income                                          |       | 8.0                                    | %          | 6.5                      | %          |                        |       | 8.9                       | %          | 7.1 | % |   |   |
| Income (loss)  before income taxes                        |       | 6.7                                    | %          | (0.8%                    | )          |                        |       | 8.1                       | %          | 4.1 | % |   |   |
| Net income  (loss)                                        |       | 4.1                                    | %          | (0.6%                    | )          |                        |       | 5.0                       | %          | 2.5 | % |   |   |
| NM = Not  Meaningful                                      |       |                                   |       |                     |       |                        |       |                      |       |   |   |   |   |

**Thirteen Weeks Ended August 26, 2007,Compared to Thirteen Weeks Ended August 27, 2006**

***Net Sales.***Sales increased 12.3% to $862.5 millionin the thirteen weeks ended August 26, 2007, compared to $767.8 million in thethirteen weeks ended August 27, 2006.

Sales of chemicals increased to $609.4 million in thethirteen weeks ended August 26, 2007, from $566.8 million in the thirteen weeksended August 27, 2006. Acquired businesses contributed approximately $54million of retail chemicals sales, some of which were offset by lost wholesalerevenues as some of our acquisitions were former wholesale customers.  Sales of herbicides increased from last year,primarily due to the effect of acquisitions and increased sales of glyphosateherbicides as a result of increased adoption of glyphosate tolerant corn.   Fungicide sales increased as a result ofacquisitions and increased applications for general plant health.  Insecticide sales decreased due to the lackof insect pressure, the adoption of insect resistant corn seed and the declinein cotton acres, which are more input-intensive.

Sales of fertilizer increased to $198.7 million in thethirteen weeks ended August 26, 2007, from $156.5 million in the thirteen weeksended August 27, 2006.  Acquiredbusinesses contributed approximately $13 million of additional revenues, while increasesin volumes sold and improvement in per ton selling prices drove the remainderof the difference.  Volume and pricegrowth were due to increased grower demand, mainly as growers switched theirplanted acreage to corn from soybeans in the Midwest, requiring a replenishmentof nutrients in the soil.  Favorableweather conditions and higher commodity prices also supported increasedapplications.

 

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Sales of seed increased to $27.0 million in thethirteen weeks ended August 26, 2007, from $21.6 million in the thirteen weeksended August 27, 2006. Acquired businesses represented approximately $4 millionof the increase.  The remaining increasewas due to increased sales of soybeans and cotton, primarily in the south,where weather conditions were favorable for late season planting.

Other sales increased to $27.4 million in the thirteenweeks ended August 26, 2007, from $22.9 million in the thirteen weeks endedAugust 27, 2006, primarily from acquired businesses, increased applicationfees, and additional transportation and warehousing revenue.

***Cost of Goods Sold.***Cost of goodssold was $724.4 million in the thirteen weeks ended August 26, 2007, comparedto $659.4 million in the thirteen weeks ended August 27, 2006. Gross profit was$138.2 million in the thirteen weeks ended August 26, 2007, comparedto $108.3 million in the thirteen weeks ended August 27, 2006. Gross margin(gross profit as a percentage of net sales) was 16.0% for the thirteen weeksended August 26, 2007, compared to 14.1% for the thirteen weeks ended August27, 2006. The increase in gross profit was primarily a result of increasedsales of higher-margin proprietary chemical products and the effect of acquiredbusinesses. The gross profit increase was also partially due to the differencein timing of some vendor rebates. Vendors are now supplying more timelyinformation, better definition of criteria for earning rebates, and improvedcommunication of local area programs, resulting in recognizing rebates earlierin the year. In the prior fiscal year, many of these rebates were recognizedlater in the year. We believe the impact to be approximately $10 million in thethirteen weeks ended August 26, 2007, as compared to the same period lastyear.

***Selling, Generaland Administrative Expenses.***Selling, general and administrative expenses increasedto $79.4 million (9.2% of sales) in the thirteen weeks ended August 26, 2007,from $66.2 million (8.6% of sales) in the thirteen weeks ended August 27, 2006.The increase in expenses was due to the additional expenses from our acquiredbusinesses, higher incentive-based compensation commensurate with the company’sperformance, and higher stock-based compensation expense.

***Royalties, ServiceCharges and Other Income and Expenses.***These items include royalty income generated by ourproprietary products group, service charge income paid by customers who dobusiness with us on terms, as well as other items. Other income increased to$10.0 million in the thirteen weeks ended August 26, 2007, up from $7.9 millionin the thirteen weeks ended August 27, 2006, primarily due to higher customerservice charge income associated with higher sales and higher royalties fromincreased sales of certain products in our proprietary products group.

***Interest Expense,Net.***Interestexpense increased to $11.1 million in the thirteen weeks ended August 26, 2007,compared to $8.9 million in the thirteen weeks ended August 27, 2006. Theincrease was due to higher interest expense resulting from increased short-termborrowings related to our acquisition activity and increased working capitalneeds.

***Finance Related andOther Charges.***Wehad no finance related and other charges in the thirteen weeks endedAugust 26, 2007.  Finance relatedand other charges in the thirteen weeks ended August 27, 2006, were $47.4million related to the refinancing of our debt, which was completed in thesecond quarter of fiscal 2007.

***Income Tax.***The effective income tax rate was 39.2%for the thirteen weeks ended August 26, 2007, compared to 30.4% for thethirteen weeks ended August 27, 2006. The lower rate for the thirteen weeks ended August 27, 2006, reflects alower tax benefit resulting from lower net income on a relatively fixed base ofpermanent tax adjustments.

**Twenty-Six Weeks Ended August 26,2007, Compared to Twenty-Six Weeks Ended August 27, 2006**

***Net Sales.***Sales increased 13.9% to $2,467.6 millionin the twenty-six weeks ended August 26, 2007, compared to$2,165.8 million for the twenty-six weeks ended August 27, 2006.

Sales of chemicals increased to $1,341.5 million inthe twenty-six weeks ended August 26, 2007, from $1,280.8 million in thetwenty-six weeks ended August 27, 2006. Acquired businesses contributedapproximately $104 million of retail chemicals sales, some of which was offsetby lost wholesale sales as some of our acquisitions were former wholesalecustomers.  Sales of herbicides increasedin the twenty-six weeks ended August 26, 2007, from the comparable period infiscal 2007, primarily due to acquisitions and increased sales of glyphosateherbicides, resulting from increased adoption of glyphosate tolerant corn.  Fungicide sales increased as a result ofacquisitions and increased applications for general plant health.  Insecticide sales decreased due to the lackof insect pressure and the adoption of insect resistant corn seed to protectfrom corn rootworm, resulting in less insecticides used at planting time.

Sales of fertilizer increased to $678.8 million in thetwenty-six weeks ended August 26, 2007, from $490.8 million in the twenty-sixweeks ended August 27, 2006.  Acquiredbusinesses contributed approximately $43 million of the increase.  Increases in volumes sold and an improvementin per ton selling prices drove the remainder of the difference.  Volume and price growth were due to increasedgrower demand, mainly as growers switched their planted acreage to corn fromsoybeans in the Midwest.  Favorableweather conditions and higher commodity prices also 

 

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supported increased applications. Volumes were alsodriven by application timing.  Fertilizeris typically applied either in the fall or spring seasons, depending on weatherand fertilizer prices. Our experience in our third and fourth quarters offiscal 2007 led us to believe that growers delayed fertilizer applications inthe fall and winter months, thereby driving increased applications in our firsthalf of fiscal 2008.

Sales of seed increased to $384.6 million in thetwenty-six weeks ended August 26, 2007, from $343.2 million in the twenty-sixweeks ended August 27, 2006. Acquired businesses represented approximately $32million of the increase.  The remainingincrease was due to volume growth in third party and proprietary brands of cornseed and higher prices resulting from higher corn acreage and increased salesof seed with enhanced traits. Sales of cotton seed decreased due to lowerplanted acreage of cotton.

Sales of proprietary chemical and seed products were17.5% of total chemical and seed sales in the twenty-six weeks ended August 26,2007, compared to 15.6% in the twenty-six weeks ended August 27, 2006.

Other sales increased to $62.7 million in thetwenty-six weeks ended August 26, 2007, from $51.0 million in the twenty-sixweeks ended August 27, 2006, due to acquired businesses, increased applicationfees, and additional transportation and warehousing revenue.

***Cost of Goods Sold.***Cost of goodssold was $2,089.4 million in the twenty-six weeks ended August 26, 2007,compared to $1,871.8 million in the twenty-six weeks ended August 27, 2006.Gross profit was $378.2 million in the twenty-six weeks ended August 26, 2007,compared to $294.0 million in the twenty-six weeks ended August 27, 2006. Grossmargin (gross profit as a percentage of net sales) was 15.3% for the twenty-sixweeks ended August 26, 2007, compared to 13.6% for the twenty-six weeks endedAugust 27, 2006. The increase in gross profit was primarily a resultof increased sales of higher-margin proprietory chemical products, higherfertilizer volumes with better unit profits, higher sales of corn seed withbetter unit margins across our seed business, and the effect of acquiredbusinesses.  The gross profit increase wasalso partially due to the difference in timing of some vendor rebates. Vendorsare now supplying more timely information, better definition of criteria forearning rebates, and improved communication of local area programs, resultingin recognizing rebates earlier in the year. In the prior fiscal year, many ofthese rebates were recognized later in the year.  We believe the impact to be approximately $15million in the first half of this year as compared to the same period last year.

***Selling, Generaland Administrative Expenses.***Selling, general and administrative expenses increasedto $178.3 million (7.2% of sales) in the twenty-six weeks ended August 26,2007, from $155.2 million (7.2% of sales) in the twenty-six weeks ended August 27, 2006.The increase in expenses was due to the additional expenses from our acquiredbusinesses, higher incentive-based compensation commensurate with the company’sperformance, and higher stock-based compensation expense.

***Royalties, ServiceCharges and Other Income and Expenses.***These items include royalty income generated by ourproprietary products group, service charge income paid by customers who dobusiness with us on terms, as well as other items. Other income increased to$19.3 million in the twenty-six weeks ended August 26, 2007, up from $15.3million in the twenty-six weeks ended August 27, 2006, primarily due to highercustomer service charge income associated with higher sales and higherroyalties from increased sales of certain products in our proprietary productsgroup.

***Interest Expense,Net.***Interestexpense increased to $19.1 million in the twenty-six weeks ended August 26,2007, compared to $17.2 million in the twenty-six weeks ended August 27, 2006.The increase was due to higher interest expense resulting from increased short-termborrowings related to our acquisition activity and increased working capitalneeds.

***Finance Related andOther Charges.***Wehad no finance related and other charges in the twenty-six weeks endedAugust 26, 2007.  Financerelated and other charges in the twenty-six weeks ended August 27, 2006, were$47.8 million, primarily related to the refinancing of our debt as well as asecondary offering of our common stock, which were both completed in the firsthalf of fiscal 2007.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

**Overview**

Our ongoing operations require availability of fundsto service debt, fund working capital, and meet capital expenditurerequirements. We may also require availability of funds for future acquisitionactivity. We currently finance and expect to continue to finance theseactivities through cash flows from operations and from amounts available underour revolving credit facility, including the additional borrowing capacityunder our revolving credit facility after giving effect to the Term Loan Add-ondescribed in “Credit Facility and Other Long-Term Debt” below. Based upon the amountof future acquisition activity, we may need to seek other financingalternatives, including possible debt or equity financings.

**Operating Activities**

Cash flows used for operating activities totaled $169.9million in the twenty-six weeks ended August 26, 2007, compared to $65.5million in the twenty-six weeks ended August 27, 2006. Operating cash flowswere impacted by increased accounts receivables, which were only partiallyoffset by decreased inventory, increased accounts payable, and higher netincome.  Accounts receivable increaseddue to acquired businesses, higher sales activity and increased sales to retailcustomers, resulting in longer receipt cycles. Inventory decreased from the end of fiscal 2007 primarily due to thehigher demand for our product in the planting months of the first half of theyear.  Accounts payable increased fromthe end of fiscal 2007, due to higher purchasing levels associated with oursales activity.

**Investing Activities**

Cash flows used for investing activities totaled $22.8million in the twenty-six weeks ended August 26, 2007, and $18.2 millionin the twenty-six weeks ended August 27, 2006. Additions to property, plant andequipment were $13.6 million in the twenty-six weeks ended August 26,2007.  Capital spending during thetwenty-six weeks ended August 26, 2007, was for a variety of projects, thelargest of which are two fertilizer expansion projects.  We spent $2.5 million for business acquisitionsin the first twenty-six weeks of fiscal 2008 compared to $15.1 million spent inthe first twenty-six weeks of fiscal 2007. In addition, we spent $4.2 million in the first twenty-six weeks offiscal 2008 for additional purchase price related to fiscal 2007 acquisitions.

**Financing Activities**

Cash flows provided by financing activities were $185.4million in the twenty-six weeks ended August 26, 2007, compared to $11.5million in the twenty-six weeks ended August 27, 2006. Short-term borrowingsincreased due to acquisition activity and increased working capital needs. Cashflows provided by financing activities reflect $21.4 million of dividends anddividend equivalents paid during the twenty-six week period ended August 26,2007.

**Credit****Facility and Other Long-Term Debt**

On June 1, 2006, our wholly owned subsidiary,United Agri Products, Inc. refinanced its existing revolving credit facilityand entered into a new senior secured credit facility. The new senior securedcredit facility provides for a new six-year $175 million asset-backed termloan facility and a five-year senior secured asset backed revolving creditfacility in an aggregate principal amount of $675 million, including $50million for letters of credit. Availability of the senior secured revolvingcredit facility is subject to a borrowing base formula, which includesavailability of an over-advance during certain periods. The new senior securedcredit facility provides that interest rates are based on, at United AgriProducts, Inc.’s option, (a) LIBOR plus the applicable margin (describedbelow), or (b) the base rate, which will be the higher of (i) therate publicly quoted by The Wall Street Journal as the base rate on corporateloans posted by at least 75% of the nation’s 30 largest banks or (ii) theFederal Funds rate plus 0.50%, plus the applicable margin.

The applicable margin for the term facility is 2.00%for LIBOR advances and 0.75% for base rate advances. The applicable margin forthe senior secured revolving facility is 1.25% for LIBOR advances and 0.00% forbase rate advances. The senior secured revolving facility is secured by afirst-priority lien on all accounts, inventory, general intangibles related toaccounts and inventory, and all proceeds of the foregoing (“Current AssetCollateral”) of UAP Holding Corp. and its subsidiaries, and a second prioritylien (subject to certain exclusions and exceptions) on other assets andproceeds of such other assets. The term loan facility is secured by a first-prioritylien (subject to certain exclusions and exceptions) in all assets of UAPHolding Corp. and its subsidiaries, and all proceeds thereof other than theCurrent Asset Collateral, and a second-priority lien in the Current AssetCollateral.

On September 4, 2007, weannounced our intention to amend our existing credit facility to increase thesenior secured term loan facility (such increase, the “Term Loan Add-on”) by$150 million.  The proceeds of the TermLoan Add-on will be used to

 

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refinance outstandingbalances under our revolving credit facility, which will provide additionalliquidity to fund future acquisition and capital expansion opportunities asthey arise, and to pay fees and expenses, We have entered into a commitmentletter (the “Commitment Letter”) with a financial institution (the “LeadArranger”), whereby the Lead Arranger agreed to provide and syndicate the TermLoan Add-on. The Lead Arranger’s commitment under the Commitment Letterterminates on the earlier of the date the definitive loan documents related tothe Amended Credit Facilities become effective or October 31, 2007.  On October 4, 2007, we announced that weexpect the amount of the Term Loan Add-on to be increased from $150 millionto $225 million. Notwithstanding the Commitment Letter, we make noassurance that the Term Loan Add-on will be consummated on the terms in theCommitment Letter or at all.

At August 26, 2007, there was $675.0 million of totalborrowing capacity under the revolving credit facility and United Agri Productshad aggregate borrowing availability thereunder of $258.9 million (after givingeffect to $400.7 million of revolving loans and $15.4 million of letters ofcredit under the sub-facility).

At August 26, 2007, approximately $119 million of permitteddistributions were available to pay dividends under the restricted paymentcovenant of the senior secured credit facility, before giving effect to theSeptember 4, 2007 dividend payment of $11.7 million.

Our weighted average interest rate on short-termborrowings outstanding at August 26, 2007, was 6.6%.

Our senior secured credit facility contains certaincustomary representations, warranties, and affirmative covenants. In addition,it contains customary negative covenants restricting our ability to, amongother things:

•                  incur additional indebtedness;

•                  pay dividends or make otherdistributions;

•                  make certain investments;

•                  incur liens; and

•                  sell all or substantially all of ourassets or merge with or into other companies.

Due to the seasonal nature of our business, the amountof borrowings outstanding under the revolving credit facility variessignificantly throughout our fiscal year. During the fifty-two weeks endedAugust 26, 2007, short-term borrowings reached a daily peak of $569.2 millionon September 25, 2006, while cash on hand at the end of our fiscal periodsreached a peak of $35.0 million on November 26, 2006. Our average daily borrowings(net of cash on hand) in the fifty-two weeks ended August 26, 2007, were $382.8million.

At August 26, 2007, we were in compliance with allcovenants under our senior secured credit facility.

**Obligations and Commitments**

As part of our ongoing operations, we enter intoarrangements that obligate us to make future payments under contracts such aslease agreements, debt agreements and unconditional purchase obligations (i.e.,obligations to transfer funds in the future for fixed or minimum quantities ofgoods or services at fixed or minimum prices, such as “take-or-pay” contracts).We enter into unconditional purchase obligation arrangements in the normalcourse of business to ensure that adequate levels of sourced product areavailable to us. See Note 14 to the consolidated financial statements.

**Holding Company**

As a holding company, our investments in our operatingsubsidiaries, including United Agri Products, Inc., constitute substantiallyall of our operating assets. Consequently, our subsidiaries conduct all of ourconsolidated operations and own substantially all of our operating assets. Ourprincipal source of the cash required to pay our and our subsidiaries’obligations is the cash that our subsidiaries generate from their operationsand borrowings under the senior secured revolving credit facility. Our subsidiariesare separate and distinct legal entities and have no obligations to make fundsavailable to us. The terms of the agreements governing United Agri Product's existingindebtedness generally restrict United Agri Products from paying dividends,making loans or other distributions, and otherwise transferring assets to us.Furthermore, our subsidiaries are permitted under the terms of the seniorsecured credit facility to incur additional indebtedness that may severelyrestrict or prohibit the making of distributions, the payment of dividends, orthe making of loans by such subsidiaries to us. We cannot assure

 

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you that the agreements governing United Agri Product'scurrent and future indebtedness will permit our subsidiaries to provide us withsufficient dividends, distributions, or loans to fund dividends. If weconsummate an acquisition, our debt service requirements could increase. We mayneed to refinance all or a portion of United Agri Product's indebtednesson or before maturity. We cannot assure you that we will be able to refinanceany of United Agri Product's indebtedness on commercially reasonableterms or at all.

**Dividend Policy**

On March 1, 2007, we paid an $0.1875 per sharedividend, and on June 1, 2007, we paid an $0.225 per share dividend.

On July 11, 2007, our board of directors declareda quarterly dividend on our common stock in the amount of $0.225 per share ofcommon stock. The record date for the dividend payment was August 15,2007, and the payment date was September 4, 2007.

There are no assurances that we will declare or payany cash dividends in the future. The declaration and payment of futuredividends to holders of our common stock is at the discretion of our board ofdirectors and depends upon many factors including our financial condition,earnings, legal requirements, restrictions in our debt agreements, and otherfactors our board of directors deems relevant. The terms of our senior securedcredit facility may also restrict us from paying cash dividends on our commonstock under some circumstances. At August 26, 2007, approximately $119 millionof permitted distributions were available to pay dividends under our restrictedpayment covenant in our senior secured credit facility, before giving effect tothe September 4, 2007 dividend payment of $11.7 million.

In addition to dividends to our stockholders, we grantrestricted stock units (“RSUs”) to eligible employees, management, and membersof our board of directors.  These RSUs generallyinclude the right to receive dividend equivalent payments on each RSU that areequal to dividends paid on each share of our common stock.

In the past, cash flow from our operating activitieshas been highly variable, resulting in negative cash flow during certainperiods. Because of the variability, if our cash flow from operating activitiesis insufficient to fund dividend payments at intended levels, we may need toreduce or eliminate dividends or, to the extent permitted by our debtagreements, fund all or part of the dividends with additional debt or othersources of cash. To the extent we pay dividends, the amount of cash availableto us to pay principal and interest on our outstanding debt will be reduced.Failure to pay the principal or interest on our debt would constitute an eventof default under the applicable debt agreements giving the holders of the debtthe right to accelerate its maturity. If any of our debt is accelerated, we maynot have sufficient cash available to repay it in full and we may be unable torefinance it on satisfactory terms or at all. An event of default under debtagreements or an acceleration of the debt hereunder could also trigger an eventof default under other debt agreements. Furthermore, if we fund dividends withadditional debt, our interest expense will increase which may cause a furtherreduction in the amount of cash available to us.

On October 4, 2007, our board of directors declared aquarterly dividend on our common stock in the amount of $0.225 per share. Therecord date for the dividend payment will be November 15, 2007, and the paymentdate will be December 3, 2007.

**Critical Accounting Policies and Estimates**

The process of preparing our consolidated financialstatements in accordance with U.S. generally accepted accounting principles (“GAAP”),requires management to make estimates, judgments, and assumptions that affectthe amounts reported and the accompanying note disclosures. The estimates madeby management are based on historical experience combined with management’sunderstanding of current facts and circumstances. Management identifiescritical accounting estimates as:

•                  those that require the use of assumptionsabout matters that are inherently and highly uncertain at the time theestimates are made; and

•                  those for which changes in the estimates,judgments, or assumptions, or the use of different estimates, judgments, andassumptions, could have a material impact on our consolidated results ofoperations or financial condition.

 

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Management has discussed the development, selection,and disclosure of critical accounting policies and estimates with the AuditCommittee of our board of directors. We believe that our most criticalaccounting policies and estimates, those which are both important to theportrayal of our financial condition and results of operations and require themost difficult, subjective, complex, or significant judgment on the part ofmanagement, are the following:

•                  Allowance for Doubtful Accounts;

•                  Inventory Valuation and Reserves;

•                  Vendor Rebate Receivables; and

•                  Income Taxes

For a discussion of the Company’s critical accountingpolicies and estimates, please see our Annual Report on Form 10-K in the yearended February 25, 2007. We have not changed these policies or the method ofmaking these estimates from those previously disclosed.

***Recently Adopted AccountingPronouncements***

See Note 2 to the Consolidated Financial Statementsfor a discussion of the impact of adopting FASB Interpretation No. 48 (FIN No.48), “Accounting for Uncertainty in Income Taxes,” on February 26, 2007.

***Recent AccountingPronouncements***

In September 2006, the FASB issued Statement ofFinancial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS157”). This standard defines fair value, establishes a framework for measuringfair value in generally accepted accounting principles, and expands disclosuresabout fair value measurements. SFAS 157 is effective for fiscal years beginningafter November 15, 2007, and interim periods within such years. We willadopt SFAS 157 in our first quarter of fiscal 2009, as required.  We are currently reviewing the requirementsof this statement and, at this point in time, we cannot determine the impact,if any, that this statement may have on results of operations, financialposition, or cash flows.

In February 2007, the FASB issued Statement ofFinancial Accounting Standard No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities, including an amendment to FASBStatement No. 115” (“SFAS 159”). This statement permits entities to choose tomeasure many financial instruments and certain other items at fair value thatare not currently required to be measured at fair value. The objective is toimprove financial reporting by providing entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. This statement requires a business entity to report unrealizedgains and losses on items for which the fair value option has been elected inearnings at each subsequent reporting date. An entity may decide whether toelect the fair value option for each eligible item on its election date,subject to certain requirements described in the statement. This statement iseffective at the beginning of each reporting entity’s first fiscal year thatbegins after November 15, 2007. We will adopt SFAS 159 in our firstquarter of fiscal 2009, as required. We are currently reviewing therequirements of this statement and, at this point in time, we cannot determinethe impact, if any, that this statement may have on results of operations,financial position, or cash flows.

**Forward-Looking Statements**

This report includes “forward-looking statements,” asthat term is defined by The Private Securities Litigation Reform Act of 1995 orby the Securities and Exchange Commission (“SEC”) in its rules, regulations,and releases that involve risks and uncertainties. Forward-looking statementsinclude statements concerning our plans, objectives, goals, strategies, futureevents, future revenue or performance, capital expenditures, financing needs,plans or intentions relating to acquisitions and divestitures, business trends,and other information that is not historical information, and, in particular,appear under the heading “Management’s Discussion and Analysis

 

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of Financial Condition and Results of Operations.”When used in this Report, the words “estimates,” “expects,” “anticipates,” “projects,”“plans,” “intends,” “believes,” “forecasts,” “foresees,” “likely,” “may,” “should,”“goal,” “target,” and variations of such words or similar expressions areintended to identify forward-looking statements. All forward-looking statementsare based upon information available to us on the date of this Report.

These forward-looking statements are subject to risks,uncertainties and other factors, many of which are outside of our control thatcould cause actual results to differ materially from the results discussed inthe forward-looking statements including, among other things, the mattersdiscussed in this report under this “Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations.” Such risks,uncertainties and other factors may include, among others:

•                  general economic and business conditions;

•                  industry trends;

•                  restrictions contained in our debtagreements;

•                  our substantial leverage, including theinability to generate the necessary amount of cash to service our existing debtand the incurrence of substantial indebtedness in the future;

•                  the seasonality of our business andweather conditions;

•                  the possibility of liability forpollution and other damage that is not covered by insurance or that exceeds ourinsurance coverage;

•                  increased competition in the markets inwhich we operate;

•                  our dependence on product mix and rebateprograms to attain profitability;

•                  our dependence on a limited number of keyexecutives who we may not be able to adequately replace if they leave ourcompany;

•                  changes in government regulations, agriculturalpolicy, and environmental, health, and safety laws and regulations;

•                  changes in business strategy, developmentplans, or cost savings plans;

•                  our ability to reduce working capital andmanage expenses;

•                  our ability to consummate the Term Loan Add-on;

•                  changes in the number of acres plantedand the mix of principal crops planted by our customers;

•                  our ability to integrate newly acquiredoperations into our existing operations;

•                  our ability to raise debt or equityfinancing to fund our acquisition strategy in the future;

•                  the loss of any of our major suppliers orthe bankruptcy or financial distress of our customers;

•                  the ability to maintain prices and/orattain any price increases for our products;

•                  availability, terms, and deployment ofcapital; and

•                  other factors over which we have littleor no control.

These risks and certain other uncertainties arediscussed in more detail in our Annual Report on Form 10-K in the fiscal yearended February 25, 2007, under the caption “Item 1A. Risk Factors.”

There may be other factors, including those discussed elsewhere in thisReport, which could cause our actual results to differ materially from theresults referred to in the forward-looking statements. All forward-lookingstatements attributable to us or persons acting on our behalf apply only at thedate of this Report and are expressly qualified in their entirety by thecautionary statements included in this Report. We undertake no obligation topublicly update or revise forward-looking statements to reflect events orcircumstances after the date made or to reflect the occurrence of unanticipatedevents.

 

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** **

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK.**

 

Market risks affecting our business are exposure tochanges in energy prices, fertilizer product prices, interest rates, foreigncurrency exchange rates, and interest rate swaps.

Changes in energy prices have a direct impact on ourfuel costs. These price increases impact our supply chain and selling expenses.Based on our historic usage, an approximate $0.13 increase in the annualaverage per gallon price of fuel would increase our annual fuel expense by $1.0million. Higher fuel prices also affect our customers such that higher expensesfor fuel may reduce the cash or credit available to our customers with whichthey purchase other inputs or services from us.

Our inventory of fertilizer products has price riskrelated to changes in energy prices and fertilizer global supply and demandpatterns. Our total fertilizer inventories were $119.3 million, $142.9 million,and $80.9 million at August 26, 2007, February 25, 2007, and August 27,2006, respectively. In addition to our inventory, in order to secure supply andpricing, we sometimes prepay vendors for fertilizer inventory.  This fertilizer will be delivered later inthe current fiscal year or early in the next fiscal year.  Our prepaid fertilizer was $14.4 million,$47.2 million, and $4.0 million at August 26, 2007, February 25, 2007, andAugust 27, 2006, respectively.

Our average daily borrowings under the senior securedrevolving credit facility (net of cash on hand) in the fifty-two week periodended August 26, 2007, were $382.8 million. The senior secured revolving creditfacility is affected by changes in interest rates. Based upon the amount of ouraverage daily borrowings (net of cash on hand) in the fifty-two week periodended August 26, 2007, a one percentage point change in the assumed weightedaverage interest rate on such credit facility would change our annual interestexpense by $3.8 million.

Our foreign currency risk is limited primarily to theexchange rate differential in the Canadian and U.S. dollar. The exchange ratewas 0.9510, 0.8626, and 0.902 at August 26, 2007, February 25, 2007, andAugust 27, 2006, respectively. The exchange rate varied between 0.8455 and0.9669 in the twenty-six weeks ended August 26, 2007. A one-percentage pointchange in the exchange rate would have approximately a $0.2 million impact onthe balance sheet value.

In July 2006, in compliance with the terms of our new credit facility,we entered into two interest rate swaps to manage exposure to changes in cashflows related to changes in the variable interest rate on a portion of ourlong-term debt. Under the terms of the swaps, we pay a designated fixed rate andreceive a variable rate, which is based on LIBOR. The rate received is expectedto offset the variable rate to be paid on the long-term debt which is alsobased on LIBOR. At August 26, 2007, the notional value of the interest rateswaps was $165 million. These notional values of these amortizing swaps willdecline to $90 million prior to expiration in July 2011.

 

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**ITEM 4.  CONTROLS AND PROCEDURES.**

** **

At the end of the period covered by this report, weevaluated the effectiveness of the design and operation of our “disclosurecontrols and procedures” as they related to our business (“Disclosure Controls”).This evaluation (“Controls Evaluation”) was done under the supervision and withthe participation of management, including our Chief Executive Officer (“CEO”)and Chief Financial Officer (“CFO”).

Our management, including the CEO and CFO, does notexpect that our Disclosure Controls or our “internal controls over financialreporting” will prevent all errors and all fraud. A control system, no matterhow well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, thedesign of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, have been detected. These inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake. Additionally, controlscan be circumvented by the individual acts of some persons, by collusion of twoor more people, or by management override of the control. The design of anysystem of controls also is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions;over time, controls may become inadequate because of changes in conditions, orthe degree of compliance with the policies or procedures may deteriorate.Because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

Based upon the Controls Evaluation, the CEO and CFOhave concluded that the Disclosure Controls are effective as of the end of theperiod covered by this report. There have been no significant changes in ourinternal controls or in other factors that could significantly affect internalcontrols subsequent to the date we carried out this evaluation. In addition,there have been no changes in our internal control over financial reportingthat have occurred during the most recent fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PARTII.****                         ****OTHER INFORMATION**

**ITEM 1.****                              ****LEGAL PROCEEDINGS.**

There have been no material changes in our legalproceedings from those disclosed in Part I, Item 1 of our AnnualReport on Form 10-K for the fiscal year ended February 25,2007.

**ITEM 1A.****                     ****RISK FACTORS.**

There have been no material changes in our riskfactors from those disclosed in Part I, Item 1A of our Annual Report on Form10-K for the fiscal year ended February 25, 2007.

**ITEM 2.****                              ****UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS.**

Not applicable

**ITEM 3.****                              ****DEFAULTS UPON SENIORSECURITIES.**

Not applicable

**ITEM 4.****                             ****SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS.**

(a)                   The annual meeting of stockholders washeld on July 26, 2007.

(b)                  Directors elected at the meeting wereSteven Y. Gold and Scott L. Thompson.

IncumbentDirectors at the time of the meeting whose terms expire in subsequent yearsare: L. Kenneth Cordell, David R. Birk, Michael E. Ducey, Thomas R. Miklich,Carl J. Rickertsen, and William H. Schumann III.

(c)                   The matters voted upon at the meeting andthe results of the voting were as follows:

*(1)**               **Election of Directors:*
| ** **         | ** ** | **Class** | ** ** | **Term Expiring** | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|--------------------|------------|-----------|------------|-------------------|------------|------------|------------|--------------|------------|
| Steven Y. Gold     |       | I         |       | 2010              |       | 49,592,784 |       | 354,162      |       |
| Scott L.  Thompson |       | I         |       | 2010              |       | 49,592,784 |       | 354,162      |       |

 

*(2)**               **The Ratification of theAppointment of Deloitte & Touche LLP as Independent Registered PublicAccounting Firm for fiscal 2008:*
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 49,922,013 |       | 22,254      |       | 2,679       |       |

 

*(2)**               **Ratification of the UAPHolding Corp. 2007 Long-Term Incentive Plan:*
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-  Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|------------------------|------------|
| 46,134,619 |       | 2,452,023   |       | 34,398      |       | 1,325,906              |       |

 

**ITEM 5.****                              ****OTHER INFORMATION.**

Not applicable

 

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**ITEM 6.****                              ****EXHIBITS.**
| 10.1   |   | UAP Holding Corp. 2007 Long-Term Incentive Plan.                                                                                                                                          |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                      |
| 15.1   |   | Deloitte & Touche LLP Letter Re Unaudited  Interim Financial Information.                                                                                                             |
|   |   |                                                                                                                                                                                      |
| 31.1   |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act  of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|   |   |                                                                                                                                                                                      |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act  of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|   |   |                                                                                                                                                                                      |
| 32.1   |   | Certification of Chief  Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                         |
|   |   |                                                                                                                                                                                      |
| 32.2   |   | Certification of Chief  Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                         |

 

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**SIGNATURES**

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

Date: October 5, 2007
| **UAP HOLDING CORP.** |
|-----------------------|
| (Registrant)          |
|                  |
|                  |
| By:                   | **/s/ David W. Bullock** |
|                  |   |
|                  | **David W. Bullock** |
|                  | **Executive Vice President and Chief Financial  Officer** |
|                  | **(Principal Financial Officer and duly authorized  signatory on behalf of Registrant)** |
|                  |   |
|                  |   |
| By:                   | **/s/ Alan Kessock** |
|                  |   |
| ** **            | **Alan Kessock** |
|                  | **Chief Accounting Officer** |
|                  | **(Principal Accounting Officer)** |

 

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