UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,
 D.C. 20549

Form 10-K

(Mark one)

x
  
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended August 28, 2004or


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


For the transition period from 
  to .


Commission
file number 333-115164

U.S. PREMIUM BEEF, LLC

(Exact name of
registrant as specified in its charter)

DELAWARE
  
  20-10547414(State
  or other jurisdiction ofincorporation
  or organization)
  
  (I.R.S.
  employeridentification
  number)


12200 North Ambassador DriveKansas City, MO 64163(Address
of principal executive offices)Telephone: (866) 877-2525(Registrant's
telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:NoneSecurities
registered pursuant to Section 12(g) of the Act:None



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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.. x

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

The Registrant's equity is not traded on any
exchange or other public market; however, there have been private transactions. 
The aggregate value of the interest held by non-affiliates approximates $63.5
million, based on the weighted average of the last sales approved.  As of February 27 , 2004, there were 691,845 Class A units and 691,845 Class B units
outstanding.

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TABLE OF
  CONTENTSPART I.Item 1.
  Business.Item 2.
  Properties.Item 3.
  Legal Proceedings.Item 4.
  Submission of Matters to a Vote of Security Holders.PART II.Item 5.
  Market for Registrant's Common Equity, Related Stockholder
  MattersAnd Issuer Purchases of Equity Securities.Item 6.
  Selected Financial Data.Item 7.
  Management's Discussion and Analysis of Financial
  Condition andResults of Operation.Item 7A.
  Quantitative and Qualitative Disclosures About Market
  Risk.Item 8.
  Financial Statements and Supplementary Data.Item 9.
  Changes in and Disagreements with Accountants on Accounting
  andFinancial Disclosure.Item 9A.
  Controls and Procedures.Item 9B.
  Other Information.PART III.Item 10.
  Directors and Executive Officers of the Registrant.Item 11.
  Executive Compensation.Item 12.
  Security Ownership of Certain Beneficial Owners and
  Management.Item 13.
  Certain Relationships and Related Transactions.Item 14.
  Principal Accountant Fees and Services.PART IV.Item 15.
  Exhibits and Financial Statement Schedules.Signatures


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TABLE_OF_CONTENTS



PART I

ITEM 1.                 BUSINESS

MARKET AND INDUSTRY DATA AND FORECASTS

Market data and certain industry forecasts used
throughout this report were obtained from internal surveys, market research,
consultant surveys, publicly available information and industry publications
and surveys. Industry surveys, publications, consultant surveys and forecasts
generally state that the information contained therein has been obtained from
sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. We have not independently verified any of the
data from third-party sources nor have we ascertained the underlying economic
assumptions relied upon therein. Similarly, internal surveys, industry
forecasts and market research, which we believe to be reliable based upon our
management's knowledge of the industry, have not been independently verified.
Forecasts are particularly likely to be inaccurate, especially over long
periods of time. In addition, we do not know what assumptions regarding general
economic growth were used in preparing the forecasts we cite.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains
"forward-looking statements," which are subject to a number of risks and
uncertainties, many of which are beyond our control. Forward-looking statements
are typically identified by the words "believe," "expect," "anticipate,"
"intend," "estimate" and similar expressions. Actual results could differ
materially from those contemplated by these forward-looking statements as a result
of many factors, including economic conditions generally and in our principal
markets, the availability and prices of live cattle and commodities, food
safety, livestock disease, competitive practices and consolidation in the
cattle production and processing industries, actions of domestic or foreign
governments, hedging risk, changes in interest rates and foreign currency
exchange rates, consumer demand and preferences, the cost of compliance with
environmental and health laws, loss of key customers, loss of key employees,
labor relations and consolidation among our customers. In light of these risks
and uncertainties, there can be no assurance that the results and events
contemplated by the forward-looking information contained in this report will in
fact transpire. Readers are cautioned not to place undue reliance on these
forward-looking statements. We do not undertake any obligation to update or
revise any forward-looking statements. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these factors.  Please review the
"Risk Factors," included in Item 1 Business in this report, for other
important factors that could cause actual results to differ materially from
those in any such forward-looking statements.

Unless the context indicates or
otherwise requires, the terms "the Company", "we", "our" and "us" refer to U.S.
Premium Beef, LLC (formerly known as U.S. Premium Beef, Ltd.) and its
consolidated subsidiaries. As used in this report, the term "NBP" refers to
National Beef Packing Company, LLC (formerly known as Farmland National Beef
Packing Company, LP, a Delaware limited liability company) and "USPB" refers to
U.S. Premium Beef, LLC (formerly known U.S. Premium Beef, Ltd.) prior to
consolidation.  As used in this report, the terms "FYE" and "fiscal year ended"
refer to our fiscal year, which ends on the last Saturday in August.

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BUSINESS OF U.S. PREMIUM BEEF, LLC.

Overview

U.S. Premium Beef (USPB) was
organized in July 1996 as a Kansas cooperative by a steering committee of
cattle producers. USPB's goal is to provide market access and improve the
marketing and processing of beef products requiring higher quality cattle for
wholesale and retail customers and consumers while providing higher returns to
cattle producers. USPB operates an integrated cattle processing and beef
marketing enterprise where consumer and processor demands and requirements are
implemented through changes in genetics, feeding and management. U.S. Premium
Beef's unitholders benefit from its supplier alliance with National Beef
Packing Co., LLC (NBP) through (i) premiums received in excess of cash market
prices for higher quality cattle, (ii) allocations of profits and losses and
distributions, (iii) potential unit price appreciation, and (iv) information
that permits unitholders to make informed production decisions.

On June 12, 2003, U.S. Premium Beef entered into an agreement with Farmland Industries, Inc. (Farmland) to acquire
all of the partnership interests in Farmland National Beef Packing Company (FNB)
held by Farmland.  USPB formed NB Acquisition, LLC to consummate the
acquisition. To finance the acquisition, USPB, NBPCo Holdings, LLC (NBPCo Holdings)
and certain members of FNB's management team purchased equity in NB
Acquisition, LLC (NB Acquisition) for $46.0 million in cash.  FNB issued $160.0
million of Senior Notes (Senior Notes), amended its credit facility and
transferred a portion of the proceeds of the offering of the Senior Notes and
borrowings under its amended credit facility to NB Acquisition.
 Subsequently, NB Acquisition merged into FNB, and FNB then converted into
a limited liability company under Delaware law and became known as National
Beef Packing Company, LLC (NBP).  These transactions (the "Acquisition") closed
on August 6, 2003.

Effective August 29, 2004, the cooperative restructured into a limited liability company (the Conversion). The business of USPB,
the cooperative, is being continued in the LLC form of business organization.

U.S. Premium Beef, NBPCo Holdings and NBP management
each hold Class A and Class B interests in NBP. In addition, members of NBP
management will be issued a fixed number of additional Class A and Class C
interests in NBP in lieu of cash payments owed under existing employment
arrangements. USPB holds approximately 53.2% of the Class B interests, as well
as Class A interests with an aggregate face amount of approximately $88.8
million, NBPCo Holdings owns approximately 20.2% of the Class B interests, as
well as Class A interests with an aggregate face amount of approximately $31.6
million, and members of NBP management own approximately 26.6% of the Class B
interests, as well as Class A interests with an aggregate face amount of
approximately $1.5 million. After a specified period following the completion
of the Acquisition, certain members of NBP management will be issued a fixed
number of additional Class A interests with an aggregate face amount of
approximately $9.1 million and Class C interests with an aggregate face amount
of approximately $0.9 million in lieu of cash payments owed under prior or
existing employment arrangements pursuant to deferred compensation agreements
entered into in connection with the Acquisition.

5




USPB provides an integrated cattle production,
processing and marketing system for the benefit of its owners and associates.
As the basis of that system, USPB's owners have a guaranteed right plusa

Products and Production

n
obligation (on a one head per unit per year basis) to deliver cattle to USPB,
pursuant to the uniform delivery and marketing agreement (See "Cattle Delivery
Arrangements"). Cattle delivered to USPB are then delivered to NBP for
processing and subsequent product distribution and marketing. Shortly after the
cattle are processed, cattle suppliers receive, at no extra charge, reliable
individual animal carcass data previously considered proprietary by many
processors. This carcass data assists producers in refining production
methodologies, thereby improving the product quality and subsequently enhancing
the return to the producer investor.

We believe the primary advantage of USPB's
ownership in NBP centers around USPB's ability to provide NBP with a consistent
supply of quality beef from a verified source, allowing NBP to target higher
margin value-added markets. Consumers have historically demonstrated their
willingness and desire to buy branded products that offer better value in other
consumer product markets, with the Certified Angus Beef product line being an
example in the beef industry.

Cattle Producers' Uniform Delivery and Marketing Agreements

USPB purchases all of its cattle requirements from its owners and associates.
Under the cooperative structure, each share of common stock held by a
shareholder entitled and obligated that shareholder to deliver one head of
cattle per year to the cooperative. Each shareholder was required to enter into
a uniform delivery and marketing agreement with the cooperative whereby the
shareholder was committed to supply a designated number of cattle on an annual
basis to be delivered during the delivery periods set forth in the delivery
agreement. In the LLC structure, each Class A unit held by a unitholder
entitles and obligates that unitholder to deliver one head of cattle per year
to the LLC.  Each delivery agreement is for a term of 10 years, with the
term of current delivery agreements continuing following the conversion. These
arrangements are described in greater detail in "Cattle Delivery Arrangements".

Company Background

USPB was organized as a tax
exempt cooperative within the meaning of Section 521(b)(l) of the Internal
Revenue Code. The cooperative began operations on December 1, 1997, when the cooperative acquired its initial interest in Farmland National Beef, now known
as National Beef Packing Company, LLC. In connection with the cooperative's
purchase of its interest in Farmland National Beef, the cooperative obtained
the right, and became subject to the obligation to deliver cattle annually to
NBP relative to: (i)  USPB's ownership
in NBP and (ii) the number of cattle processed annually by NBP.  That
arrangement continues following the conversion of the cooperative into the LLC.
 Under that arrangement, the cooperative has delivered over four million head
of cattle to NBP for processing since the cooperative commenced deliveries.

On August 6, 2003, USPB became the majority owner in NBP.

On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the conversion of the cooperative
into a Delaware LLC.  Under the new ownership structure, each share of common
stock of the cooperative was converted to one unit of Class A interest and one
unit of Class B interest.  Immediately following the conversion, there were
691,845 units of Class A interests and 691,845 units of Class B interests.  For
a period to be determined by the board of directors, each Class A unit will be
linked to its corresponding Class B unit and each pair of linked units must, if
transferred, be transferred together.  Patronage Refunds for Reinvestment in
the cooperative were carried over at their face amount into the LLC as
Patronage Notices.

Holders of Class A units are
entitled to a pro rata share of 33% of the profits and losses; to receive
distributions of USPB's net cash flow when declared by the board of directors;
to participate in the distribution of USPB's assets if it dissolves or
liquidates after payment of the Patronage Notices, and, if the holder is a
member, to vote on matters submitted to a vote of USPB's members.  Holders of
Class A units are committed under Uniform Delivery and Marketing Agreements to
deliver one head of cattle to USPB annually for each unit held.

Holders of Class B units are
entitled to a pro rata share of 67% of the profits and losses; to receive
distributions of USPB's net cash flow when declared by the board of directors;
to participate in the distribution of USPB's assets if it dissolves or
liquidates after the payment of the Patronage Notices, and, if the holder is a
member, to vote on matters submitted to a vote of USPB's members.  Holders of
Class B units have no cattle delivery commitment.

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Patronage Notices do not
constitute units or membership interests in USPB, and holders will not be unitholders
or members of USPB by virtue of holding Patronage Notices.  As was the case in
the cooperative, Patronage Notices will be paid by USPB at such time and in
such amounts as may be determined by the board of directors in its sole and
absolute discretion.  Upon liquidation, holders of Patronage Notices will be
paid before Holders of Class A and Class B units.  Patronage Notices carry no
other or additional rights.

Employees

USPB has nine employees. USPB's governance and
strategic oversight responsibilities with NBP and the complexity of USPB's
obligations under its various contracts with NBP require USPB to retain the
services of key senior management personnel with the experience, skill and
expertise necessary to manage an enterprise competitive with other
sophisticated participants in the beef and meat industries. Each employee is
compensated through the payment of a base salary with management being eligible
for incentive bonuses. In addition, each employee is eligible to participate in
benefits programs maintained by USPB. These programs include group medical
insurance, accidental death and dismemberment insurance and similar programs.

USPB's employees are not
unionized and USPB believes that its relationship with its employees is good.

Governmental Regulation and Environmental Matters

USPB is subject to federal and state regulations
relating to grading of animals, quality control, labeling, sanitary control and
waste disposal. However, as many of USPB's operational activities are conducted
through its majority-owned subsidiary, NBP, and as USPB does not directly
operate any processing facilities itself, the significant efforts with respect
to governmental and environmental regulation are conducted by NBP. See
"Business of National Beef Packing Company, LLC - Government Regulation
and Environmental Matters".

Sales, Marketing and Customers

USPB's sole customer is its majority-owned
subsidiary, NBP. The ultimate customers of and the market for the products
resulting from the processing of cattle supplied by USPB's members are
described in "Business of National Beef Packing Company, LLC - Business."

Beef Industry, Markets and Competition

As indicated above, USPB's business activities
are focused on supplying cattle produced by its members or associates to USPB's
majority-owned subsidiary, NBP. Information regarding the beef industry, the
market for beef and beef products and competition within the beef industry are
described in "Business of National Beef Packing Company, LLC - Industry
Overview" and "Business of National Beef Packing Company, LLC - Business".

Intellectual Property

USPB owns little intellectual property because
the majority of USPB's sales are transacted through NBP. However, USPB
maintains a trademark on a U.S. Premium Beef logo that it uses
periodically on certain, selected products.

Research and Development

USPB does not conduct any research and
development activities independent of the activities of NBP.

7








CATTLE DELIVERY ARRANGEMENTS

Cattle Producers' Uniform Delivery and Marketing Agreements and Payments
to Owners and Associates for Cattle

USPB purchases all of its cattle
requirements from its owners and associates. Under the cooperative structure,
each share of common stock held by a shareholder entitled and obligated that shareholder
to deliver one head of cattle per year to the cooperative. Each shareholder was
required to enter into a uniform delivery and marketing agreement with the
cooperative whereby the shareholder was committed to supply a designated number
of cattle on an annual basis to be delivered during the delivery periods set
forth in the delivery agreement.  In the LLC structure, each Class A unit held
by a unitholder entitles and obligates that unitholder to deliver one head of
cattle per year to the LLC.  Each delivery agreement is for a term of
10 years, with the terms of current delivery agreements continuing
following the conversion.

Cattle delivered to USPB by its
owners and associates are delivered by USPB to NBP for processing (with the
effect that NBP is USPB's sole customer). The resulting beef and beef products
are marketed by NBP. Each owner or associate is paid for the cattle delivered
to USPB based on a market-based purchase price that is subject to the
agreements between USPB and NBP. However, to comply with covenants in USPB's
loan agreements, USPB reserves the right to retain a fixed portion of the
purchase price for each head of cattle delivered to USPB.

To the extent possible, pursuant
to the delivery agreement, USPB will pay for cattle based on the individual
carcass quality of cattle delivered to the Company. In addition to the payments
described in this section, the cooperative  paid patronage dividends from its
taxable income, in accordance with its bylaws. Such patronage dividends were
based on the cooperative's taxable income and were distributed to the
cooperative's shareholders and associate members in proportion to the number of
cattle delivered to the cooperative by its shareholders and associate members.
As a result, the patronage dividends received by the cooperative's shareholders
and associate members reflect the benefits and profits, if any, obtained from
value-added marketing of the beef and beef products created from the cattle
delivered to the cooperative for processing. As a limited liability company,
allocations of profits and distributions are not tied to cattle delivery but
rather to the number of units held.

BUSINESS OF NATIONAL BEEF PACKING COMPANY, LLC (NBP)

Business

NBP is the fourth largest beef processing company
in the United States, accounting for 11.7% of the United States fed cattle
processed in its FYE 2004. NBP processes, packages and delivers fresh beef for
sale to customers in the United States and international markets. NBP's
products include boxed beef and beef by-products, such as hides and offal. In
addition, NBP sells value-added beef products including branded boxed beef,
case-ready beef and pork, chilled and frozen export beef and portion control
beef. NBP markets products to retailers, distributors, food service providers
and the United States military. In FYE 2004, NBP processed in excess of three
million fed cattle at its facilities and generated total net sales of $4.1
billion.  NBP's relationship with U.S. Premium Beef facilitates a vertically
integrated business model and provides NBP with a significant portion of the
high-quality cattle used in its boxed beef and value-added products.

Steven
D. Hunt, one of NBP's three managers and the Chief Executive Officer of U.S.
Premium Beef, has over 22 years of experience in the beef industry. Mr. Hunt
has been an integral member of NBP's team and has helped to increase its supply
of high-quality cattle by facilitating the growth of the membership base at
U.S. Premium Beef.

8




On June 12, 2003, U.S. Premium Beef entered into an agreement with Farmland Industries, Inc. (Farmland) to acquire all of
the partnership interests in NBP held by Farmland.  U.S. Premium Beef
formed NB Acquisition, LLC to consummate the acquisition. To finance the
acquisition, U.S. Premium Beef, NBPCo Holdings, LLC (NBPCo Holdings) and
certain members of the FNB management team purchased equity in NB Acquisition,
LLC (NB Acquisition) for $46.0 million in cash.  FNB issued $160.0 million of
Senior Notes (Senior Notes), amended its credit facility and transferred a
portion of the proceeds of the offering of the Senior Notes and borrowings
under its amended credit facility to NB Acquisition.

Subsequently, NB Acquisition merged into FNB,
and FNB then converted into a limited liability company under Delaware law and
became known as National Beef Packing Company, LLC.  These transactions
closed on August 6, 2003.  NBP continues to hold all of the same assets it
held before the consummation of the transactions, including equity in its
subsidiaries, except that it transferred to Farmland a 49% interest in its
subsidiary NBP aLF, LLC, which holds a 47.5% interest in aLF Ventures,
LLC.  Farmland has a right to request that NBP repurchase this interest at
fair market value any time from July 2006 to July 2008.   If NBP does not
repurchase the interest, NBP agrees to put the entire interest in NBP aLF, LLC up
for sale.

BSE and Related Export Bans

On December 23, 2003, it was announced by the USDA that a single Holstein dairy cow was
discovered in the state of Washington to have tested positive for BSE.  The
origin of the animal was subsequently traced to a farm in Canada.  Shortly after the announcement, several countries representing a substantial share
of NBP's export business closed their borders to the importation of edible beef
products from the United States.  Certain by-products have been classified as
Specified Risk Materials (SRMs), and have been banned from use in feedstocks
and the human food chain. Some of these products previously enjoyed a market in
foreign countries.

In addition,
the United States Department of Agriculture (USDA) and the Food Safety
Inspection Service (FSIS) published new regulations in response to the
discovery of BSE in the state of Washington.  These new regulations, among other
things, govern the removal of SRMs during slaughter, cover the ban on the
slaughtering of non-ambulatory animals for human food use, set forth the
prohibition on the production of mechanically separated meat and ban certain
techniques used in the slaughter process.  The USDA also issued a notice
announcing that FSIS inspectors will not mark ambulatory cattle that have been
targeted for BSE surveillance testing as "inspected and passed" until negative
test results are obtained.  While exports of some beef products have commenced
once again to Mexico, NBP cannot anticipate the duration of other continuing
beef import bans or whether additional countries may impose similar
restrictions.

The closure
of U.S. borders to the importation of Canadian feeder and fattened (ready for
slaughter) animals, which occurred in May 2003 following the discovery of BSE
in Alberta that same month, tightened the U.S. cattle supply; the U.S. border
opened to Canadian produced boxed beef in September  2003, while the ban on importation
of Canadian livestock was maintained.

The
USDA has published a proposed rule revising its policy to keep the U.S. border closed to live Canadian animals for processing in the U.S.  The comment period for this proposed rule closed on April 7, 2004 and publication of a final rule was anticipated within a reasonable time following closure of
the comment period.  In the interim, Ranchers Cattlemen Action Legal Fund
United Stockgrowers of America (R-CALF - a northern states cattle producer's
organization) was successful in obtaining an injunction against the USDA
allowing importation of certain beef products produced in Canada pursuant to
this rule, because the USDA did not follow the "Administrative Procedures Act"
prior to issuing its order allowing such action.  The final rule is drafted and
is being reviewed within USDA.  It is expected to be sent to the federal
government Office of Management and Budget (OMB) after the U. S. presidential election.  OMB could take up to 90 days to return it to USDA, but many
expect the final rule to be published before the end of the year with the Canadian
markets opening in the first quarter of calendar 2005, although NBP can provide
no assurance that this will occur.

9




On October 23, 2004, USDA announced that Japan and the U.S. had reached an agreement on
opening the border for export to Japan.  Over the coming months, many details
will have to be worked out by both governments.  Part of the agreement involves
the tracking of animals of known age from the ranch so that only meat from
animals less than 21 months of age can be shipped to Japan.  It will require
considerable effort and resources for NBP to develop and implement such a
system over the coming months.  It is expected that the markets will begin to
open for some products in the first quarter of calendar 2005, although no
assurance can be given that this will occur. NBP cannot presently assess the
full economic impact of the consequences of BSE on the U.S. beef industry or on its operations.

Industry Overview

Beef products represent the largest segment of
the U.S. meat industry based on retail sales and the U.S. is the largest
producer of beef in the world. In 2003, approximately 26.2 billion pounds of
beef were produced in the U.S. Beef production, from the birth of the animal to
the delivery of meat products to the end distributor is comprised of two
primary segments: production and processing. The production segment raises
cattle for slaughter and the processing segment slaughters cattle and packages
beef for delivery to end distributors. A typical 1,200 pound animal yields
about 580 pounds of saleable meat in addition to by-products. Cattle supply in
the beef industry typically follows a ten to twelve year cycle, consisting of
about six to seven years of expansion followed by one to two years of
consolidation and three to four years of contraction. This cycle is unique to
cattle as other animals can either generate multiple offspring or have shorter
incubation periods.  There are 66 major federally inspected processing plants
in the U.S.

Beef carcasses are fabricated into boxed beef
cuts for sale to retailers and food service operators who further process the
cuts for sale to consumers. NBP estimates that approximately 80% of beef sold
in the U.S. is sold as boxed beef. Recently, meat processors have begun slicing
and repackaging cuts, thereby reducing the amount of handling by the end
retailer. These case-ready products may be placed directly into the retail
display case for selection by the consumer. Case-ready products allow retail
stores to shift butcher shop square footage to revenue-generating activities,
reduce labor costs and workplace injuries associated with slicing beef, and
potentially reduce food safety liability.

The domestic beef industry is characterized by
prices that change daily based on seasonal consumption patterns and overall
supply and demand for beef and other proteins in the United States and abroad.
In general, domestic and worldwide consumer demand for beef products determines
beef processors' long-term demand for cattle, which is filled by feedlot
operators. To operate profitably, beef processors seek to acquire cattle at the
lowest possible costs and to minimize processing costs by maximizing plant
operating rates. Cattle prices vary over time and are affected by inventory
levels, the production cycle, weather, feed prices and other factors.

In FYE 2004, approximately 26.5 million fed
cattle were processed in the United States.  In recent periods, demand for beef
products in the United States has been relatively stable, with population
growth the primary factor in determining increased aggregate demand.  The
domestic beef industry faced several challenges in the last year, directly
related to BSE.  The closure of U.S. borders to the importation of Canadian
feeder and fattened (ready for slaughter) animals which occurred in May 2003
following the discovery of BSE in Alberta that same month tightened the U.S.
cattle supply; and, although the U.S. border opened to Canadian produced boxed
beef in September 2003, the entire U.S. beef industry continued at a price
disadvantage while the ban on importation of Canadian livestock was maintained.
This continued closure of the U.S. border to Canadian livestock has resulted in
higher overall feeder and fed cattle prices in the U.S., negatively impacting
raw material prices. In addition, the closure of most foreign markets to U.S. beef following the discovery of a single dairy cow in Washington state infected with
BSE on December 23, 2003 and lack of alternative U.S. markets for many products which previously were exported, negatively impacted the
revenue per head enjoyed by the U.S. packing industry.  All of these challenges
resulted in tremendous volatility in the U.S. livestock market prices during
FYE 2003, and the instability carried into FYE 2004.

On October 23, 2004, USDA announced that Japan and the U.S. had reached an agreement on opening the border for export to Japan.  Over the coming months, many details will have to be worked out by both governments. 
Part of the agreement involves the tracking of animals of known age from the
ranch so that only meat from animals less than 21 months of age can be shipped
to Japan.  It will require considerable effort and resources for NBP to develop
and implement such a system over the coming months.  It is expected that the
markets will begin to open for some products in the first quarter of calendar 2005,
although no assurance can be given that this will occur.

10












NBP Business Strategy

Increase Supplier Alliances.NBP intends
to continue to increase the number of high-quality cattle it purchases from
supplier alliances to increase revenue and improve profitability. The cattle
NBP purchases through supplier alliances, such as its relationship with U.S.
Premium Beef, are purchased on either a value-based formula, which sets the
price for carcasses according to both quality and yield, or a secondary-market
basis, whereby NBP purchases cattle from suppliers outside of its primary
supply territory. NBP believes these purchasing methods allow it to increase
the percentage of high-quality cattle that it processes relative to the total
cattle NBP processes. The percent of cattle NBP purchases pursuant to each of
these methods fluctuates from period to period.  From FYE 1992 to FYE 2004, it
has increased the number of cattle it purchases on either a value-based formula
or a secondary market basis to approximately 58.9% of its total cattle purchased
in FYE 2004.  Based on NBP's experience and on actual results, it believes that
these purchasing methods allow it to increase the percentage of high-quality
cattle that it processes relative to NBP's total cattle processed.  NBP has
focused on building relationships with and educating its suppliers on the
mutual benefits of these purchasing methods and believes that it will be able
to increase its high-quality cattle purchases utilizing these methods in the
future.

Continue to Improve Operating Efficiencies.NBP
plans to continue to focus on increasing its profit margins by improving
operating efficiencies and increasing processing yields. Over the past ten
years, NBP has invested over $245 million and successfully expanded its
processing facilities, creating an efficient and high volume business. NBP is
continuing a $60 million expansion project at its Dodge City, Kansas processing
facility to enhance the facility's efficiency.  This initiative is expected to
increase the capacity of the Dodge City facility by approximately 46% and total
capacity by approximately 16%.  The capital expenditures for this initiative
include items such as a new material handling facility, expanded carcass cooler
facilities, expanded rendering capacity, additional boiler capacity, improved
and expanded water and wastewater capabilities, expanded welfare areas,
increased employee parking and miscellaneous related expenses.

Pursue Strategic Acquisitions.NBP's
management team has a history of successfully executing and integrating
acquisitions in core or complementary businesses. NBP intends to continue to evaluate
and selectively pursue acquisitions, particularly of underperforming processing
facilities, which it believes are strategically important based on their
potential to: (i) meet NBP's customers' needs, (ii) diversify NBP's
product offerings and customer base, (iii) broaden NBP's geographic production
and distribution platform and (iv) increase cash flow.  It may pursue any such
acquisitions subject to the covenants contained in its debt agreements.

Competitive Strengths

Vertically Integrated Business Model.USPB
supplies cattle to NBP pursuant to a cattle supply agreement. In connection
with the cooperative's purchase of its interest in Farmland National Beef, the
cooperative obtained the right, and became subject to the obligation to deliver
cattle annually to NBP relative to: (i)  USPB's ownership in NBP and (ii) the
number of cattle processed annually by NBP.  U.S. Premium Beef's (USPB)
ownership of and contractual supply relationship with NBP enhances NBP's
ability to deliver a consistent, high-quality, value-added product to its
customers. U.S. Premium Beef is a limited liability company and its owners and
associates consist entirely of cattle ranchers and feedlot owners and
operators. In  FYE 2004, USPB provided NBP with approximately 18.4% of NBP's
total cattle requirements. NBP management believes this supply relationship
with USPB provides NBP with significant competitive advantages, including
consistently supplying high-quality cattle and an ability to consistently
provide NBP's customers with higher margin, value-added products.

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Modern and Efficient Facilities.NBP
has invested more than $245 million since 1995 to modernize its facilities,
expand capacity and increase the rate at which it processes cattle. These
facility upgrades and expansions have enabled NBP to more than double the
number of cattle it processes. NBP management believes its beef processing
facilities in Liberal, Kansas and Dodge City, Kansas are among the largest,
most modern and efficient processing facilities in the United States. At these
two facilities combined, NBP processes over 11,000 cattle per day. NBP
management believes the efficiency improvements at these facilities have
allowed NBP to achieve higher capacity utilization rates, lower operating costs
and higher operating margins than those of major competitors. Furthermore,
these efficiencies have helped NBP increase its market share of the United States supply of fed cattle processed from approximately 7.5% in 1997 to
approximately 11.7% in 2004. NBP's two case-ready facilities in Hummels Wharf, Pennsylvania and Moultrie, Georgia, which began operating in 2001, are
outfitted with state-of-the-art processing and packaging equipment that allows
NBP to serve customers, such as Wal-Mart, in this growing niche market. In addition,
its facilities are strategically located to enable NBP to source cattle and
beef products efficiently and to effectively serve customers.

Significant Value-Added Product Portfolio.NBP's
value-added product portfolio consists of branded boxed beef, case-ready beef
and pork, chilled and frozen export beef and portion control beef. NBP's total
value-added sales were approximately $897.3 million in FYE 2004, comprising
approximately 21.9% of its total net sales. In FYE 2004, value-added products
contributed up to three times the gross margin of NBP's traditional boxed beef
products and represent a substantial portion of NBP's profitability.  Prior to
the discovery of a single dairy cow in Washington state infected with BSE on
December 23, 2003, NBP's chilled and frozen export beef products, which
primarily consist of premium cuts, had been its primary export to the
international market, particularly to Japan. Not withstanding the loss of
export markets in Japan and South Korea for part of FYE 2004, NBP has increased
sales of value-added products by $94.2 million from FYE 2003 to FYE 2004.

Focus on Food Safety.NBP has
continually focused on food safety. Its processing facilities utilize NBP's
proprietary BioLogic® Food Safety System to facilitate the production of clean,
fresh, safe and high-quality beef products. Each of its processing facilities
is divided into five zones that separate different stages of the production
process and minimize the risk of contamination. NBP continually tests its
products and is capable of discerning the time and zone of any potential
contamination.

NBP management believes that it is an industry
leader in developing new food safety technologies. aLF is a new food safety
technology that has been found to eliminate 99% of harmful bacteria found on
beef products in tests conducted at California Polytechnic State University. Through NBP's indirect interest in aLF Ventures, LLC, it is currently working
to commercialize aLF. For example, NBP has filed for regulatory approval in Canada, it is in the process of filing for regulatory approval for use in poultry
processing, and it is investing in research relating to use with packaging
materials and working to improve in-plant testing.  NBP has an indirect
interest in aLF Ventures, LLC, a joint venture NBP founded with DMV USA LP, a
subsidiary of Campina Melkunie BV, the Netherlands' largest dairy cooperative.
NBP  holds its interest in aLF Ventures, LLC, through a subsidiary, NBP aLF,
LLC, which holds an aggregate 47.5% interest in aLF Ventures, LLC. As part of
the purchase of Farmland Industries' interest in NBP, NBP transferred to
Farmland a 49% interest in NBP aLF, LLC.  As such, NBP currently holds an
approximate 24% indirect interest in aLF Ventures, LLC.

aLF Ventures, LLC has an exclusive worldwide
license to use aLF for food safety purposes on meat, dairy, produce and animal
feed products. aLF has been given "Generally Recognized as Safe" status by the
USDA for use in processing beef carcasses. aLF represents a potential
break-through in food safety. NBP believes that the use of aLF, in conjunction
with current chemical and thermal treatments, could eliminate almost all
harmful bacteria on beef at the time it leaves the processing plant.  However ,
aLF Ventures, LLC may not be able to commercially develop aLF into a product
capable of achieving future revenues.

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Supplier, Customer and Channel
Diversification.NBP's beef processing facilities are located in
southwest Kansas, and its primary market area for the purchase of cattle
includes Kansas, Texas and Oklahoma.  According to information from USDA,
cattle on feed in the Kansas, Texas and Oklahoma area represent approximately
52% of the fed cattle marketed in the United States during 2003. The close
proximity of NBP's facilities to large supplies of cattle gives NBP buyers the
ability to visit feedlots on a regular basis, which enables them to develop strong
working relationships with NBP suppliers.  Additionally, the close proximity of
NBP's facilities to large supplies of cattle encourages its suppliers to tailor
their production decisions to efficiently meet the demands of NBP customers,
reduces NBP's reliance on any one cattle supplier and lowers transportation
costs. In FYE 2004, excluding NBP's supply arrangement with USPB, NBP's largest
supplier accounted for 6.1% of its total purchases and NBP's top 25 suppliers
accounted for 39.6% of its total purchases.

NBP also has a diversified sales mix across
distribution channels and customers. This approach provides multiple avenues of
potential growth and reduces its dependence on any one market or customer. NBP
sells products to retailers, distributors, food service providers, further
processors, the United States military and through other channels. In FYE 2004,
approximately 50% of NBP's total net sales were to retailers and 30% to food
service providers. Across these channels, NBP serves over 800 customers, which
represent most major retailers and food service providers in the United States. In FYE 2004, no one customer represented more than 3.3% of total net sales,
other than Wal-Mart and its affiliate Sam's Club, which together represented
9.1% of NBP's total net sales. NBP's top 10 customers represented 31.4% of
total net sales in FYE 2004.

Experienced Management.NBP is led by
an experienced management team with, on average, over 20 years of experience in
the beef processing industry. John R. Miller, Chief Executive Officer, has over
25 years of experience in the beef processing industry. Mr. Miller has been
recognized by Forbes magazine for his achievements and leadership within the U.S. beef processing industry. He has assembled a team of professionals, including NBP
President, Timothy M. Klein, who have worked together over the past 13 years in
developing NBP into a profitable and premium supplier of beef products.

Description of Business Segments

NBP reports in two business
segments:  Core Beef and Other. NBP measures segment profit as operating
income.

Core Beef

Products, Sales and Marketing.The
majority of NBP's revenues are generated from the sale of fresh meat either as
a boxed beef product or a case-ready product. These products accounted for
approximately 89% of its revenues in FYE 2004. In addition, NBP sells beef
by-products to the variety meat, feed processing, fertilizer and pet food
industries. NBP also sells cattle hides primarily to the clothing and
automotive industries for both domestic and international use. NBP emphasizes
the sale of higher-margin, branded beef products and markets these products
under several brand names, including National Black Angus Beef, Black Canyon®
Angus Beef, Certified Premium Beef, Naturewell® Natural Beef, Certified Angus
Beef, Certified Angus Beef Prime® and Certified Hereford Beef®.

NBP's focus continues to be adding further
processing, specialized cutting, packaging and other value-added components to
products that generate higher profitability. In 2001, NBP opened two
state-of-the-art case-ready facilities, which enabled it to expand margins by
adding value to the beef it processes. NBP's case-ready operations further
process its boxed beef products, as well as third-party pork products, by
trimming and cutting these products into individual portions. These portions
are then packaged in a solution which is oxygenated and sealed in a plastic
case to increase the shelf-life by up to five times versus traditional
packaging methods.

During FYE 2004, NBP sold beef products to more
than 800 customers located in 25 countries. NBP markets beef products through
several channels, including:

   national and
regional retailers, including supermarket chains, independent grocers, club
stores and wholesale distributors such as Sam's Club, Royal Ahold, Winn-Dixie
and Albertson's;

   national
retailers such as Wal-Mart, who purchase a substantial portion of NBP's
case-ready and branded products;

   the food
service industry, including food service distributors, and hotel chains and
other institutional customers such as U.S. Foodservice, Sysco and MBM
Corpration;

   further
processors, including Oscar-Mayer and ConAgra; and

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   international
markets, including Mexico, South Korea, Japan, China and Hong Kong. Subsequent
to the December 23, 2003 discovery of a single case of BSE in Washington state,
export beef products are currently limited to boxed beef products from cattle
younger than 30 months to Mexico and other limited, smaller foreign markets. 
Many international importers, such as Japan and South Korea (who were two of NBP's
largest export markets in FYE 2003), closed their borders to U.S. beef products after this report of BSE. They have not reopened the borders yet, which
has negatively impacted NBP's export sales in FYE 2004.

As of August 28, 2004, NBP's domestic sales team consisted of 21 employees. The sales office for domestic sales is located in
NBP's headquarters building in Kansas City, Missouri. The sales team in this
office is responsible for selling and coordinating the movement of
approximately 36 million pounds of boxed beef products per week to NBP
customers nationwide. This centralized sales concept allows NBP to respond
quickly to customer requests for pricing and load information. NBP has also
integrated the satellite tracking capabilities of refrigerated carriers into
its website allowing customers to track shipments in process. While providing
significant customer advantages, NBP's centralized sales concept also enables
its sales force to share key market intelligence in a manner that allows them
to react to changing market conditions in an efficient manner.

The sales office for international sales is
located in Chicago, Illinois. This office coordinates all aspects of sales,
pricing and shipping to all destinations outside of the United States. NBP also has two satellite offices in Japan and South Korea that assist in
the coordination of sales in those regions, historically two of NBP's largest
international markets.

NBP's marketing efforts include engaging in
business-to-business programming and communications to create preferences for
products among its customers. In addition, NBP supports its value-added,
branded beef business through in-store merchandising and feature advertising
support.

Raw Materials and Procurement.NBP'sprimary
raw material for its processing plants is live cattle. During FYE 2004, FYE 2003
and FYE 2002, NBP obtained approximately 18%, 22%, and 27% of its cattle
requirements from U.S. Premium Beef. NBP's arrangement with USPB provides it
with a consistent supply of high-quality cattle. For information regarding this
agreement, see Note 9, "Related Party Transactions" to NBP's consolidated
financial statements included in Item 8 of this report.  The balance of NBP's
cattle are purchased on a bid basis from the primary and secondary markets. NBP
also sponsors other, non-affiliated supplier alliances that provide NBP with high-quality
cattle. NBP management believes that NBP is a first choice processor for
suppliers seeking to attain premium pricing for their high-quality cattle and
that cattle suppliers view NBP more favorably than its competitors due to NBP's
vertically integrated business model, which emphasizes building relationships
and cooperating with suppliers and paying a premium for high-quality cattle.
During FYE 2004, approximately 1,150 suppliers provided NBP with cattle.

All of NBP's cattle suppliers are required to
document the quality of their feedlot operations. Each cattle supplier must
verify that its use of antibiotics or other agricultural chemicals follows the
manufacturer's intended purpose. They must also confirm that they use only Food
and Drug Administration (FDA) approved pharmaceutical compounds and comply with
dosage and administrative standards. Furthermore, each cattle supplier must
confirm that they do not use feed containing animal-based protein products,
which have been associated with outbreaks of BSE.  Many of NBP's producers
participate in state beef quality assurance training programs and have
established certification and verification practices.  These programs emphasize
meeting and exceeding the FDA, USDA, Food Safety Inspection Service (FSIS), and
U.S. Environmental Protection Agency (EPA) standards for food safety and
further protect the United States' beef supply utilizing hazard analysis and
critical control point principles.  Using guidelines established by National
Cattleman's Beef Association (NCBA), beef safety and quality assurance programs
are administered and audited annually by various state beef associations. 
State associations certifying our suppliers include, among others, Texas Cattle
Feeders Association, Kansas Livestock Association and Nebraska Cattlemen's
Association.

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Processing Facilities and Operations.NBP operates
a total of four beef processing facilities in the United States. NBP's Liberal,
  Kansas and Dodge City, Kansas facilities are geographically positioned near
its suppliers to efficiently source raw materials by reducing transportation
costs. Two of NBP's facilities are case-ready facilities that supply beef and  pork
products to its customers. NBP's case-ready facilities are located in close
proximity to key customer markets resulting in decreased delivery times. The
case-ready facilities are also located in areas with a highly skilled and
cost-effective labor force.

Cattle delivered to NBP's facilities are
generally processed into beef products within 36 hours after arrival. Approximately
70% of the cattle NBP processes in any week are committed to sale before the
cattle are delivered to its facilities. NBP processed in excess of three
million fed cattle at its facilities in FYE 2004. NBP facilities utilize modern,
highly automated equipment to process and package beef products. NBP strives to
maintain and enhance its facilities and has invested more than $245 million
since 1995 to expand capacity and increase efficiency at these facilities. The
design of NBP's facilities emphasizes worker safety to ensure compliance with
all regulations and to reduce worker injury and turnover. Since 1993, NBP has
spent approximately $7 million on ergonomic interventions, which primarily
included engineering changes and administrative changes. These changes designed
the workplace to better fit our employees.  Additionally, it has spent over $1
million to place a substantial amount of ammonia piping on the roof versus in
the production areas, not in response to regulatory requirements, but in the
interest of worker safety.  All expansions are reviewed by internal personnel,
including NBP's Corporate Environmental Director, Vice President of Safety,
Vice President of Technical Services, Vice President of Engineering and
Corporate Project Engineer, for regulatory compliance prior to construction.  NBP's
facilities are also designed to reduce waste products and emissions and dispose
of waste in accordance with applicable environmental standards.

NBP distributes beef products domestically directly
from its processing facilities and case-ready facilities. NBP utilizes its
subsidiary National Carriers and third party carriers to deliver products to
customers.

Other

Products, Sales and Marketing.NBP also
sells beef products through its portion control business, Kansas City Steak
Company, in which NBP has an approximately 77% interest. Kansas City Steak
Company provides trimmed and cut individual portions both directly to consumers
on a branded basis through television outlets (such as the QVC channel) and
direct mail catalogs; and directly to restaurants (such as Outback Steakhouse)
and the food service industry on an unbranded basis.  On March 28, 2003, Farmland National Beef acquired National Carriers, a refrigerated and livestock
contract carrier service with terminals in Liberal, Kansas; Dallas, Texas; and Denison, Iowa.  National Carriers currently owns approximately 1,200
refrigerated and livestock units.  NBP contracts a significant portion of its
freight services from National Carriers.  For further information regarding
this relationship, see Note 9, "Related Party Transactions" to NBP's Consolidated
Financial Statements included in Item 8 of this Report.

Raw Materials and Procurement.NBP's
primary raw material for its portion control processing facility is boxed
beef.  Approximately 30% of its boxed beef purchases are made through
contractual agreements predetermined by the customer for whom the product is
produced.  These contractual agreements are typically one year in duration and stipulate
from whom the boxed beef can be purchased. The balance of NBP's raw material is
purchased at its discretion on the open market from primary and secondary
suppliers with similar quality and yield grade specifications as required under
NBP's contracts. NBP periodically conducts comprehensive cutting tests of its
potential suppliers' boxed beef to determine composition and quality.

Processing Facilities and Operations.NBP
has a portion control facility in Kansas City, Kansas, which processes trimmed
and cut individual portions for sale through Kansas City Steak Company.  
National Carriers has offices located in Liberal, Kansas and Dodge City,
Kansas, both of which are within close proximity to NBP's beef processing
facilities in those locations, enabling NBP to efficiently transport product by
reducing transportation costs. National Carriers also has an office in Denison, Iowa, and administrative offices located in Kansas City, Missouri.

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Food Safety

NBP has strengthened its commitment in the area
of food safety by developing activated Lactoferrin through aLF Ventures, LLC, a
joint venture NBP founded with DMV USA LP, a subsidiary of Campina Melkunie BV,
the Netherlands' largest dairy cooperative. aLF is an activated form of
Lactoferrin, a naturally occurring milk protein that prevents harmful bacteria
from attaching and growing on the surface of beef. In tests conducted at California Polytechnic State University, it was proven that aLF protects fresh beef
products from more than thirty different strains of harmful bacteria, including
E. coli 0157:H7, Salmonella, Campylabacter,
radiation-resistant strains and other pathogens. Upon commercialization, it is
expected that aLF will be offered to meat processors worldwide as an additional
barrier in multiple-hurdle systems to further protect consumers from harmful
bacteria. aLF Ventures, LLC has an exclusive worldwide license to use aLF for
food safety purposes on meat, dairy, produce and animal feed products.  aLF
Ventures, LLC may not be able to commercially develop aLF into a product
capable of achieving future revenues.  NBP has an approximately 24% interest in
aLF Ventures, LLC.

NBP's food safety efforts incorporate a
comprehensive network of leading technology that minimizes the risks involved
in beef processing. NBP's proprietary BioLogic® Food Safety System ensures the
production of clean, fresh, safe, high-quality beef products. The BioLogic®
Food Safety System is a fully integrated NBP company-wide philosophy that goes
above and beyond industry standards and establishes new principles in food
safety. The BioLogic® Food Safety System divides production facilities into
five zones based on the potential for microbial contamination during the
processing procedures that take place in each zone. Within each of the five
zones, BioLogic® employs a "Test, Track and Treat" system, which provides
on-going testing in each of the zones, effective tracking of the results of
such tests and continuous treatments throughout the facilities. The Test, Track
and Treat system includes preventative measures such as equipment
sterilization, hygiene, temperature control and regular equipment testing to
greatly reduce contamination risks.

Intellectual Property

NBP holds a number of trademarks and domain names
that are material to its business and which are registered with the United
States Patent and Trademark Office, including National Beef®, BioLogic®, Black
Canyon®, and Naturewell®. NBP has also registered the National Beef® trade name and trademark in most of the
foreign countries to which it sells products. Currently, NBP has a number of
trademark registrations pending in the United States and in foreign countries.
In addition to trademark protection, NBP attempts to protect its unregistered
marks and other proprietary information under trade secret laws, employee and
third-party non-disclosure agreements and other laws and methods of protection.
All other trademarks or trade names referred to in this report are the property
of their respective owners.

Competition

The beef processing industry is highly
competitive. Competition exists both in the purchase of live cattle, as well as
in the sale of beef products. NBP's products compete with a large number of
other protein sources, including pork and poultry, but its principal competition
comes from other beef processors, including Tyson Foods, Inc., Cargill Inc.,
Swift & Company and Smithfield Foods, Inc. NBP management believes that the
principal competitive factors in the beef processing industry are price,
quality, food safety, product distribution, technological innovations and brand
loyalty. Some of NBP's competitors have greater financial and other resources
and enjoy wider recognition for their consumer branded products.

Employees

As of August 28, 2004, NBP had approximately 6,500 employees. Approximately 2,700 of its employees at the
Liberal, Kansas facility are represented by the United Food and Commercial
Workers International Union under a collective bargaining agreement that
expires on December 16, 2007. NBP considers relations with its employees and
the United Food and Commercial Workers International Union to be good.

16




Government Regulation and Environmental
Matters

NBP's operations are subject to extensive
regulation by the FDA, the USDA, the EPA, the Grain Inspection Packers and
Stockyards Administration (GIPSA) and other state, local and foreign
authorities regarding the processing, packaging, storage, distribution,
advertising and labeling of products, including food safety standards.
Recently, the food safety practices and procedures in the beef processing
industry have been subject to more intense scrutiny and oversight by the USDA.
For example, in November 2002, the USDA issued a directive requiring all
producers of raw beef products to reassess their hazard analysis and critical
control point (HACCP) system regulations to determine whether E. coli
0157:H7 contamination is a food safety hazard reasonably likely to occur in the
production process. NBP continues to work closely with the USDA and any
regulatory agencies to ensure that NBP's operations comply with all applicable
food safety laws and regulations.

Wastewater, stormwater, and air discharges from
NBP's operations are subject to extensive regulation by the EPA and other state
and local authorities. Its Dodge City, Kansas and Liberal, Kansas facilities
are subject to Title V permitting pursuant to the federal Clean Air Act and the
Kansas Air Quality Act and implementing regulations. These permits were issued
on January 26, 2000 and will expire on January 25, 2005. NBP management expects these permits will be reissued without material costs.  NBP has an Environmental
Compliance Management System that requires periodic and systematic
self-auditing of compliance with all environmental requirements applicable to
its operations. Through the implementation of that system, NBP has identified
violations of the Kansas Air Quality Law and implementing regulations at its
Dodge City, Kansas and Liberal, Kansas facilities. NBP has reported these
violations to the Kansas Department of Health and Environment (KDHE) and Region
VII of the EPA. The violations consist of failures to permit and perform record
keeping as to particulates emissions from its processing operations.  NBP
management is discussing the settlement of these violations with the KDHE and
expects to enter into a consent agreement to effect such settlement. At this
time, NBP cannot estimate the potential cost of these violations or any
settlement. Its Dodge City, Kansas, Liberal, Kansas, Hummels Wharf, Pennsylvania and Moultrie, Georgia facilities are also subject to risk management planning
pursuant to the federal Clean Air Act.

All of NBP's facilities are indirect dischargers
of wastewater to publicly-owned treatment works and are subject to requirements
under the federal Clean Water Act and corresponding state laws and agreements
or permits with municipal or county authorities. Agreements are in effect for its
  Dodge City, Kansas and Moultrie, Georgia facilities that will continue unless
amended or revoked pursuant to their terms.  NBP holds a permit for its Hummels Wharf, Pennsylvania facility from the Eastern Snyder County Regional Authority that
automatically renews each year unless suspended or revoked pursuant to the
Authority's terms.  NBP does not expect material costs in the continuation of
these agreements and permit.  Stormwater discharges from its Hummels Wharf, Pennsylvania and Moultrie, Georgia facilities are regulated pursuant to general permits
issued by the states of Pennsylvania and Georgia, respectively.  The Pennsylvania general permit expires on June 30, 2006.  NBP's coverage under the Georgia general permit expired on May 31, 2003.  NBP anticipates coverage under a new
general permit, which currently is under revision by the Georgia Environmental
Protection Division. Thereafter, NBP expects these permits to be reissued by
the respective states, and does not expect material costs in securing coverage
under such permits.  NBP's Dodge City, Kansas facility has filed a notice of
intent to be subject to the Kansas General Permit for Stormwater Discharges
when promulgated.  Its Liberal, Kansas facility discharges stormwater to the
publicly owned treatment works and thus has not been required to file a notice
of intent.  NBP's Dodge City, Kansas, Liberal, Kansas and Hummels Wharf, Pennsylvania facilities are supplied by water from NBP's own wells.  NBP holds public water
supply permits for its Dodge City, Kansas and Liberal, Kansas facilities that
do not have expiration dates.

17




NBP is also subject to laws that provide for
strict, and in certain circumstances joint and several, liability for
remediation of hazardous substances at contaminated sites that could include
current or former facilities or other sites where wastes it generated have been
disposed.  NBP's Dodge City, Kansas and Liberal, Kansas facilities are small
quantity or conditionally exempt generators of hazardous waste and are subject
to recordkeeping, but not permit requirements.  Solid waste generated at the Dodge City,   Kansas and Liberal, Kansas facilities is disposed of or composted. A special
waste permit is maintained by NBP's Dodge City, Kansas facility for the
disposal of face plates and tail switches.  The solid waste generated at its Hummels Wharf, Pennsylvania and Moultrie, Georgia facilities is disposed of in a municipal
landfill if it is general plant trash and is taken to renderers if it is usable
waste.  NBP is not aware that it has any actual or potential liability under
the Comprehensive Environmental Response, Compensation and Liability Act
(Superfund). NBP's plants are subject to community right to know reporting
requirements under the Superfund Amendments and Reauthorization Act of 1986,
which requires yearly filings as to the substances used on the plant premises.

NBP believes that it currently is in substantial
compliance with all governmental laws and regulations (other than the air
compliance matters for the Dodge City and Liberal, Kansas plants discussed
previously) and maintains all material permits (other than the stormwater permit
for our Moultrie, Georgia facility discussed previously) and licenses relating
to its operations. NBP is not aware of any violations of environmental or other
laws and regulations that are likely to result in material penalties or pending
changes in such laws or regulations that are likely to result in material cost
increases.

NBP's domestic operations are subject to the
Packers and Stockyards Act of 1921. This statute generally prohibits meat
packers in the livestock industry from engaging in certain anti-competitive
practices. In addition, this statute requires NBP to make payment for its
livestock purchases before the close of the next business day following the
purchase and transfer of possession of the livestock it purchases, unless
otherwise agreed to by its livestock suppliers. Any delay or attempt to delay
payment will be deemed an unfair practice in violation of the statute. Under
the Packers and Stockyards Act of 1921 (PSA), NBP must hold its cash livestock
purchases in trust for its livestock suppliers until they have received full
payment of the cash purchase price. Previously, NBP elected to place funds in a
trust to satisfy requirements of the PSA.  As of August 28, 2004, NBP has secured a bond of $22.5 million to satisfy these requirements.  The bond is supported
by a $10.0 million letter of credit.

From time to time NBP receives notices from
regulatory authorities and others asserting that it is not in compliance with
some laws and regulations. In some instances, litigation ensues.  NBP is
currently in receipt of two such notices, one from the Bureau of Immigration
and Customs Enforcement (BICE) and another from the FSIS that NBP does not
believe will result in material liability, if any.  In May 2003, NBP received a
request for information from BICE regarding the immigration status of its
employees, and it has provided BICE with all requested information.  No fines
or penalties have been suggested or discussed.  In August 2002, the FSIS sent
NBP a notice alleging that NBP and certain employees violated the Federal Meat
Inspection Act (FMIA) by labeling a quantity of meat food products as Certified
Angus Beef when in fact they were not so certified and by selling this
allegedly misbranded product in interstate and foreign commerce.  NBP has responded
to the FSIS notice denying that it violated the FMIA.  In July 2003, this
matter was referred by the FSIS to the U.S. Attorney's Office in Wichita, Kansas for potential criminal prosecution.  On November 9, 2004, NBP received written notice of warning indicating that no legal action would be taken by the
U.S. Attorney's Office or the FSIS.

NBP believes that it is in material compliance
with all applicable laws and regulations.

Risk Factors

As described throughout this document, USPB's
business involves the operation of an integrated cattle processing and beef
marketing enterprise in which the members of USPB supply cattle that are
processed at the facilities owned and operated by USPB's majority-owned
subsidiary, National Beef Packing Co, LLC.  NBP markets and distributes the
beef and beef products produced from both cattle supplied by USPB's members and
other cattle purchased by NBP from other sources.  The financial results of
NBP's operations therefore are the single largest influence on USPB's financial
performance.  Consequently, those factors and risks that impact the performance
of NBP's business have a direct and immediate influence on USPB's performance. 
However, there are also some risks that are unique to USPB.  This "Risk
Factors" section is divided into two parts, with one subsection focusing on the
risk factors that influence the performance of NBP and another subsection
discussing certain risk factors that are directly applicable to USPB itself.

USPB's business operations and the implementation
of our business strategies are subject to significant risks inherent to our
businesses, including, without limitation, the risks and uncertainties
described below.  The occurrence of any one or more of the risks or
uncertainties described below could have a material adverse effect on our
financial condition, results of operations and cash flows.

18












Risk Factors Associated With Operations of NBP

Outbreaks of disease affecting livestock can
adversely affect NBP's business.

An outbreak of disease affecting livestock, such
as BSE or foot-and-mouth disease, could result in restrictions on sales of
products to NBP's customers or purchases of livestock from its suppliers. Also,
outbreaks of these diseases or concerns of such disease, whether or not resulting
in regulatory action, can lead to cancellation of orders by customers and
create adverse publicity that may have a material adverse effect on consumer
demand and, as a result, on NBP's results of operations. Furthermore, an
outbreak of disease could lead to widespread destruction of cattle, which could
have a negative impact on NBP. There have been 14 reported cases of BSE in Japan, which have negatively affected demand for beef in that country.  In May 2003, Canada confirmed a single case of BSE.  After Canada's disclosure, the U.S. and several other countries, including Japan, Australia, South Korea and New Zealand, banned the import of Canadian live cattle and beef products.

On December 23, 2003, it was announced by the USDA that a single Holstein dairy cow was discovered in the state of Washington to have tested positive for BSE.   As a result of this announcement, the beef
industry has suffered from adverse publicity.  Such adverse publicity could
result in consumers lowering their demand for beef products, which may
negatively affect NBP's business, financial condition, results of operations
and cash flows.  Any further announcements regarding BSE could further expose
the beef industry and NBP to adverse publicity.

Shortly after the discovery of BSE in the state
of Washington, several countries representing a substantial share of NBP's
export business closed their borders to the importation of edible beef products
from the U.S.  While Mexico reopened its borders to U.S. beef in April 2004,
substantially all other borders remain closed to the import of U.S. beef. NBP recorded a charge to earnings totaling $18.8 million in the second
quarter of fiscal year 2004 due to the direct and indirect market impacts of
the closure of the international borders as a result of the single BSE
incident.  NBP cannot anticipate the duration of these beef import bans or
whether additional countries may impose similar restrictions.

In addition, the USDA and the Food Safety
Inspection Service (FSIS) published new regulations in response to the
discovery of BSE in the state of Washington.  Certain by-products have been
classified as Specified Risk Materials (SRMs), and have been banned from use in
feedstocks and the human food chain. Some of these products previously enjoyed
a market in foreign countries.  These new regulations, among other things,
govern the removal of Specified Risk Materials (SRMs) during slaughter, cover
the ban on the slaughtering of non-ambulatory animals for human food use, set
forth the prohibition on the production of mechanically separated meat and ban
certain techniques used in the slaughter process.  The USDA also issued a
notice announcing that FSIS inspectors will not mark ambulatory cattle that
have been targeted for BSE surveillance testing as "inspected and passed" until
negative test results are obtained.  NBP does not anticipate these new
regulations, individually or in the aggregate, will have a material adverse
effect on its business.

A United
States/Japanese Commission was formed to look at the optimal "science based"
approach to resolving the issues between the U.S. and Japan.  The commission held its last meeting in July 2004.  Trade representatives from the United States and Japan have continued their discussions on reopening of the Japanese
market to imported beef products from the United States.  On October 23, 2004, USDA announced that Japan and the U.S. had reached an agreement on
opening the border for export to Japan.  Over the coming months, many details
will have to be worked out by both governments.  Part of the agreement involves
the tracking of animals of known age from the ranch so that only meat from
animals less than 21 months of age can be shipped to Japan.  It may require
considerable effort and resources for NBP to develop and implement such a
system over the coming months.  It is expected that the markets will begin to
open for some products in the first quarter of calendar 2005, although no
assurance can be given that this will occur.  NBP cannot presently assess the
full economic impact of the consequences of BSE on the U.S. beef industry or on its operations.  NBP's revenues and net income may be materially
adversely affected in the event existing import restrictions continue
indefinitely, additional countries announce similar restrictions, additional
regulatory restrictions are put into effect or domestic consumer demand for
beef declines substantially.

19




If NBP's products become contaminated, it may
be subject to product liability claims and product recalls that would adversely
affect its business.

NBP may be subject to significant liability if
the consumption of any of its products causes injury, illness or death and it
may in the future recall products in the event of contamination or damage. 
Contamination of products also may create adverse publicity that could
negatively affect NBP's business.  NBP may encounter the same risks of
contamination or negative publicity if a third party tampers with its
products.  The occurrence of any of these risks may increase costs and decrease
demand for its products.  Organisms producing food borne illnesses are
generally found in the environment and there is a risk that as a result of food
processing they could be present in NBP's products.  For example, E. coli
0157:H7 is one of many food borne bacteria commonly associated with beef
products. Once contaminated products have been shipped for distribution and
consumption, illness or death may result if the pathogens are present, increase
due to handling or temperatures, and are not otherwise eliminated at the
further processing, food service or consumer level.

If the products of NBP's competitors become
contaminated, the beef industry may be subject to adverse publicity, which
could negatively affect NBP's business.

If the products of NBP's competitors, in the United States or elsewhere, become contaminated, the beef industry may face adverse
publicity. Any such adverse publicity could result in consumers lowering their
demand for NBP's beef products, which may negatively affect its business,
financial condition, results of operations and cash flows.

NBP's substantial debt could adversely affect its business.

NBP has a significant amount of debt.  As of
 August 28, 2004 NBP had $335.1 million of long-term debt, of which $9.5
million was classified as a current liability. As of August 28, 2004 there were outstanding borrowings of $42.1 million, outstanding letters of credit of
$43.0 million and available borrowings of $10.7 million, based on the most
restrictive financial covenant ratio calculation, under our $140.0 million
amended credit facility.  In addition to outstanding borrowings on the amended
credit facility, NBP had outstanding borrowings under industrial revenue bonds
of $13.8 million, senior notes of $160.0 million, term loans of $118.8 million,
operating lease commitments of $22.3 million and capital leases and other
obligations of $0.4 million as of August 28, 2004.  See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

NBP's substantial debt could:

   make it
difficult for NBP to satisfy its obligations, including making interest
payments on the exchange notes and on other debt obligations;

   limit NBP's
ability to obtain additional financing to operate its business;

   require NBP
to dedicate a substantial portion of its cash flow to payments on its debt,
reducing its ability to use cash flow to fund working capital, capital
expenditures and other general operational requirements;

   limit NBP's
flexibility to plan for and react to changes in its business and the beef
processing industry;

20




   place NBP at
a competitive disadvantage relative to some competitors that have less debt
than NBP; and

   increase
NBP's vulnerability to general adverse economic and industry conditions,
including changes in interest rates, changes in cattle prices or a downturn in
its business or the economy.

The occurrence
of any one of these events could have a material adverse effect on NBP's
business, financial condition and results of operations.

Despite NBP's current levels of debt, it may still incur significantly
more debt, which could intensify the risks described above.

NBP may incur significant additional debt in the
future. The terms of the indenture governing NBP's senior notes permit it to
incur additional debt in the future and its amended credit facility permits
additional borrowings under certain circumstances. As of August 28, 2004, NBP had approximately $10.7 million of availability, based on the most restrictive
financial covenant ratio calculation, under its new amended credit facility.
NBP intends to borrow additional funds to fund its capital expenditures and
working capital needs. NBP also may incur additional debt to finance future
acquisitions.

Restrictive covenants under NBP's new amended
credit facility and the indenture will limit its ability to operate its
business.

NBP's amended credit facility and the indenture
governing NBP's senior notes, contain, among other things, restrictive
covenants that will limit NBP's and its subsidiaries' ability to finance future
operations or capital needs or to engage in other business activities. The
indenture and NBP's amended credit facility restrict, among other things, NBP's
ability and the ability of its subsidiaries to:

   incur
additional indebtedness or issue guarantees;

   create liens
on NBP's assets;

   make
distributions on or redeem equity interests;

   make
investments or acquisitions;

   make
restricted payments;

   create or
permit restrictions on the ability of NBP's restricted subsidiaries to pay
dividends or make other distributions to NBP;

   issue or
distribute capital stock of its subsidiaries;

   enter into
transactions with affiliates;

   enter into
sale and leaseback transactions;

   engage in
unrelated business activities;

   transfer or
sell assets; and

   engage in
mergers, consolidations or sell substantially all of NBP's assets.

In addition, NBP's amended credit facility
requires NBP to meet specified financial ratios and tests. These ratios and
tests could have an adverse effect on NBP's business by limiting its ability to
take advantage of financing, merger and acquisition or other corporate
opportunities and to fund its operations. Events beyond NBP's control,
including changes in general business and economic conditions, may affect its
ability to meet those financial ratios and tests. Any future debt could also
contain financial and other covenants more restrictive than those imposed under
the indenture governing the senior notes or NBP's amended credit facility.

21




NBP may not meet those ratios and tests and its
lenders may not waive any failure to meet those ratios and tests. A breach of
any of those covenants or failure to maintain such ratios would result in a
default under NBP's amended credit facility and any resulting acceleration
under NBP's amended credit facility may result in a default under the indenture
governing the senior notes. If an event of default under NBP's amended credit
facility occurs, the lenders could elect to declare all amounts outstanding
thereunder, together with accrued interest, to be immediately due and payable
which would result in an event of default under the senior notes offered
hereby. NBP's assets or cash flow may not be sufficient to repay in full its
outstanding debt, including the senior notes.

NBP may be unable to generate sufficient cash flow to service its debt,
which could adversely affect its financial condition and results of operations.

To service its debt, NBP will require a
significant amount of cash. If its cash flow and capital resources are
insufficient to fund its debt service obligations, NBP may be forced to reduce
or delay capital expenditures, sell material assets or operations, obtain
additional capital or restructure debt. NBP's ability to generate cash, make
scheduled payments or to refinance obligations depends on its successful
financial and operating performance. NBP's financial and operating performance,
cash flow and capital resources depend upon prevailing economic conditions and
certain financial, business and other factors, many of which are beyond NBP's
control. These factors include among others:

   economic,
industry and competitive conditions;

   operating
difficulties, increased operating costs or pricing pressures NBP may
experience; and

   delays in
implementing any strategic projects.

NBP's margins may be negatively impacted by fluctuating raw material
costs and selling prices and other factors that are outside of its control.

NBP's margins are dependent on the price at which
its beef products can be sold and the price it pays for raw materials, among
other factors. These prices can vary significantly over a relatively short
period of time as a result of a number of factors, including the relative
supply and demand for beef and the market for other protein products, such as
pork and poultry. For example, beginning in March 2002, a month-long Russian
trade embargo on chicken imported from the United States had the effect of
increasing chicken supplies in the United States, which put downward pressure
on demand and prices for red meat products.  In addition, closure of
international markets to U.S. beef product exports as a result of the December
23, 2003 BSE discovery negatively affected U.S. beef product margins, as
certain by-products, classified as SRMs, have been banned from use in feedstocks
and the human food chain.  Some of these products previously enjoyed a market
in foreign countries.

The supply and market price of the livestock that
constitute NBP's principal raw material and represent the substantial majority
of its cost of goods sold are dependent upon a variety of factors over which
NBP has little or no control, including fluctuations in the size of herds
maintained by producers, the relative cost of feed, weather and livestock
diseases.

Severe price swings in raw materials, and the
resulting impact on the prices NBP charges for its products, have at times had,
and may in the future have, a material adverse effect on its financial
condition, results of operations and cash flows. If NBP experiences increased
costs, it may not be able to pass them along to its customers.

NBP generally does not have long-term contracts with its customers, and,
as a result, the prices at which it sells its beef are subject to market forces.

Other than existing arrangements with AMPC, Inc.
and the United States military, NBP generally does not have long-term sales
arrangements with customers and, as a result, the prices at which it sells
products to them are determined in large part by market forces. NBP's
customers, including those with which it has long-term contracts, place orders
for products on an as-needed basis and, as a result, their order levels have
varied from period to period in the past and may vary significantly in the
future. The loss of one or more of its key customers, a significant decline in
the number of orders from one or more of its key customers or a significant
decrease in beef product prices for a sustained period of time could have a
material adverse effect on its business, financial condition or results of
operations.

22








Wal-Mart's failure to continue purchasing from
NBP could have a material adverse effect on NBP's sales.

Sales under NBP's agreement with Wal-Mart Stores,
Inc., or Wal-Mart, which does not cover NBP's sales to Wal-Mart's affiliate
Sam's Club, represented approximately 6% of NBP's total net sales in FYE 2004.
NBP's agreement with Wal-Mart expired on January 31, 2004 and NBP has not entered into a new agreement. If Wal-Mart does not continue to purchase from
NBP, it could have a material adverse effect on NBP's sales.

NBP is subject to extensive governmental regulation and any noncompliance
with, or changes in applicable requirements, could adversely affect NBP's
business, financial condition, results of operations and cash flows.

NBP's operations are subject to extensive
regulation and oversight by the FDA, the USDA, the GIPSA, and other state,
local and foreign authorities regarding the processing, packaging, storage,
distribution, advertising and labeling of its products, including food safety
standards. Recently, the food safety practices and procedures in the meat
processing industry have been subject to more intense scrutiny and oversight by
the USDA. NBP is also subject to a variety of environmental laws and
regulations, including those relating to wastewater and stormwater discharges,
air emissions, waste handling and disposal, and remediation of soil and
groundwater contamination that are administered by the EPA, state, local and
other authorities. Failure to comply with applicable laws and regulations could
subject NBP to administrative penalties and injunctive relief, civil remedies,
including fines, injunctions, recalls of NBP's products or seizures of its
properties, as well as potential criminal sanctions or personal injury or other
damage claims. These remedies, changes in the applicable laws and regulations
or discovery of currently unknown conditions could increase NBP's costs and
limit its business operations.

Compliance with environmental regulations may result in significant costs
and failure to comply with environmental regulations may result in civil as
well as criminal penalties, liability for damages and negative publicity.

NBP's operations are subject to extensive and
increasingly stringent regulations pertaining to the discharge of materials
into the environment and the handling and disposition of wastes. Failure to
comply with these regulations can have serious consequences for NBP, including
criminal as well as civil and administrative penalties and negative publicity.
NBP has incurred, and will continue to incur, significant capital and operating
expenditures to avoid violations of these laws and regulations. Additional
environmental requirements imposed in the future could require currently
unanticipated investigations, assessments or expenditures, and may require NBP
to incur significant additional costs. Because the nature of these potential
future charges is unknown, NBP management is not able to estimate the magnitude
of any future costs and NBP has not accrued any reserve for any potential future
costs.

Some of NBP's facilities have been in operation
for many years. During that time, NBP and previous owners of these facilities
have generated and disposed of wastes that are, or may be considered, hazardous
or may have polluted the soil or groundwater at these facilities, including
adjacent properties. The discovery of previously unknown contamination of
property underlying or in the vicinity of NBP's present or former properties or
manufacturing facilities and/or waste disposal sites could require it to incur
material unforeseen expenses. Occurrences of any of these events may have a
material adverse effect on NBP's business, financial condition, results of
operations and cash flows.

NBP's international operations expose it to political and economic risks
in foreign countries, as well as to risks related to currency fluctuations.

In FYE 2004, exports, primarily to Mexico, South Korea, Japan, China and Hong Kong, accounted for approximately 10% of NBP's
total net sales. NBP's international activities expose it to risks not faced by
companies that limit themselves to the domestic market. One significant risk is
that the international operations may be affected by tariffs, other trade
protection or food safety measures and import or export licensing requirements.

23




For example, on December 23, 2003, it was announced by the USDA that a single Holstein dairy cow was discovered in the state of
  Washington to have tested positive for BSE.  The origin of the animal was
subsequently traced to a farm in Canada.  Shortly after the announcement,
several countries representing a substantial share of NBP's export business
closed their borders to the importation of edible beef products from the United States.  Responding to the loss of export markets, live cattle prices in the United States declined by approximately 18% within 3 days.  During the second quarter of FYE
2004, NBP recorded charges to earnings totaling approximately
$18.8 million due to the market impacts of the closure of international
borders as a result of the BSE discovery in late December.  While exports of
some beef products commenced once again to Mexico in April 2004, NBP cannot
anticipate the duration of other continuing beef import bans or whether
additional countries may impose similar restrictions.  Thus far, the effect of
resumed export of beef products to Mexico has been marginal on the United States beef industry.

Other risks associated with NBP's international
activities include:

   changes in
foreign currency exchange rates and hyperinflation or deflation in the foreign
countries in which NBP operates;

   exchange
controls;

   changes in a
specific country's or region's political or economic conditions, particularly
in emerging markets;

   potentially
negative consequences from changes in regulatory requirements; and

   international
conflict, including terrorist acts, which could significantly impact NBP's
financial condition and results of operations.

The occurrence of any of these events could
increase NBP's costs, lower demand for its products or limit its operations,
which could have a material adverse effect on its business, financial
condition, results of operations or prospects.

Failure to successfully implement its business strategy may impede NBP's
plans to increase revenues, margins and cash flow.

NBP's revenues, margins and cash flows will not
increase as planned if it fails to implement the key elements of its strategy,
and its ability to successfully implement this strategy is dependent at least
in part on factors beyond NBP's control. For example, the willingness of
consumers to purchase value-added products depends in part on economic
conditions. In periods of economic uncertainty, consumers tend to purchase more
private label or less-expensive products. Thus, if NBP encounters periods of
economic uncertainty, the sales volume for its value-added products could
suffer. Also, NBP may not be successful in identifying favorable international
expansion opportunities.

Changes in consumer preferences could adversely affect NBP's business.

The food industry in general is subject to
changing consumer trends, demands and preferences. NBP's products compete with
other protein sources, such as pork and poultry, and other foods. Trends within
the food industry change often and failure to anticipate, identify or react to
changes in these trends could lead to, among other things, reduced demand and
price reductions for NBP's products, and could have a material adverse effect
on NBP's business, financial condition, results of operations and cash flows.
In addition, NBP does not have any other material lines of business or other
sources of revenue to rely upon if it is unable to efficiently process and sell
beef products or if the market for beef declines. This lack of diversification
means that NBP may not be able to adapt to changing market conditions or
withstand any significant decline in the beef industry.

24












The beef processing industry is highly competitive and NBP's customers
may not continue to purchase its products.

The beef processing industry is highly
competitive. Competition exists both in the purchase of live cattle and in the
sale of beef products. In addition, NBP's products compete with a number of
other protein sources, including pork and poultry.

NBP's principal competition arises from other
beef processors, including Tyson Foods, Inc., Cargill Incorporated, Swift &
Company and Smithfield Foods, Inc. The principal competitive factors in the
beef processing industry are price, quality, food safety, product distribution,
technological innovations and brand loyalty. NBP's ability to be an effective
competitor will depend on its ability to compete on the basis of these
characteristics. Some of NBP's competitors have greater financial and other
resources and enjoy wider recognition for their consumer branded products. NBP
cannot assure you that it will be able to compete effectively with these
companies and its ability to compete could be adversely affected by its
significant debt levels.

The sales of beef products are subject to seasonal variations and, as a
result, NBP's quarterly operating results may fluctuate.

The beef industry is characterized by prices that
change based on seasonal consumption patterns. The highest period of demand for
NBP's products is usually the summer barbecue season. As a result of these
seasonal fluctuations, NBP's operating results may vary substantially between
fiscal quarters.

NBP depends on the service of key individuals, the loss of which could
materially harm its business.

NBP's success will depend, in part, on the
efforts of its executive officers and other key employees. In addition, the
market for qualified personnel is competitive and NBP's future success will
depend on its ability to attract and retain these personnel. NBP does not have
long-term employment agreements with some of its executive officers, and NBP
does not maintain key-person insurance for some of its other officers,
employees or members of its board of managers. NBP may not be able to negotiate
the terms of renewals of any existing long-term employment agreements on terms
favorable to NBP or at all. The loss of the services of any of NBP's key
employees or the failure to attract and retain employees could have a material
adverse effect on its business, results of operations and financial condition.

NBP's performance depends on favorable labor relations with its
employees. Any deterioration of those relations or increase in labor costs
could adversely affect NBP's business.

NBP has approximately 6,500 employees worldwide.
Approximately 2,700 employees at its Liberal, Kansas facility are represented
by the United Food and Commercial Workers International Union under a
collective bargaining agreement that expires on December 16, 2007. A labor-related work stoppage by these unionized employees could limit NBP's ability to
process and ship products or increase its costs, which could adversely affect
its results of operations and financial condition. In addition, it is possible
that any labor union efforts to organize employees at NBP's non-unionized facilities
might be successful and that any labor-related work stoppages at these
non-unionized facilities in the future could adversely affect its results of
operations and financial condition. In general, any significant increase in
labor costs, deterioration of employee relations, slowdowns or work stoppages
at any of NBP's locations, whether due to union activities, employee turnover
or otherwise, could have a material adverse effect on its business, financial
condition, results of operations and cash flows.

25




The consolidation of NBP's retail and foodservice customers may put
pressures on its operating margins.

In recent years, the trend among NBP's retail and
foodservice customers, such as supermarkets, warehouse clubs and foodservice
distributors, has been towards consolidation. These consolidations, along with
the entry of mass merchants into the grocery industry, have resulted in
customers with increasing negotiating strength who tend to exert pressure on
NBP with respect to pricing terms, product quality and new products. As NBP's
customer base continues to consolidate, competition for the business of fewer
customers is expected to intensify. If NBP does not negotiate favorable
contracts with its customers and implement appropriate pricing to respond to
these trends, or if it loses its existing large customers, NBP's profitability
could decrease.

NBP may not be able to successfully integrate future acquisitions, which
could result in it not achieving the expected benefits of the acquisition, the
disruption of its business and an increase in its costs.

NBP continually explores opportunities to acquire
related businesses, some of which could be material to it. NBP's ability to
continue to grow may depend upon identifying and successfully acquiring
attractive companies, effectively integrating these companies, achieving cost
efficiencies and managing these businesses as part of NBP.

NBP may not be able to effectively integrate the
acquired companies and successfully implement appropriate operational, financial
and management systems and controls to achieve the benefits expected to result
from these acquisitions. NBP's efforts to integrate these businesses could be
affected by a number of factors beyond its control, such as regulatory
developments, general economic conditions and increased competition. In
addition, the process of integrating these businesses could cause the
interruption of, or loss of momentum in, the activities of NBP's existing
business. The diversion of management's attention and any delays or
difficulties encountered in connection with the integration of these businesses
could negatively impact NBP's business and results of operations. Further, the
benefits that NBP anticipates from these acquisitions may not develop.

Risk Factors Associated with USPB

U.S. Premium Beef sells all of the cattle provided by
its members to National Beef Packing Company, LLC and does not have
arrangements for alternative markets for its members' cattle.

USPB's sole customer for the
cattle provided by USPB's members is National Beef Packing Company, LLC.  
Given USPB's ownership of a majority interest in NBP, USPB has not developed
alternative customers for the cattle provided by USPB's members.  If events
were to occur which would prevent NBP from purchasing and processing the cattle
supplied by USPB's members, USPB would need to exercise provisions in its
agreements with both NBP and USPB's members that would permit USPB to reduce
the number of cattle acquired from members and sold to NBP.  While such
provisions would mitigate harm to USPB, it is likely that the value of the
Class A units and the associated delivery rights held by USPB's members would
be impaired.

The other members of National Beef Packing Company, LLC
do not deliver cattle to NBP for processing, creating the possibility that the
interests of those other members of NBP could conflict with the interests of
U.S. Premium Beef and its members.

The other members of NBP do not
deliver cattle to NBP for processing and marketing.  As a result, conflicts of interest
may arise between USPB and NBP relating to cattle purchases.  If a dispute were
to arise, the settlement of any such dispute may not be on terms as favorable
to USPB as would be expected if all of the members of NBP were involved in the
delivery of cattle to NBP for processing.

The restructuring of the
cooperative was a taxable event for both the cooperative and its shareholders.

The
restructuring of the cooperative to become an LLC was a taxable event for both
the cooperative and its shareholders. The tax consequences to the cooperative
depend on the value of its assets and apportionment of the value among specific
assets, both of which involve risks described in the following four risk
factors.

26




The
shareholders recognized gain or loss depending on when and how their shares in
the cooperative were acquired. The amount depended on the value of the
cooperative's assets, net of liabilities, and customary discounts allowed, both
of which involved valuation risks described in the following four risk factors.
The taxable gain or loss that was recognized depended on whether the value of the
Class A and Class B units received in the restructuring for those shares was greater
or less than the tax basis in the common stock of the cooperative. If the
shares were purchased in the cooperative's initial stock offerings, they had a
gain on this portion of the restructuring. Values were subject to closing date
adjustments and the possibility of future challenges by the Internal Revenue
Service.

The intended
tax treatment of the restructuring is subject to the possibility of future
challenges by the Internal Revenue Service that could have adverse consequences
for the LLC, as the successor to the cooperative's obligations, and to the unitholders.

The board of directors and
senior management of the cooperative have relied on an appraisal that is not binding
on the Internal Revenue Service.

In evaluating
the tax consequences of the restructuring, USPB has relied, in part, on the
appraisal prepared by American Appraisal Associates. Their appraisal is not
binding on the Internal Revenue Service. There is a risk that the Internal
Revenue Service might determine that the cooperative or its shareholders must
recognize additional taxable income or gain for federal income tax purposes.

The Internal Revenue Service
could also challenge other aspects of the transaction that could materially adversely
affect the LLC and its unitholders.

In addition
to challenging the overall valuation of the cooperative and the LLC units
received in the restructuring, the Internal Revenue Service might also
challenge:

- the cooperative's
     apportionment of values to specific assets and the treatment of the
     resulting gains or losses as capital gain or loss or ordinary income or
     loss;
- the treatment of the
     restructuring as a constructive distribution of specific assets rather
     than as a distribution of interests in the LLC. There are anti-netting
     rules that may become operative if these challenges are mounted by the
     IRS. Specifically, the cooperative's capital losses cannot be offset against
     any income other than capital gains and, likewise, patronage losses cannot
     be offset against  nonpatronage income or gain; and
- the tax treatment of the
     cooperative's patronage notices that will become obligations of the LLC is
     uncertain and the IRS could challenge the intended treatment of the
     patronage notices in calculating the shareholders' gain or loss on the
     restructuring.

If the
Internal Revenue Service challenges the transaction on any of these grounds, it
could materially adversely affect the LLC and subject the unitholders and the
LLC, as successor to the cooperative's obligations, to additional tax
liability.

The Internal Revenue Service
could also challenge post-restructuring tax reporting positions to be taken by
the LLC that could materially adversely affect the LLC unitholders.

27




USPB believes
that the LLC will be treated as a partnership for federal income tax purposes. This
means that the LLC will pay no federal or state income tax and unitholders will
pay tax on their share of the LLC's net income. However, the LLC would become
taxable as a corporation if it elects corporate tax status or if it is treated
as a publicly traded partnership because of the manner in which units are
transferred. The LLC's taxable income each year will depend in part on the
depreciation, amortization and other cost recovery of the tax basis of its
assets. The LLC's initial aggregate basis will be based on the fair market
value of assets deemed to be received by the members in the restructuring.
However, the method of apportioning basis to specific LLC assets is uncertain,
and the IRS could challenge the apportionment of basis to specific assets so as
to increase the allocation to longer lived assets or assets that cannot be depreciated
or amortized. This generally would defer the timing of some of the LLC's
depreciation, amortization or other cost recovery deductions. The patronage
notices for which the LLC will become obligated in the restructuring are
expected to have a face value substantially in excess of their negative present
value that will be used in valuing the liquidating distribution deemed to be
received by the shareholders. It is expected that capital loss deduction will
be available to the LLC, and therefore to its unitholders, when cumulative
payments made by the LLC to the holders of the patronage notices exceed their
restructuring date negative present value. Because of the lack of controlling
legal authority on this issue, the IRS could challenge the capital loss deduction.
Also, limitations on the deductibility of capital losses could reduce or
eliminate the benefit of the deduction.

Failure to achieve and maintain effective internal
controls could have a material adverse effect on USPB's business, operating
results and financial condition.

USPB is in the process of documenting and testing
its internal control procedures in order to satisfy the requirements of Section
404 of the Sarbanes-Oxley Act, which requires annual management assessments of
the effectiveness of its internal controls over financial reporting and a
report by its independent auditors addressing these assessments. This process
is both costly and challenging.  During the course of testing USPB may identify
deficiencies which it may not be able to remediate in time to meet the deadline
imposed by the Sarbanes-Oxley Act for compliance with the requirements of
Section 404. In addition, if USPB fails to achieve and maintain the adequacy of
its internal controls, as such standards are modified, supplemented or amended
from time to time, it may not be able to ensure that it can conclude on an
ongoing basis that it has effective internal controls over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective
internal controls are necessary for USPB to produce reliable financial reports
and are important to helping prevent financial fraud.  If USPB cannot provide
reliable financial reports or prevent fraud, its business and operating results
could be harmed, investors could lose confidence in its reported financial
information, and its business, results of operation and financial condition
could be adversely affected.

TABLE_OF_CONTENTS

ITEM 2.                 PROPERTIES

USPB's corporate office is located at 12200 Ambassador Drive, Suite 501, Kansas City, Missouri, in proximity to the
corporate offices of NBP.  The company leases its office space from HDP - Kansas City, LLC, with offices at c/o Higgins Development Partners, 101 East Erie Street, Suite 800, Chicago, Illinois  60611.  The office lease is for
a term of two years, commencing March 1, 2004.

NBP owns its Dodge City, Kansas, Liberal, Kansas and Hummels Wharf, Pennsylvania facilities. It lease its headquarters facility in
Kansas City, Missouri, its Kansas City Steak Company processing facility in
Kansas City, Kansas and its case-ready facility in Moultrie, Georgia. NBP also
leases its offices in Chicago, Illinois, Salt Lake City, Utah, Denison, Iowa, Dallas, Texas, Tokyo, Japan and Seoul, South Korea.  aLF Ventures, LLC
leases the food safety research facility in Pomona, California.  NBP's amended
credit facility is secured by a first priority lien on substantially all of its
assets.  The facility locations and approximate daily processing levels are
shown in the table below:

28




Location
  Daily ProcessingProcessing Facilities:Liberal, Kansas
  6,000
  headDodge City, Kansas
  5,200
  headCase-Ready Facilities:Hummels Wharf, Pennsylvania
  105,000
  poundsMoultrie, Georgia
  198,000
  poundsPortion Control Facility:Kansas City, Kansas
  30,500
  pounds


TABLE_OF_CONTENTS

ITEM 3.                 LEGAL PROCEEDINGS

On July 1, 2002, a lawsuit was filed against
Farmland National Beef (FNB), ConAgra Beef Company, Tyson Foods, Inc. and Excel
Corporation in the United States District Court for the District of South
Dakota seeking certification of a class of all persons who sold cattle to the
defendants for cash, or on a basis affected by the cash price for cattle,
during the period from April 2, 2001 through May 11, 2001 and for
some period up to two weeks thereafter. USPB was not named a party to this
proceeding, but is at risk  by being the majority owner of NBP (formerly FNB). The
case was filed by three named plaintiffs on behalf of a putative nationwide
class that the plaintiffs estimate is comprised of hundreds or thousands of
members. The complaint alleges that the defendants, in violation of the Packers
and Stockyards Act of 1921, knowingly used, without correction or disclosure,
incorrect and misleading boxed beef price information generated by the USDA to
purchase cattle offered for sale by the plaintiffs at a price substantially
lower than was justified by the actual and correct price of boxed beef during
this period. The plaintiffs seek damages in excess of $50.0 million from
all defendants as a group on behalf of the class. FNB answered
the complaint and joined with the three other defendants in moving to dismiss
this action. An amended complaint was filed and FNB joined in the other
defendants' motion to dismiss. The joint motion to dismiss was denied, and the
judge ruled that the plaintiffs adequately alleged a violation of the Packers
and Stockyards Act of 1921. The case was certified as a class action matter in
June, 2004. Accordingly, the lawsuit will proceed to trial. Management believes
that FNB acted properly and lawfully in their dealings with cattle producers.
Management is currently unable to evaluate the outcome of this matter or to
estimate the amount of potential loss, if any. In accordance with
SFAS No. 5, Accounting for Contingencies, NBP has not
established a loss accrual associated with this claim.

From time to time and in the ordinary course of
its business, USPB and its subsidiaries are named as a defendant in legal
proceedings related to various issues, including worker's compensation claims,
tort claims and contractual disputes. Other than such routine litigation, USPB
is not currently involved in any material legal proceedings. In addition, USPB
is not aware of other potential claims that could result in the commencement of
legal proceedings. USPB carries insurance that provides protection against
certain types of claims, up to the policy limits of USPB's insurance.



TABLE_OF_CONTENTS

ITEM 4.                 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS

U.S. Premium Beef, Ltd. held a special meeting on
 August 18, 2004 wherein its shareholders approved the restructuring of the
cooperative into an LLC.  The restructuring became effective August 29, 2004. There were 412 shareholders eligible to vote; 130 voted, of which 118
voted for the conversion and 12 voted against it.   No other matters were
submitted to a vote of the shareholders during the last quarter of the fiscal
year covered by this report.

PART II

TABLE_OF_CONTENTS

ITEM 5.                 MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for
any class of common equity of U.S. Premium Beef, LLC.  As of November 23 , 2004, there were 415 record holders of Class A and Class B interests.  Sales
prices have ranged from $55 to $172 since the end of the fiscal year, however some
of these sales were not sales at arms length and therefore this range is not necessarily
indicative of market value.

29




USPB has not paid any cash dividends with respect
to its equity since the Conversion date.  The payment of cash dividends, if
any, would be made only from assets legally available for that purpose and
would depend on the Company's financial condition, results of operations, and
other factors then deemed relevant by USPB's board of managers.  Cash
distributions are paid quarterly to the interest holders of both Class A and
Class B units to make tax payments, to the extent permitted by USPB's senior
lenders.  See "Item 12.  Security Ownership of Certain Beneficial Owners and
Management."

Patronage dividends of $20,923,789 and $11,753,737
were allocated to the cooperative's patrons for FYE 2003 and FYE 2002 earnings,
respectively.  Forty percent of each year's patronage dividend was paid in
cash and the remaining sixty percent was retained as patronage refunds for
reinvestment.  USPB intends to allocate patronage dividends of $2,118,533
for FYE 2004 earnings, of which 40% will be paid in cash and the remainder held
as patronage refunds for reinvestment.  Patronage refunds for
reinvestment, known as patronage notices in the LLC, will be paid by the LLC at
such time and in such amounts as may be determined by the board of directors in
its sole and absolute discretion.   In addition, in the event of
liquidation of the LLC, any patronage notice amounts that had not been
paid previously would be entitled to be paid after the debts and
liabilities of the LLC had been paid, but prior to any distributions based on
ownership of units in the LLC.

USPB did not sell any equity securities during
FYE 2004 that were not registered under the Securities Act of 1933, as amended.

TABLE_OF_CONTENTS

ITEM 6.                 SELECTED FINANCIAL DATA

The following selected data presented under the captions "Statement of
Operations Data" and "Selected Balance Sheet Data" for, and as of the end of,
each of the years in the five-year period ended August 28, 2004 are
derived from the consolidated financial statements of the cooperative and its
subsidiaries, which financial statements have been audited by KPMG LLP,
independent registered public accountants. The consolidated financial statements
as of August 28, 2004 and August 30, 2003 and for each of the years
in the three-year period ended August 28, 2004, and the report thereon,
are included elsewhere in this document. The selected data should be read in
conjunction with the consolidated financial statements for the year ended
August 28, 2004, the related notes and the independent auditors' report,
which contains an explanatory paragraph that states that as discussed in
note 2 to the consolidated financial statements, the cooperative adopted
Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, on September 1, 2002.

Historical per share data has been omitted
because, under the cooperative structure, earnings of the cooperative are
distributed as patronage dividends to members and associate members based on
the level of business conducted with the cooperative as opposed to common
stockholder's proportionate share of underlying equity in the cooperative. Pro
forma per unit data has been included below because as an LLC, the restructured
entity will, beginning in FYE 2005, make distributions to its unitholders based
on their proportionate share of the underlying equity in the Class A and B
units, 33% and 67%, respectively, as opposed to the level of business conducted
with the LLC. The pro forma per unit data gives effect to the exchange of one
Class A unit and one Class B unit of the newly formed LLC for each
share of common stock of the cooperative, effective August 29, 2004.

As described in note 1 to the consolidated
financial statements under "Item 8. Financial Statements and Supplementary
Data," USPB acquired a controlling interest in NBP on August 6, 2003 and since that date has consolidated the results of NPB in its consolidated financial
statements.  As a result of the acquisition of a controlling interest in NBP, a
new basis of accounting was established for NBP on the date of acquisition. 
Prior to August 7, 2003, USPB accounted for its interest in FNB under the
equity method of accounting.  For these reasons the financial position and
operating results after the Acquisition are not comparable with those before
the Acquisition.

30




The following tables should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8.  Financial Statements and
Supplementary Data" (including the accompanying notes) contained elsewhere in
this report.

Fiscal Years Ended (1)August 28, 2004
  August 30, 2003
  August 31,   2002
  August 25,   2001
  August 26,   2000(In millions)Statement of Operations
  Data:Net sales
  
  $
  4,089.5
  $
  871.8
  $
  697.4
  $
  572.4
  $
  566.1Costs and expenses:Cost of sales
  
  3,969.7
  853.6
  697.4
  572.4
  566.1Selling, general &
  administrative
  35.9
  5.7
  3.6
  2.6
  2.5Depreciation and
  amortization
  21.2
  2.1
  -
  -
  -Operating income (loss)
  
  62.7
  10.4
  (3.6)
  (2.6)
  (2.5)Other income (expense):Minority owners' interest in
  net income ofNational Beef Packing
  Co.
  (19.4)
  (4.9)
  -
  -
  -Equity in income from
  Farmland NationalBeef Packing Co.
  -
  22.6
  20.3
  21.2
  23.8Interest income
  
  0.7
  0.2
  0.3
  0.9
  1.0Interest expense
  
  (25.5)
  (2.4)
  (0.7)
  (3.2)
  (3.3)Interest rate exchage
  agreement
  0.6
  -
  (1.0)
  (1.2)
  -Other, net
  
  -
  (1.7)
  0.5
  0.1
  0.2Total other (expense) income
  
  (43.6)
  13.8
  19.4
  17.8
  21.7Net income
  
  $
  19.1
  $
  24.2
  $
  15.8
  $
  15.2
  $
  19.2(1)
  Our fiscal year ends on the
  last Saturday in August.  Fiscal year ended 2002 consisted of 53 weeks.  All
  others consisted ofof 52 weeks.


31




Fiscal Years Ended (1)August 28, 2004
  August 30, 2003
  August 31,   2002
  August 25,   2001
  August 26,    2000(In millions, except unit, and per unit data)Pro Forma Per Unit Data:Weighted average basic
  Class A
  691,845
  691,845
  691,845
  691,845
  691,845units outstanding
  Class B
  691,845
  691,845
  691,845
  691,845
  691,845Basic earnings
  Class A - 33%
  $
  9.11
  $
  11.56
  $
  7.52
  $
  7.23
  $
  9.13per unit
  Class B - 67%
  $
  18.49
  $
  23.46
  $
  15.26
  $
  14.67
  $
  18.55Weighted average diluted
  Class A
  704,748
  703,761
  701,844
  700,201
  696,537units outstanding
  Class B
  704,748
  703,761
  701,844
  700,201
  696,537Diluted earnings
  Class A - 33%
  $
  8.94
  $
  11.36
  $
  7.41
  $
  7.14
  $
  9.07per unit
  Class B - 67%
  $
  18.16
  $
  23.07
  $
  15.04
  $
  14.50
  $
  18.42Distributions declared
  Class A - 33%
  $
  1.01
  $
  9.98
  $
  5.61
  $
  8.04
  $
  8.94per unit
  Class B - 67%
  $
  2.05
  $
  20.26
  $
  11.38
  $
  16.32
  $
  18.16Selected Balance Sheet
  Data:Cash and cash equivalents
  
  $
  43.6
  $
  42.2
  $
  16.1
  $
  14.3
  $
  15.6Total assets
  
  $
  663.8
  $
  641.2
  $
  107.2
  $
  128.4
  $
  123.3Long-term debt, less current
  maturities
  $
  331.8
  $
  312.7
  $
  8.2
  $
  28.1
  $
  30.7Minority interest
  
  $
  63.1
  $
  54.0
  $
  -
  $
  -
  $
  -Capital shares and equities
  
  $
  118.0
  $
  98.4
  $
  82.4
  $
  76.5
  $
  68.9Common shares outstanding
  
  691,845
  691,845
  691,845
  691,845
  691,845Pro Forma Per Unit Data:Pro forma Class A Units
  outstanding
  691,845
  691,845
  691,845
  691,845
  691,845Pro forma Class B Units
  outstanding
  691,845
  691,845
  691,845
  691,845
  691,845Pro forma book value for
  collective Class A and B units
  $
  170.57
  $
  142.23
  $
  119.13
  $
  110.62
  $
  99.53(1)
  Our fiscal year ends on the
  last Saturday in August.  Fiscal year ended 2002 consisted of 53 weeks.  All
  others consisted of 52 weeks.


TABLE_OF_CONTENTS

ITEM 7. 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in
conjunction with our consolidated financial statements and related notes and
other financial information appearing elsewhere in this report.  In addition to
historical information, the following discussion and other parts of this report
contain forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by such
forward-looking information due to the factors discussed under "Risk Factors,"
"Disclosure Regarding Forward-Looking Statements" and elsewhere in this report.

32




Overview

The cooperative was formed as a closed marketing
cooperative on July 1, 1996. Its mission is to increase the quality of
beef and long-term profitability of cattle producers by creating a fully
integrated producer-owned beef processing system that is a global supplier
of high quality, value added beef products responsive to consumer desires.

On December 1, 1997, the cooperative became operational by acquiring 25.4966% of FNB, a partnership owned by the
cooperative and Farmland Industries, Inc. (Farmland). The cooperative acquired
an additional 3.29% partnership interest in February 1998, bringing its
ownership to 28.7866% of FNB. Farmland then owned the remaining 71.2134%.

On May 31, 2002, Farmland and four of its subsidiaries filed voluntary petitions to reorganize under Chapter 11 of
the United States Bankruptcy Code. FNB was not a party of these filings.
Provisions of FNB's operating agreement and its financing agreement restricted
partners' access to FNB's assets. In the fourth quarter of fiscal 2003, as a
result of the acquisition of Farmland's interest by the cooperative and others,
as more fully described below, the cooperative acquired a controlling interest
in the former FNB, now NBP, and the assets, liabilities and operating results
of NBP are consolidated with those of USPB effective August 7, 2003. Prior
to the acquisition date, the cooperative accounted for its 28.7866%
non-controlling interest in FNB under the equity method.

In connection with the cooperative's purchase of
its interest in Farmland National Beef, the cooperative obtained the right, and
became subject to the obligation to deliver cattle annually to NBP  relative to: (i)  USPB's ownership in NBP and
(ii) the number of cattle processed annually by NBP.  That arrangement
continues following the conversion of the cooperative into the LLC.   The price
received for cattle is based upon a price grid determined by the cooperative
and NBP, which reflects current market conditions. The cattle purchase
agreement is effective as long as the USPB is an owner in NBP. Cattle delivered
by the USPB are processed in NBP's two processing plants.

USPB acquires all its cattle requirements from
its shareholders and members under uniform delivery and marketing agreements.
Shareholders are obligated to deliver a designated number of cattle to the
cooperative during specified delivery periods, as defined. The agreements are
for a term of ten years and provide for minimum quality standards, delivery
variances, and termination provisions, as defined. Cattle acquired pursuant to
the agreements are concurrently sold to NBP pursuant to the cattle purchase
agreement. Sales transactions are based upon prevailing cash market prices, and
purchases are on terms no less favorable to NBP than would be obtained from an
unaffiliated party.

On June 12, 2003, the cooperative entered into an agreement with Farmland to acquire all of the partnership interests
in FNB held by Farmland, which approximated 71.2%. As a result of this
acquisition, the cooperative gained voting control of FNB and converted it to a
limited liability company, National Beef Packing Company, LLC, under Delaware law. These transactions (the Acquisition) closed on August 6, 2003. NBP assumed both the uniform delivery and marketing agreements and the cattle purchase
agreement. NBP continues to hold all of the same assets its predecessor held
before the consummation of the transactions, including equity in subsidiaries,
except that Farmland retained a 49% interest in a NBP subsidiary NBP aLF, LLC,
which holds a 47.5% interest in aLF Ventures, LLC. From July 2006 to July 2008,
Farmland has a put right of this interest in NBP aLF, LLC to NBP at its then
fair market value. If the interest in NBP aLF, LLC is not repurchased, NBP is
required to put the entire interest up for sale. Due to uncertainties in aLF
Ventures, LLC's ability to generate future revenues, no amounts were allocated
to the put option in the consolidated financial statements.

On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the merger of the cooperative into a
wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation. 
The merger was effective on August 29, 2004. The Delaware corporation then, in
a statutory conversion authorized under Delaware law, converted into a Delaware limited liability company.  Following the effective date of the merger and
the statutory conversion, the business of the cooperative will be continued in
the limited liability company form of business organization.

NBP is the fourth largest beef processing company
in the United States, accounting for 11.7% of United States fed cattle
processed in 2004. NBP processes, packages and delivers fresh beef for sale to
customers in the United States and international markets. NBP's products
include boxed beef and beef by-products, such as hides and offal. In addition,
they sell value-added beef products including branded boxed beef, case-ready
beef and pork, chilled and frozen export beef and portion control beef. NBP
markets its products to retailers, distributors, food service providers and the
  United States military. The relationship between the USPB and NBP facilitates
a vertically integrated business that provides significant competitive
advantages in delivering consistent, high quality, value-added products to our
customers.

33




The results of operations discussed below include
the historical results of FNB as an equity investment using the equity method
of accounting for the periods prior to the Acquisition through August 6, 2003. For the periods subsequent to the Acquisition, the operating results
of NBP have been consolidated and intercompany transactions eliminated. This
new basis of accounting was established on the date of the closing of the
Acquisition (see description of the Acquisition in note 1 of our
consolidated financial statements), and, therefore, the financial position and
operating results after the Acquisition are not comparable with those before
the Acquisition. As a result, we have provided an overview of the operations of
NBP (formerly FNB) below to provide a better understanding of the impact that
our ownership in NBP (approximately 53.2% for the 24 days ended August 30, 2003 and thereafter, and approximately 28.8% for the period prior to August 7, 2003) had on our operations.

As a result of the Acquisition and resulting
consolidation of NBP, there were significant increases in the year of the
Acquisition to the Company's consolidated assets, liabilities and expenses in
comparison to prior periods. The Company's assets increased by 405%, with debt
increasing by 3,800% and liabilities other than debt increasing by 726%. The Company's
revenues for the 2004 fiscal year increased by approximately 469% in comparison
to the prior year.

The following table presents the historical
consolidated statements of operations data expressed in millions of dollars for
NBP (formerly FNB) for the periods indicated:

Successor
  
  
  
  
  
  SuccessorNational Beef Packing
  
  
  
  
  
  National Beef Packing
  
  
  PredecessorCompany, LLC and Subsidiaries
  
  
  Combined
  
  
  Company, LLC and Subsidiaries
  
  
  Farmland National Beef Packing Company, L.P. and
  Subsidiaries52 Weeks Ended
  
  
  364 Days Ended
  
  
  24 Days Ended
  
  
  340 Days Ended
  
  
  53 weeks ended(in millions)
  August 28,  2004
  
  
  August 30, 2003
  
  
  August 30,  2003
  
  
  August 6, 2003
  
  
  August 31,   2002Net sales
  $        4,089.5
  
  
  $      3,661.4
  
  
  $           282.8
  
  
  $   3,378.6
  
  
  $  3,246.8Costs and expenses:Cost of sales
  3,969.6
  
  
  3,515.7
  
  
  264.8
  
  
  3,250.9
  
  
  3,126.3Selling, general &
  administrative
  30.7
  
  
  27.0
  
  
  2.1
  
  
  24.9
  
  
  23.0Depreciation and
  amortization
  21.2
  
  
  20.4
  
  
  2.1
  
  
  18.3
  
  
  18.0Operating Income
  68.0
  
  
  98.3
  
  
  13.8
  
  
  84.5
  
  
  79.5Other income (expense):Interest income
  0.6
  
  
  0.5
  
  
  -
  
  
  0.5
  
  
  0.2Interest expense
  (24.9)
  
  
  (6.7)
  
  
  (1.6)
  
  
  (5.1)
  
  
  (6.8)Other, net
  0.3
  
  
  (3.1)
  
  
  (1.7)
  
  
  (1.4)
  
  
  4.6Total other expense, net
  (24.0)
  
  
  (9.3)
  
  
  (3.3)
  
  
  (6.0)
  
  
  (2.0)Net income
  $             44.0
  
  
  $           89.0
  
  
  $             10.5
  
  
  $         78.5
  
  
  $      
	77.5


The combined consolidated
statement of operations data for the 364 days ended August 30, 2003 includes the results of Farmland National Beef Packing Company, L.P. for the
340 days ended August 6, 2003 and the results of National Beef
Packing Company, LLC for the 24 days ended August 30, 2003. The results have been combined for the 364 day period to facilitate comparison.

34




The net income for the FYE 2004
was $44.0 million compared to $89.0 million for the FYE 2003, a
decrease of $45.0 million or 50.6%.  This is attributed to decreased
margins and an $18.2 million increase in interest expense.  While sales and
cost of sales were higher, principally due to the higher live cattle prices and
corresponding higher selling prices of beef products, operating income decreased
$30.3 million or 30.8% over the prior year.  As a percent of sales,
operating income was 1.7% and 2.7% for FYE 2004 and FYE 2003, respectively.  In
May 2003 a cow in Canada was diagnosed with BSE, so the U.S. closed its border to the importation of live cattle from Canada.  The single case of
BSE discovered in Washington state in December 2003 caused many international
importers to close their borders to U.S. beef products.  As a result of these
actions and their corresponding effects on the aggregate supply of cattle and
aggregate demand for beef products, the U.S. beef industry has experienced a
noticeable compression of industry margins during FYE 2004.

Net income increased $11.5 million, or
14.8%, to $89.0 million in FYE 2003 compared to $77.5 million in FYE
2002. This increase was primarily driven by an $18.8 million increase in
operating income, partially offset by an increase in other net expenses of
$7.7 million. The operating income increase was primarily due to improved
market conditions for beef products, recovering somewhat from reduced demand
for beef in travel related industries as a result of the terrorist attacks on September 11, 2001. Additionally, the number of cattle slaughtered and processed
increased 1.5% during the same period. The increase in other net expense was
driven by a bridge loan fee of $1.7 million and a write-off of unamortized
debt issuance costs of $1.6 million (both in connection with the
Acquisition in FYE 2003), partially offset by the receipt of an approximate
$2.3 million settlement related to an antitrust vitamin litigation during
the same period compared to non-operating income recorded in FYE 2002 of
$3.0 million representing the net receipt of reimbursement of previously
expensed research and development costs from Campina Melkunie N.V., a
Netherlands Antilles limited liability company.

Financial Statement Accounts

Net Sales.Pursuant to the
cattle purchase agreement between the cooperative and FNB, all of the
cooperative's sales prior to the Acquisition were to FNB. Subsequent to the
Acquisition and in consolidation, all of the cooperative's sales are
eliminated, leaving only sales of NBP. NBP's net sales are generated from sales
of boxed beef, case-ready beef and pork, chilled and frozen export beef,
portion control beef and beef by-products. They are affected by the volume of
animals processed and the value that is extracted from each animal. The value
that is extracted from cattle processed, the cut-out value, is affected by beef
prices and product mix, as premium products and further processed products
generate higher prices and operating margins. NBP's total value-added sales
were approximately $897.3 million in FYE 2004, comprising approximately 21.9%
of its total net sales. In FYE 2004, its value-added products contributed up to
three times the gross margin of its traditional boxed beef products and
represent a substantial portion of its profitability.  Wholesale beef prices
fluctuate seasonally because of higher demand during the summer months.
Wholesale beef prices also fluctuate because of changes in supply and demand
for competing proteins and other foods, as well as changes in cattle supply,
which have typically followed an eight to twelve year cycle, consisting of
about six to seven years of expansion followed by one to two years of
consolidation and three to four years of contraction. We are currently in the
expansion phase of this cycle. In addition, beef and beef by-product sales are
affected by the general economic environment and other factors.

35












Cost of Sales.The
cooperative's cost of sales, both prior to and subsequent to, the Acquisition
were accounted for in the same manner as net sales. NBP's cost of sales is
comprised of the cost of livestock and plant costs such as labor, packaging,
utilities, and other facility expenses. Livestock is the highest cost
component, representing 83.9% of cost of sales in FYE 2004. Total livestock
costs are a function of the volume of animals processed and the price paid for
each animal. Cattle prices vary over time and are affected by production
cycles, weather, feed prices and other factors that affect the supply of and
demand for livestock. Historically, changes in cut-out values, a
representation, normally expressed on a per hundred weight basis, of the sales
value of a beef carcass, for beef products and corresponding livestock costs
have been positively correlated. As a result, profitability is primarily
affected by the difference between cut-out value and livestock cost, the volume
of livestock processed and our processing yields, the amount of saleable
product, typically expressed as a percentage of a total carcass weight. Labor
and freight represented 4.2% and 2.5%, respectively,  of cost of sales in FYE
2004.

Selling, General and
Administrative Expenses.The cooperative's general and administrative costs
consist primarily of general management, insurance, and professional expenses.
In addition to these, NBP incurs selling expenses consisting primarily of
salaries, trade promotions, advertising, commissions and other marketing costs.

Outlook

Continued
short supplies of live cattle available for slaughter as well as the lack of
key export markets for sale of beef products have pressured industry margins
for the latter part of our FYE 2004, compared to the prior year.  These
conditions have continued into the early part of FYE 2005, leading us to
believe that the results of the thirteen weeks ending November 27, 2004 may not compare favorably with the results of the thirteen weeks ended November 29, 2003.

Recent Developments and Market Trends

On December 23, 2003, it was announced by the United States Department of Agriculture (USDA)
that a single Holstein dairy cow was discovered in the state of Washington to have tested positive for BSE.  The origin of the animal was subsequently
traced to a farm in Canada.  Shortly after the announcement, several countries
representing a substantial share of NBP's export business closed their borders
to the importation of edible beef products from the United States.  Responding
to the loss of export markets, live cattle prices in the United States declined by approximately 18% within 3 days.  In the FYE 2003, NBP's total
export sales were approximately 17% of total sales, including sales of non-food
beef products such as hides.  In FYE 2004, NBP's total export sales were
approximately 10% of total net sales.

During the
second quarter of FYE 2004, NBP recorded charges to earnings totaling
approximately $18.8 million due to the market impacts of the closure of
international borders as a result of the BSE discovery in late December.  These
charges, recorded in sales and cost of sales in our Consolidated Statement of
Operations, reflect:  (1) volatility in the U.S. markets for finished goods and
live cattle, with an impact noted in immediate margin erosion resulting from a
rapid fall in cutout or sales values; (2)  some product already destined for
foreign markets re-routed for resale in the U.S., generally at prices lower
than their original export value; and (3) lower value for certain inventory
items which had been in the production pipeline and had not yet left the U.S.
as they had no comparable domestic market.  Certain by-products have been
classified as Specified Risk Materials (SRMs), and have been banned from use in
feedstocks and the human food chain. Some of these products previously enjoyed
a market in foreign countries.  The impacts of BSE were positively offset, in
part, by strong domestic demand for beef products.

In addition,
the USDA and the Food Safety Inspection Service (FSIS) published new
regulations in response to the discovery of BSE in the state of Washington.  These new regulations, among other things, govern the removal of SRMs during
slaughter, cover the ban on the slaughtering of non-ambulatory animals for
human food use, set forth the prohibition on the production of mechanically
separated meat and ban certain techniques used in the slaughter process.  The
USDA also issued a notice announcing that FSIS inspectors will not mark
ambulatory cattle that have been targeted for BSE surveillance testing as
"inspected and passed" until negative test results are obtained.  We do not
anticipate that these new regulations, individually or in the aggregate, will
have a material adverse effect on our business.

36




While exports
of some beef products have commenced once again to Mexico, we cannot anticipate
the duration of other continuing beef import bans or whether additional
countries may impose similar restrictions.  Thus far, the effect of resumed
export of beef products to Mexico has been marginal on the United States beef industry.  Fed cattle slaughter levels in the United States for the FYE
2004 fell approximately 8.9% below year-ago levels, reflecting constrained
cattle supplies and reduced demand for export products.

The closure
of U.S. borders to the importation of Canadian feeder and fattened (ready for
slaughter) animals which occurred in May 2003 following the discovery of BSE in
Alberta that same month tightened the U.S. cattle supply; and, although the
U.S. border opened to Canadian produced boxed beef in September 2003, the
entire U.S. Beef industry continued at a price disadvantage while the ban on
importation of Canadian livestock was maintained.  This continued closure of
the U.S. border to Canadian livestock has resulted in higher overall feeder and
fed cattle prices in the U.S., negatively impacting raw material prices.

The
USDA has published a proposed rule revising its policy to keep the U.S. border closed to live animals for processing in the U.S.  The comment period for this
proposed rule closed on April 7, 2004 and publication of a final rule was
anticipated within a reasonable time following closure of the comment period. 
In the interim, Ranchers Cattlemen Action Legal Fund United Stockgrowers of
America (R-CALF -  a northern states cattle producer's organization) was
successful in obtaining an injunction against the USDA allowing importation of
certain beef products produced in Canada pursuant to this rule, because the
USDA did not follow the "Administrative Procedures Act" prior to issuing its
order allowing such action.  The final rule is drafted and is being reviewed
within the USDA.  It is expected to be sent to the federal government Office of
Management and Budget (OMB) after the U. S. presidential election.  The OMB
could take up to 90 days to return it to the USDA, but many expect the final
rule to be published before the end of the year with the markets opening in the
first quarter of calendar 2005, although we can provide no assurance that this
will occur.

A United
States/Japanese Commission was formed to look at the optimal "science based"
approach to resolving the issues between the U.S. and Japan.  The commission held its last meeting in July 2004.  Following this meeting, trade
representatives from the United States and Japan continued their discussions on
reopening of the Japanese market to imported beef products from the United States.

On October 23, 2004, the USDA announced that Japan and the U.S. had reached an agreement on
opening the border for export to Japan.  Over the coming months, many details
will have to be worked out by both governments.  Part of the agreement involves
the tracking of animals of known age from the ranch so that only meat from
animals less than 21 months of age can be shipped to Japan.  It may require
considerable effort and resources for NBP to develop and implement such a
system over the coming months.  It is expected that the markets will begin to
open for some products in the first quarter of calendar 2005, although no
assurance can be given that this will occur.

The Company cannot
presently assess the full economic impact of the consequences of BSE on the U.S. beef industry or on our operations.  Our revenues and net income may be materially
adversely affected in the event existing import restrictions continue
indefinitely, additional countries announce similar restrictions, additional
regulatory restrictions are put into effect or domestic consumer demand for
beef declines substantially.

As of August 28, 2004, NBP
was in compliance with all financial covenant ratios under our senior credit
facilities, with the exception of the four-quarter rolling measure of EBITDA,
as defined in the Third Amended and Restated Credit Agreement dated as of
August 6, 2003 (as amended, the Credit Agreement).  As of October 6, 2004, the lenders under NBP's  Credit Agreement have agreed to waive this event of default. 
The calculation of this ratio is not allowed to include an add back for the
charge of $18.8 million incurred after the discovery of a single Holstein dairy cow in December 2003 in the state of Washington that tested positive for
BSE.

37




Critical Accounting Policies and Estimates

The following discussion and analysis of
financial condition and results of operations are based on our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires  management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosures of contingent assets and liabilities. On an ongoing
basis, management evaluates and revises its estimates based on historical
experience and other assumptions that we believe are reasonable under the
circumstances. Actual results may differ from those estimates. Changes in our
estimates could materially affect our results of operations and financial
condition for any particular period. Our fiscal year ends on the last Saturday
in August. We believe that our most critical accounting policies are:

Accounting for Investment in NBP.Prior
to the Acquisition, FNB was accounted for as an equity investment under the
equity method of accounting. USPB's share of FNB's income was recognized as
equity in earnings of FNB in a single line item in our consolidated statements
of operations and recorded in the consolidated balance sheet in a single line
item - investment in FNB. Distributions received from FNB reduced the
investment balance. Upon acquiring a controlling interest in the Acquisition,
in accordance with accounting principles generally accepted in the United States of America, NBP's financial position and results of operations are
consolidated into our financial statements and all transactions between the two
companies are eliminated in the consolidation. A minority interest is presented
which represents the earnings of NBP attributable to those holding a minority
interest in NBP.

Allowance for Returns and Doubtful Accounts.The allowance for returns and doubtful accounts reflects reserves for customer
receivables to reduce receivables to amounts expected to be collected. Management
uses significant judgment in estimating uncollectible amounts. In estimating
uncollectible amounts, management considers factors such as current overall
economic conditions, industry-specific economic conditions, historical customer
performance, and anticipated customer performance. Specific accounts are also
reviewed for collectibility. While management believes these processes
effectively address our exposure to doubtful accounts, changes in the economy,
industry or specific customer conditions may require adjustment to the recorded
allowance for doubtful accounts. Management uses significant judgment in
estimating amounts expected to be returned. Management considers factors such
as historical performance and customer conditions in estimating return amounts.

Inventory Valuation.Inventories of NBP,
except supplies inventories, are determined using the first-in, first-out cost
method or market. The cost of all other inventories is determined using the
first-in, first-out method, specific or average cost methods. Management
periodically reviews inventory balances and purchase commitments to estimate if
inventories will be sold at amounts (net of estimated selling costs) less than
their carrying amounts. If actual results differ from management estimates with
respect to the selling of inventories at amounts less than their carrying
amounts, NBP would adjust its inventory balances accordingly.

Goodwill.In accordance with
SFAS No. 142, Goodwill and Other Intangible Assets, we do not
record amortization of the goodwill balance. Instead, on an annual basis, we
assess the goodwill balance for impairment. For goodwill, this test involves
comparing the fair value of each reporting unit to the unit's book value to
determine if any impairment exists. We calculate the fair value of each
reporting unit, using estimates of future cash flows. In accordance with
SFAS No. 142, we determined that our goodwill was not impaired based
on our assessment as of August 28, 2004.

In connection with the Acquisition, we recognized
excess cost over the fair value of the net tangible and identifiable intangible
assets acquired. This excess has been recorded as goodwill.

Workers' Compensation Accrual.NBP incurs
certain expenses associated with workers' compensation. To measure the expense
associated with these costs, management must make a variety of estimates
including employee accidents incurred but not yet reported. The estimates used
by management are based on our historical experience as well as current facts
and circumstances. NBP uses third-party specialists to assist management in
appropriately measuring the expense associated with these costs.

38












Results of Operations

The
following table shows consolidated statements of operations data for the
periods indicated (in millions):

Fiscal Years EndedAugust 28,      2004
  
  August 30,      2003
  
  August 31,      2002Net sales
  
  $   4,089.5
  
  $      871.8
  
  $      697.4Costs and expenses:Cost of sales
  
  3,969.7
  
  853.6
  
  697.4Selling, general &
  administrative
  
  35.9
  
  5.7
  
  3.6Depreciation and
  amortization
  
  21.2
  
  2.1
  
  -Operating income (loss)
  
  62.7
  
  10.4
  
  (3.6)Other income (expense):Minority owners' interest in
  net income of National Beef Packing
  Co.
  
  (19.4)
  
  (4.9)
  
  -Equity in income from
  Farmland National Beef Packing Co.
  
  -
  
  22.6
  
  20.3Interest income
  
  0.7
  
  0.2
  
  0.3Interest expense
  
  (25.5)
  
  (2.4)
  
  (0.7)Interest rate exchange
  agreement
  
  0.6
  
  -
  
  (1.0)Other, net
  
  -
  
  (1.7)
  
  0.5Total other (expense) income
  
  (43.6)
  
  13.8
  
  19.4Net income
  
  $        19.1
  
  $       24.2
  
  $        15.8


The results of operations of NBP for the FYE August 28, 2004 and the 24 days ended August 30, 2003 are consolidated in the
respective periods and transactions between the USPB and NBP have been
eliminated. Accordingly, these operating results are not consistent with prior
periods' operating results.

FYE August 28, 2004 compared to August 30, 2003

Net Sales.Net sales were $4,089.5 million
for FYE 2004 compared to $871.8 million for  FYE 2003, an increase of $3,217.7 million
or 369.1%. The increase was the direct result of consolidating NBP's sales of $4,089.5 million
and eliminating the intercompany sales of $614.3 million from the
cooperative to NBP. The decline in the cooperative's sales to NBP of $10.9 million,
or 1.7%, was driven by a decrease of 15.0% in the number of cattle sold, offset
by an increase in the average sales price of 16.2%.

Cost of Sales.Cost of sales was $3,969.7 million
for FYE 2004 compared to $853.6 million for FYE 2003, an increase of $3,116.1 million
or 365.1%. The increase was the direct result of consolidating NBP's cost of
sales of $3,969.7 million and eliminating the intercompany cost of sales
of $614.3 million.

Selling, General and Administrative Expenses.Selling, general and administrative expenses were $35.9 million for FYE
2004 compared to $5.7 million for FYE 2003, an increase of $30.2 million
or 529.8%. The increase was the direct result of consolidating NBP's expenses
of $30.7 million that were not consolidated in the 2003 period.

39












Depreciation and Amortization Expense.Depreciation and amortization expenses were $21.2 million for FYE 2004
compared to $2.1 million for FYE 2003, an increase of $19.1 million
or 909.5%. This increase was the direct result of consolidating NBP's
depreciation of $21.2 million which included increases that resulted from
depreciation on new capital projects placed in service, from the depreciation
of assets acquired in the acquisition of National Carriers, Inc.  Additionally,
a small increase resulted from the amortization of intangible assets identified
in the purchase accounting under the Acquisition

Operating Income.Operations resulted in
income of $62.7 million for FYE 2004 compared to $10.4 million for FYE
2003, a favorable increase of $52.3 million. The operating income, as a
percentage of net sales, was 1.5% for FYE 2004 and 1.2% for FYE 2003. This is
the direct result of consolidating NBP's results of operations in 2004 of $68.0 million
which was 1.7% of our consolidated sales.

Equity in Earnings.In FYE 2004 the
results of NBP were consolidated while earnings in FNB were $22.6 million
for FYE 2003. The minority interest in NBP represents the minority owners'
equity in NBP's earnings. Kansas City Steak, LLC and aLF Ventures, LLC are
subsidiaries of NBP which are also consolidated herein.

Interest Expense.Interest expense was $25.5 million
for FYE 2004 compared to $2.4 million for FYE 2003, an increase of $23.1 million.
The increase was due primarily to the higher level of borrowings in FYE 2004 as
a result of the Acquisition.

Other, Net.Other, net was income of $0.0 million
for FYE 2004 compared to an expense of $1.7 million for FYE 2003. In 2004, NBP
received $1.1 million through the demutualization of a company which held
annuities for NBP employees, and the loss in NBP's equity investment of aLF
Ventures, LLC of $0.8 million. This was further offset by tax accruals of $0.5 million
in consideration of the potential recharacterization of income from
patronage-source to nonpatronage-source, which could be asserted by the IRS. FYE
2003 is primarily due to the consolidation of NBP's net expense of
$1.7 million for the 24 day period from August 7 to August 30, 2003. This net expense consisted of $1.7 million of bridge loan
commitment fees, $1.6 million in the write-off of unamortized debt
issuance costs (both associated with the Acquisition), $0.9 million of
expenses associated with an investment in an electronic commerce venture, as
offset by receipt of a $2.3 million award in an antitrust vitamin
litigation. NBP received approximately $2.3 million to settle its indirect
purchaser vitamin antitrust claim through Farmland, which settled its own
direct and indirect claims and those of all of its affiliates. The settlement
arose from the Department of Justice indictments of several manufacturers of
vitamins and feed additives for price fixing, which resulted in confessions,
amnesty and fines from 2000 to 2003. During that time, numerous lawsuits were
filed by direct and indirect purchasers, including both class-action lawsuits
and individual lawsuits, to recover the antitrust overcharge.

FYE August 30, 2003 compared to August 31, 2002

FYE 2003, which ended August 30, 2003, consisted of 52 weeks. FYE 2002, which ended August 31, 2002, consisted of 53 weeks.

Net Sales.Net sales were
$871.8 million in FYE 2003 compared to $697.4 million in FYE 2002, an
increase of $174.4 million, or 25.0%. The increase resulted primarily from
the consolidation of NBP's sales of $282.8 million for the 24 day period
from August 7 to August 30, 2003, coupled with an increase of 11.9% in the
cooperative's average sales price. This increase was reduced by the elimination
of intercompany sales of $36.3 million for the same 24 day period, a
decrease of 18.8% in the number of cattle delivered to the cooperative and the
additional week in FYE 2002.

Cost of Sales.Cost of sales was
$853.6 million in FYE 2003 compared to $697.4 million in FYE 2002, an
increase of approximately $156.2 million, or 22.4%. The increase is
consistent with the increase in sales and resulted primarily from the
consolidation of NBP's cost of sales of $264.8 million for the 24 day
period from August 7 to August 30, 2003, reduced by the elimination
of intercompany cost of sales of $36.3 million for the same period. This
net increase was also supported by an increase of $7.98 per hundred weight
(cwt), or 11.9%, in the cooperative's average base purchase prices, partially
offset by the additional week in FYE 2002.

40












Selling, General and Administrative Expenses.Selling, general and administrative expenses were $5.7 million in FYE 2003
compared to $3.6 million in FYE 2002, an increase of $2.1 million or
58.3%. The increase is attributed to the consolidation of NBP's selling,
general and administrative expenses of $2.1 million for the 24 day period
from August 7 to August 30, 2003, partially offset by a
$0.2 million reduction of USPB's direct general and administrative costs.

Depreciation and Amortization Expense.Depreciation and amortization expense increased by $2.1 million, in FYE
2003 compared to FYE 2002. This increase was directly attributed to the
consolidation of NBP's depreciation and amortization expense of
$2.1 million for the 24 day period from August 7 to August 30, 2003.

Operating Income.Operations resulted in
income of $10.4 million for FYE 2003, compared to a loss of $3.6 million
for FYE 2002, an increase of $14.0 million. The increase was primarily due
to the consolidation of NBP's operating income of $13.8 million for the 24
day period from August 7 to August 30, 2003 coupled with improved
market conditions for beef products, recovering somewhat from reduced demand
for beef in travel related industries as a result of the terrorist attacks on
September 11, 2001.

Equity in Earnings.FNB's and NBP's
combined net income increased 14.8%, while earnings in FNB increased 11.3% to
$22.6 million in FYE 2003 from $20.3 million for FYE 2002. The
difference is due to the consolidation of NBP's net income of
$10.5 million for the 24 day period ended August 30, 2003 subsequent
to the Acquisition and due to goodwill amortization of $2.0 million in FYE 2002
related to the excess of our investment in FNB over our share of the underlying
net assets of FNB. The minority equity of $4.9 million in 2003 represents
the minority owners' equity in NBP for the same 24 day period. Kansas City
Steak, LLC and aLF Ventures, LLC are subsidiaries of NBP which are also
consolidated herein for the same 24 day period of FYE 2003.

Interest Expense.Interest expense was
$2.4 million for FYE 2003 compared to $0.7 million for FYE 2002, an
increase of $1.7 million, or 242.9%. The increase resulted primarily from
the consolidation of NBP's interest expense of $1.6 million for the 24 day
period from August 7 to August 30, 2003.

Interest Rate Exchange Agreement.Expense
related to the cooperative's interest rate exchange agreement was
$0.0 million in FYE 2003, compared with $1.0 million in FYE 2002. The
cooperative's interest rate swap was realigned with the underlying debt at the
end of FYE 2002, generating related expenses in 2002 that were not incurred in
FYE 2003.

Other, Net.Other decreased to expense of
$1.7 million in FYE 2003 from income of $0.5 million in FYE 2002.
This decrease is primarily due to the consolidation of NBP's net expense of
$1.7 million for the 24 day period from August 7 to August 30, 2003. This net expense consisted of $1.7 million of bridge loan
commitment fees, $1.6 million in the write-off of unamortized debt
issuance costs (both associated with the Acquisition), $0.9 million of
expenses associated with an investment in an electronic commerce venture, as
offset by receipt of a $2.3 million award in an antitrust vitamin
litigation. NBP received approximately $2.3 million to settle its indirect
purchaser vitamin antitrust claim through Farmland, which settled its own
direct and indirect claims and those of all of its affiliates. The settlement
arose from the Department of Justice indictments of several manufacturers of
vitamins and feed additives for price fixing, which resulted in confessions,
amnesty and fines from 2000 to 2003. During that time, numerous lawsuits were
filed by direct and indirect purchasers, including both class-action lawsuits
and individual lawsuits, to recover the antitrust overcharge. Also contributing
to the decrease is the recognition of $0.3 million in revenue generated by
leasing excess delivery rights in FYE 2002 that were not leased in FYE 2003.

Liquidity and Capital Resources

As of August 28, 2004, USPB and its consolidated subsidiaries had net working capital of $179.9 million, which included $3.1 million
in partner and member payables, and cash and cash equivalents of $43.6 million.
As of August 30, 2003, we had net working capital of $138.9 million,
which included $23.0 million in partnership and member payables, and cash
and cash equivalents of $42.2 million. Our primary resources of liquidity
are cash flow from operations and available borrowings under our amended credit
facility.

41




As of August 28, 2004, the Company had $342.3 million of long-term debt, of which $10.5 million was classified as a
current liability. As of August 28, 2004, there were outstanding borrowings of
$42.1 million, outstanding letters of credit of $43.0 million and
available borrowings of $10.7, based on the most restrictive financial covenant
ratio calculation, under our $140.0 million amended credit facility.
Borrowings under our amended credit facility have funded our working capital
requirements, capital expenditures and other general corporate purposes.

In addition to outstanding borrowings under the
amended credit facility, NBP had outstanding borrowings under industrial
revenue bonds of $13.8 million, 10 1/2% Senior Notes of
$160.0 million, term loans of $126.0 million and capital lease and
other obligations of $0.4 million as of August 28, 2004.

Effective November 19, 2004, NBP's amended credit facility was further amended to reflect changes in financial
covenants.  The revised covenants are effective throughout fiscal year 2005, at
which time the covenants generally will revert, and be adjusted in accordance
with, those contained in the amended credit facility prior to the November 19, 2004 amendment.  Available borrowings would have been $54.9 million as of August 28, 2004, had these covenant changes been in place.

Capital spending through 2005 is expected to
approximate $30.0 million, with projects already initiated at August 28, 2004 accounting for $12.0 million of that amount, and the Dodge City facility
comprising the majority of existing projects.  These expenditures, as well as
proposed new capital projects expected to start during FYE 2005, are primarily
for plant expansion, renewals and improvements.

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

Operating Activities

Net cash provided by operating activities was $34.6 million
in FYE 2004 compared to $19.2 million in FYE 2003, an increase of $15.4 million,
which is due to the consolidation of NBP.

Net cash provided by operating activities was
$19.2 million and $40.0 million in FYE 2003 and FYE 2002,
respectively. The $20.8 million decrease was primarily due to a
$32.4 million decrease in distributions received from NBP and its
increases in accounts receivable and inventories related to higher general
price levels of beef products. These decreases were largely offset by increases
in net income and accrued liabilities.

Investing Activities

Net cash used in investing activities was $31.2 million
in FYE 2004 compared to $227.9 million used in FYE 2003. This decrease was
primarily attributable to the $226.4 million acquisition of NBP in 2003,
partially offset by increased capital expenditures of $30.8 million due to
the consolidation of NBP for the entire year of 2004.  NBP is continuing to invest
in their Dodge City facility to enhance its efficiency and increase its
capacity by spending approximately $22.9 million during FYE 2004 and $11.0
million in FYE 2003.  It expects to spend an additional 15.0 million, through
existing and proposed projects, at this facility in 2005.

Net cash used in investing activities was
$227.9 million and $0.0 million FYE 2003 and FYE 2002, respectively.
The $227.9 million increase in FYE 2003 was due primarily to the funding
of the Acquisition.

Financing Activities

Net cash used by financing activities was $2.0 million
in FYE 2004 compared to net cash provided of $234.9 million in FYE 2003, a
decrease of $236.9 million. The decrease was largely attributed to the
issuance of Senior Notes and term debt for the Acquisition in 2003 as well as
member contributions associated with the Acquisition.

42




Net cash provided in financing activities was
$234.9 million for FYE 2003, and cash used in financing activities was
$38.1 million FYE 2002. The $273.0 million increase in cash provided
in FYE 2003 was due primarily to NBP's $160.0 million issuance of the
senior notes, $46.0 million of member contributions and an increase in
borrowings under their then existing senior credit facility of
$34.3 million as well as a reduction of payments of notes payable of $21.7 million.

CoBank Term Debt

USPB's CoBank term debt is payable in quarterly
installments with final payment due in July 2011, bearing interest at the 90
day LIBOR index plus 2.50%, adjusted quarterly (4.10% at August 28, 2004, 3.36%
at August 30, 2003 and 3.11% at August 31, 2002).

The debt agreement with CoBank contains certain
covenants which require, among other things:

       reporting
requirements;

       a
minimum working capital reserve;

       a
minimum debt service coverage ratio (not required if working capital falls
above the greater of one half the aggregate commitment or $4 million and
NBP is in compliance with their loan covenants).

       a
minimum net worth of $70.0 million

       restrictions
on transactions with related parties; and,

       restrictions
on dividend payments;

The cooperative was in compliance with all CoBank
debt covenants as of August 28, 2004. The debt is secured by USPB's interest in
NBP.

USPB's rate margin is determined pursuant to a
table based on the leverage ratio, as of the end of each fiscal year of NBP.
Based on the table, the rate margin was 2.50% at August 28, 2004 and 2.25% at both August 30, 2003 and August 31, 2002.

Amended Senior Credit Facility

On August 6, 2003, NBP amended and restated its existing senior credit facility with a consortium of banks, which
consists of a $125.0 million term loan and a $140.0 million revolving
credit facility that expires in August 2008.

The term loan facility provides for a term loan
in the principal amount of $125.0 million. The revolving credit facility
provides revolving loans in an aggregate amount of up to $140.0 million.
At the closing of the Acquisition, NBP borrowed the full amount available under
the term loan facility and $16.0 million under the revolving credit
facility. The borrowings under the revolving credit facility are available to
fund our working capital requirements, capital expenditures and other general
corporate purposes.  NBP's amended credit facility is secured by a first
priority lien on substantially all of NBP's assets.  Borrowings under the term
loan are due and payable in quarterly installments. The term loan has graduated
amortization with the quarterly payments amounting to 1.25% of the initial loan
balance for each of the first four quarters, 1.875% for each of the second four
quarters, 2.5% for each of the third four quarters, 3.125% for each of the
fourth four quarters and 3.75% for each of the remaining three quarters prior
to maturity. The final balance of $67,187,500 is due in August 2008. The amended
revolving credit facility is also available until August 2008.

43




NBP's amended credit facility
contains covenants that limit its ability to incur additional indebtedness,
sell or dispose of assets, pay certain dividends and prepay or amend certain
indebtedness among other matters.  On August 28, 2004, NBP was in compliance with all financial covenants under its amended credit facility, with the exception
of the four-quarter rolling measure of EBITDA, which was required to be at
least $92 million as of August 28, 2004.  Effective October 6, 2004, the lenders under NBP's amended credit facility waived this event of default.  The
calculation of this ratio is not allowed to include an add back for charges of
approximately $18.8 million incurred after the discovery of a single Holstein
dairy cow in December 2003 in the state of Washington that tested positive for
Bovine Spongiform Encephalopathy ("BSE").

Effective November 19, 2004, NBP's amended credit facility was further amended to reflect changes in financial
covenants.  The amended credit facility, as amended, contains the following
financial covenants, effective throughout fiscal year 2005:

        
maximum funded debt to EBITDA ratio of 7.25x;

        
maximum senior secured funded debt to EBITDA ratio of 4.50x;

        
minimum four quarter rolling EBITDA of $50 million;

        
minimum working capital of $92.25 million;

        
maximum annual capital expenditures of $30 million.

Beginning with fiscal year 2006,
the financial covenants (except for the limitation on maximum annual capital
expenditures) will revert to, and be adjusted in accordance with, those
contained in the amended credit facility as in effect immediately prior to the November 19, 2004 amendment.  The financial covenants which will be in place in fiscal
year 2006 under the amended credit facility as of August 6, 2003, will be more restrictive than those covenants in place in fiscal year 2005 under the November 19, 2004 amendment and more restrictive than those covenants in place in FYE
2004..

Industrial Revenue Bonds

The cities of Liberal and Dodge City, Kansas issued an aggregate of $13.8 million of industrial development revenue bonds on
NBP's behalf to fund the purchase of equipment and construction of improvements
at its facilities in those cities. These bonds were issued in 1999 and 2000 in
four series of $1.0 million, $1.0 million, $6.0 million and $5.8 million
and are due on February 1, 2029, March 1, 2027, March 1, 2015 and October 1, 2009. Pursuant to a lease agreement, NPB leases the
facilities, equipment and improvements from the respective cities and make
lease payments in the amount of principal and interest due on the bonds. Each
series of bonds is backed by a letter of credit under NBP's amended credit
facility.

The bonds are variable rate demand obligations
that bear interest at a rate that is adjusted weekly, which rate will not
exceed 10% per annum. The average per annum interest rate for each series
of bonds was 1.3% in FYE 2004. NBP has the option to redeem a series of bonds
at any time for an amount equal to the principal plus accrued interest to the
date of such redemption. The holders of the bonds have the option to tender the
bonds upon seven days notice for an amount equal to par plus accrued interest.
To the extent that the remarketing agent for the bonds is unable to resell any
of the bonds that are tendered, the remarketing agent will use the letter of
credit to fund such tender.

10 1/2% Senior Notes

Concurrent with the Acquisition, NBP issued
10 1/2% Senior Notes that will mature on August 1, 2011. Interest on the Senior Notes is payable semi-annually in arrears on August 1 and
February 1 of each year which commenced on February 1, 2004. The Senior Notes are senior unsecured obligations, ranking equal in right of payment
with all of NBP's other senior unsecured obligations. With limited exceptions,
the Senior Notes are not redeemable before August 1, 2007. During the 12-month period commencing August 1, 2007 and August 1, 2008, the Senior Notes may be redeemed at 105.250% and 102.625%, respectively, of the
principal amount.

44




Thereafter, the Senior Notes may be redeemed at
100% of face value. The Indenture governing the Senior Notes contains certain
covenants that restrict our ability to:

       incur
additional indebtedness;

       make
restricted payments;

       make
distributions on or redeem our equity interests;

       sell
our assets;

       create
liens;

       merge
or consolidate with another entity; and

       enter
into transactions with affiliates.

Contractual Obligations

The following table describes the Company's cash
payment obligations as of August 28, 2004 (dollars in thousands):

Total
  FY05
  FY06
  FY07
  FY08
  FY09
  AfterTerm loan facility
  $  125,958
  $   
  10,405
  $    13,530
  $    16,655
  $    82,280
  $      1,030
  $    
  2,058Revolving credit Facility
  42,059
  -
  -
  -
  42,059
  -
  -Capital leases
  78
  78
  -
  -
  -
  -
  -Senior Notes
  160,000
  -
  -
  -
  -
  -
  160,000Industrial Revenue Bonds
  13,850
  -
  -
  -
  -
  -
  13,850Farmland note
  350
  -
  -
  -
  -
  -
  350Operating leases
  22,391
  7,943
  4,771
  3,298
  2,314
  1,729
  2,336Purchase commitments
  2,158
  2,158
  -
  -
  -
  -
  -Cattle commitments(1)
  42,353
  42,353
  -
  -
  -
  -
  -Utilities commitment(2)
  16,530
  826
  827
  826
  826
  828
  12,397Total
  $  425,727
  $    63,763
  $    19,128
  $    20,779
  $  127,479
  $     3,587
  $  190,991


(1)    NBP makes a
verbal commitment to cattle producers to purchase cattle about one week in
advance of delivery of the live animals to its plants, with the actual price
paid for the cattle determined after the cattle are delivered and inspected at its
facilities.   This amount approximates NBP's outstanding cattle at August 28, 2004.

45












(2)    The
utilities commitment represents NBP's anticipated obligations under a tentative
agreement with the City of Dodge City, Kansas.  To meet the continuing growth
needs for water and wastewater services of the Dodge City facility, over a
period of time from May 20, 2002 to April 24, 2003, NBP signed a memorandum of
understanding with subsequent clarifying supplements with the City of Dodge
City, Kansas whereby it expressed its intention of entering into a services
agreement for the city to provide NBP water and wastewater services at a price
and term sufficient to permit the city to recoup up to one-half of the capital
cost of providing fresh water service from a parcel of land it owns 11 miles
south of the City, and of providing upgraded city wastewater facilities to help
service the needs of the Dodge City facility.  The total cost of these
improvements was approximately $22.1 million.  The city sold twenty year
municipal bonds to pay for these improvements and NBP is in the process of
finalizing the water services agreement with NBP.  NBP anticipates this
agreement to be finalized in the near future and that its payments to the city
will be approximately $0.8 million annually.

Off-Balance Sheet Arrangements

As of August 28, 2004 we did not have any significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.

Inflation

We believe that our results of operations are not
materially affected by moderate changes in the inflation rate. Inflation and
changing prices did not have a material affect on our operations in FYE 2004,
2003 and 2002. Severe increases in inflation, however, could affect the global
and U.S. economies and could have an adverse affect on our business, financial
condition and results of operations.

Seasonality and Fluctuations in Operating Results

The Company's operating results are influenced by
seasonal factors in the beef industry. These factors affect the price that we
pay for livestock as well as the ultimate price at which NBP sells its
products. The seasonal demand for beef products is highest in the summer and
fall months as weather patterns permit more outdoor activities and there is an
increased demand for higher value items that are grilled, such as steaks. Both
live cattle prices and boxed beef prices tend to be at seasonal highs during
the summer and fall. Because of higher consumption, more favorable growing
conditions and the housing of animals in feedlots for the winter months, there
are generally more cattle available in the summer and fall.



TABLE_OF_CONTENTS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosures

The principal market risks affecting the Company's
business are exposure to changes in prices for commodities, such as livestock
and boxed beef.

Commodities.NBP
uses various raw materials, many of which are commodities. Raw materials are
generally available from several different sources, and we presently believe
that we can obtain them as needed. Commodities are subject to price
fluctuations that may create price risk. When appropriate, NBP may hedge
commodities to mitigate this price risk. While this may tend to limit its
ability to participate in gains from commodity price fluctuations, it also
tends to reduce the risk of loss from changes in commodity prices. NBP reflects
commodity contract gains and losses as adjustments to the basis of underlying
commodities purchased; gains or losses are recognized in the statement of
operations as a component of costs of goods sold.

We purchase cattle for use in NBP's processing
businesses. When appropriate, we enter into forward purchase contracts at
prices determined prior to the delivery of the cattle. The commodity price risk
associated with these activities can be hedged by selling (or buying) the
underlying commodity, or by using an appropriate commodity derivative
instrument. The particular hedging instruments NBP uses depends on a number of
factors, including availability of appropriate derivative instruments.

46




NBP sells commodity beef products in its
business. Commodity beef products are subject to price fluctuations that may
create price risk. When appropriate, NBP enters into forward sales contracts at
prices determined prior to shipment. While this may tend to limit its ability
to participate in gains from commodity price fluctuations, it also tends to
reduce the risk of loss from changes in commodity beef prices. NBP reflects
commodity contract gains and losses as adjustments to the basis of underlying
commodities sold; gains or losses are recognized in the statement of operations
as a component of net sales.

NBP may use futures contracts to reduce exposure
associated with entering into firm commitments to purchase live cattle at
prices determined prior to delivery of the cattle as well as commitments to
sell certain beef products at sales prices determined prior to shipment. In
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, we account for futures contracts and their related firm
commitments at fair value. Most firm commitments are treated as "normal
purchases and sales" and are not marked to market. SFAS No. 133 imposes
extensive recordkeeping requirements in order to treat a derivative instrument
as a hedge for accounting purposes. Derivatives qualify for treatment as hedges
when there is a high correlation between the change in fair value of the
instrument and the related change in fair value of the underlying commitment.
For derivatives that qualify as effective hedges, the change in fair value has
no net effect on earnings until the hedged transaction affects earnings. For
derivatives that are not designated as hedging instruments, or for the
ineffective portion of a hedging instrument, the change in fair value does
affect current period net earnings.

While management believes each of these
instruments help mitigate various market risks, they are not designated and
accounted for as hedges under SFAS No. 133 as a result of the extensive
recordkeeping requirements of this statement. Accordingly, the gains and losses
associated with the change in fair value of the instrument and the offsetting
gains and losses associated with changes in the market value of certain of the
firm commitments related to futures contracts are recorded to income and
expense in the period of change.

The following table
describes the number of futures and the fair value of those positions and
related firm commitments at August 28, 2004 and August 30, 2003.  A position in live cattle consists of 40,000 pounds.  Firm commitments for purchase are for
live cattle and firm commitments for sales are for boxed beef..

Positions expiringwithin one year
  
  Fair ValueAugust 28, 2004
  
  
  
  
  ($000s)Live CattleFutures long
  
  -
  
  -Futures short
  
  55
  
  96Firm Commitments Purchase
  
  
  
  (96)Firm Commitments Sale
  
  
  
  -August 30,2003Live CattleFutures long
  
  808
  
  1,232Futures short
  
  272
  
  (429)Firm Commitments Purchase
  
  
  
  (139)Firm Commitments Sale
  
  
  
  (1,386)


Foreign Operations.Transactions
denominated in a currency other than an entity's functional currency may expose
that entity to currency risk. Although we operate in international markets
including Japan and South Korea, product sales are predominately made in United States dollars and therefore currency risks are limited.

Interest Rates.As
a result of the Company's normal borrowing and leasing activities, our
operating results are exposed to fluctuations in interest rates, which we
manage primarily through our regular financing activities. We generally
maintain limited investments in cash and cash equivalents.

We have short-term and long-term debt with
variable interest rates. Short-term debt is primarily comprised of the current
portion of long-term debt maturing twelve months from the balance sheet date.
Short-term debt also includes our revolving credit line used to finance working
capital requirements, capital expenditures and general corporate purposes.

47




We had total interest expense of approximately $25.6
million in FYE 2004 and $2.4 million in FYE 2003. The estimated increase in
interest expense from a hypothetical 200 basis point adverse change in
applicable variable interest rates would have been approximately $3.4 million
in FYE 2004 and approximately $2.8 million in FYE 2003.

The variable interest expense is sensitive to
changes in the general level of interest rates.  As of August 28, 2004, a portion of our debt is borrowed at LIBOR plus a weighted average margin
rate of 2.5%. As of August 28, 2004, the weighted average interest rate on our
$174.7 million of variable interest debt was approximately 4.0%.

TABLE_OF_CONTENTS

ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial
statements and notes thereto, and other information required by this
Item 8 are included in this report beginning on page F-1.

TABLE_OF_CONTENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

TABLE_OF_CONTENTS

ITEM 9A. CONTROLS AND PROCEDURES

The Company maintains a system of controls and procedures
designed to provide reasonable assurance as to the reliability of the financial
statements and other disclosures included in this report, as well as to
safeguard assets from unauthorized use or disposition. We evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in the Securities Exchange Act of 1934
Rules 13a-15(e) and 15d-15(e) under supervision and with the participation
of management, including our Chief Executive Officer and Chief Financial
Officer. Based upon that evaluation, as of the end of the period covered by
this Annual Report on Form 10-K, our Chief Executive Officer and Chief Reporting
and Compliance Officer concluded that our disclosure controls and procedures
were effective in alerting them, in a timely manner, to material information
required to be included in our periodic Securities and Exchange Commission
filings.  There have been no changes in our internal control over financial
reporting during the thirteen weeks ended August 28, 2004 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.  The design of any system of controls and procedures
is based in part upon certain assumptions about the likelihood of future
events.

TABLE_OF_CONTENTS

ITEM 9B.  OTHER INFORMATION

None.

PART III

TABLE_OF_CONTENTS

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Board of Directors

U.S. Premium Beef's business and affairs are
governed by its board of directors. The board of directors currently consists
of seven directors. The board of directors has full authority to act on behalf
of USPB. The board of directors acts collectively through meetings, committees
and senior management members it appoints. In addition, USPB employs a staff of
executives to manage the day-to-day business of the USPB. The members of the
board of directors and the senior members of the executive team are identified
below.

48








Senior Management and Members of the Board of
Directors

Term ExpiresName and Address
  
  Age
  
  Position
  
  After FYTerry Ryan
  
  
  52
  
  
  Chairman of the Board
  
  
  2006Mark Gardiner
  
  
  43
  
  
  Vice Chairman of the Board
  
  
  2004John Fairleigh
  
  
  39
  
  
  Secretary/Treasurer of the
  Board
  
  
  2006John Adams
  
  
  44
  
  
  Director
  
  
  2005Kelly K. Giles
  
  
  44
  
  
  Director
  
  
  2005Douglas A. Laue
  
  
  53
  
  
  Director
  
  
  2004N. Terry Nelson
  
  
  45
  
  
  Director
  
  
  2004Steven D. Hunt
  
  
  45
  
  
  Chief Executive Officer
  
  
  -Stan Linville
  
  
  45
  
  
  Chief Operating Officer
  
  
  -Danielle Imel
  
  
  29
  
  
  Treasurer
  
  
  -Lyn Holtmann
  
  
  41
  
  
  Chief Reporting and
  Compliance Officer
  
  
  -


Terry Ryan.Mr. Ryan manages HRC
Feedyards, Inc., near Scott City, Kansas, and has been involved in the
commercial cattle feeding industry since 1977. He is also a partner in the
family farm operation in Rawlins County, Kansas. He is a member of the National
Cattlemen's Beef Association and the Kansas Livestock Association (KLA).
Mr. Ryan is a past member of the KLA board of directors. Mr. Ryan has
served as a member of USPB's board of directors since 1996. He was elected to
the Chairman of USPB's board of directors in 2004. Mr. Ryan attended Colby Community College with an emphasis on Animal Science and Farm and Ranch Management.

Mark Gardiner.Mr. Gardiner is
President of Gardiner Angus Ranch, Inc. (GAR), a family owned purebred and
commercial Angus operation at Ashland, Kansas. Gardiner Angus Ranch also runs
an embryo transfer program that makes more than 2,000 transfers per year, including
more than 60% of GAR's 1,200-plus head of registered Angus calves born each
year. A percentage of its calves are finished at commercial feedlots to provide
carcass data on all Gardiner sires. In addition to a native range program, Gardiner Angus Ranch operates a significant dryland farming enterprise. Mr. Gardiner is a
member of the National Cattlemen's Beef Association, Kansas Livestock
Association, American Angus Association, Kansas Angus Association and the Beef
Improvement Federation. Mr. Gardiner has served as a member of USPB's
board of directors since 1996. He was elected Secretary/Treasurer of USPB's
board in 2003 and Vice Chairman of the board in 2004. Mr. Gardiner holds a
Bachelor's degree from Kansas State University in Animal Sciences and Industry.

John Fairleigh.Mr. Fairleigh is
President and CEO of Fairleigh Companies, a family-owned business in Scott
City, Kansas, consisting of a 44,000 head commercial feedyard, Scott Pro, a
protein supplement manufacturing business, Fairleigh Ranch, a 10,000 acre
backgrounding and grazing operation, Fairleigh Farms and L&M Western Tire
and Oil Company. He is a member of the National Cattlemen's Beef Association
and Kansas Livestock Association. Mr. Fairleigh has served as a USPB board
member since 1999 and was elected Secretary/Treasurer of the board in 2004.
Mr. Fairleigh holds a Bachelor's degree in Business from Kansas State University.

49












John Adams.Mr. Adams is a fourth
generation partner in Adams Cattle Company and manages operations in Meade and
Seward counties in Kansas and in Beaver County in Oklahoma. Mr. Adams's
family has engaged in that business for more than 100 years. Most of the
calves off that ranch are backgrounded at the family's northeast Kansas ranch, where they are grown to feeder weight. Mr. Adams also runs an extensive
farming operation that includes irrigated and dryland crops and hay production,
as well as a wheat grazing program. Mr. Adams is a member of the National
Cattlemen's Beef Association, Kansas Livestock Association and the Oklahoma
Cattlemen's Association. Mr. Adams has served as a member of USPB's board
of directors since 1999. Mr. Adams attended the University of Kansas
School of Business.

Kelly K. Giles.Mr. Giles is a third
generation cow-calf, stocker/feeder and seedstock operator. Mr. Giles is
the Managing Member of Giles Enterprises, LLC, a genetics, marketing and
procurement company based in Ashland, Kansas, with an office in Edmond, Oklahoma. He is also a General Partner in Giles Land Co., LP of Ashland, Kansas, which
owns the Gates Ranch that has been in operation since 1947. Mr. Giles is a
member of the National Cattlemen's Beef Association, Kansas Livestock
Association, American Angus Association and the Society of Range Management. He
holds a Bachelor's degree from Kansas State University in Animal Science and
Industry and a Masters of Business Administration degree in Finance from Texas A&M University. Mr. Giles has served as a member of USPB's board of
directors since 1996.

Douglas A. Laue.Mr. Laue owns and
operates Black Diamond Customer Feeders, Inc. in Herington, Kansas, and runs a
grazing program in the Kansas Flint Hills. He is a member of the National
Cattlemen's Beef Association and Kansas Livestock Association (KLA).
Mr. Laue previously served as the Chairman of the KLA Feeders Council.
Mr. Laue has been a member of USPB's board of directors since 1996 and
served as Vice Chairman of USPB's board of directors from 1996 through 2002.
Mr. Laue holds a Bachelor's degree in Animal Sciences and Industry from Kansas State  University.

N. Terry Nelson.Mr. Nelson runs
a family corporation that includes commercial cow/calf, backgrounding and
cattle feeding enterprises at Long Island, Kansas. His family has been
finishing cattle in commercial feedlots in Kansas and Nebraska since 1973. The
corporation also operates a row-crop farming enterprise and a farrow-to-finish
hog operation. He is a member of the National Cattlemen's Beef Association,
Kansas Livestock Association and Kansas Farm Bureau. Mr. Nelson is a past
member of the Kansas Livestock Association board of directors. Mr. Nelson
has been a member of USPB's board of directors since 1996 and served as
Chairman of the board of directors from 1996 to 2004. Mr. Nelson attended Kansas State  University with an emphasis on Animal Sciences and Industry.

Steven D. Hunt.Mr. Hunt was named
Chief Executive Officer in July 1996 and was instrumental in the development
and establishment of U.S. Premium Beef. Prior to his employment with USPB,
Mr. Hunt owned and operated SDH Cattle Company at Winfield, Kansas, until 1996. As Vice President of Corporate Lending with CoBank, ACB from January
1987 to October 1988, Mr. Hunt also has experience in many areas of
commercial banking, including direct agricultural lending, commercial lending,
finance, business analysis, training, marketing and personnel. Mr. Hunt
holds a Bachelor's degree in Agricultural Economics from Kansas State University.

Stan Linville. Mr. Linville is
USPB's Chief Operating Officer and joined USPB in 1997. He oversees cattle
scheduling and technical operations. Before joining USPB, he operated a family
farming operation near Holcomb, Kansas. He also worked in the cattle division
of Brookover Enterprises at Garden City, Kansas, and as a grain merchandiser
for Bartlett Grain Co. in Kansas City. Mr. Linville holds a Bachelor's
degree in Agricultural Economics from Kansas State University.

Danielle Imel. Ms. Imel is
USPB's Treasurer and joined USPB in 1998. She oversees the Company's finance
functions and is directly responsible for Company treasury activities. She was
employed by the CPA firm of Kennedy, McKee and Co., LLC of Dodge City, Kansas,
prior to joining USPB. Ms. Imel earned a Bachelor's degree in Accounting
and a second Bachelor's degree in Agricultural Economics from Kansas State University.

Lyn Holtmann. Ms. Holtmann is USPB's
Chief Reporting and Compliance Officer.  She oversees financial reporting
and ensures compliance with internal policies and regulatory
requirements.  Before joining USPB in 2004, Ms. Holtmann held positions
with the CPA firm of PricewaterhouseCoopers LLP, Sprint Corporation, Dairy
Farmers of America, Inc. and Houlihan's Restaurants, Inc.  Eight years of
her experience was in an audit capacity, six in a corporate controller capacity
and the remainder in project management and systems development.  Ms.
Holtmann earned a Bachelor's of Science in Business Administration with majors
in accounting and computer science from Rockhurst University.  She is also
a Certified Public Accountant.

50












Board of Directors

Under USPB's LLC operating agreement, the number
of directors is set by the board of directors but may not be less than seven
(7) directors. Directors must be unitholders of USPB and will be elected
by holders of USPB Class A units. The operating agreement states that at least
one director will represent Seedstock breeders and the balance of the directors
will be evenly divided between directors who are unitholders who have Even Slot
delivery agreements and unitholders who have Odd Slot delivery agreements.  Current
representation is as follows:

         Seedstock - Mr. Gardiner

        
Even Slot - Messrs. Ryan, Fairleigh and Laue

       
Odd Slot - Messrs. Adams, Giles and Nelson

The directors are elected at the annual meeting
of the unitholders and hold office for a term of three (3) years. The
terms of the directors are staggered in such a manner that approximately
one-third (1/3) of the directors will be elected each year. All directors will
hold office until their successors are elected and qualified. Any vacancy in
the board, other than a vacancy resulting from expiration of a term of office,
will be filled by a majority vote of the remaining directors. In case a vacancy
in the board of directors extends beyond the next annual meeting, the vacancy
will be filled by the remaining directors until such meeting, at which meeting
a director will be chosen by the unitholders for the unexpired term of such
vacancy.

In the discretion of the board of directors, the
number of directors may be increased by up to an additional five (5) directors.
Those additional directors may be elected or appointed by either the board of
directors or by the holders of USPB Class B units, although the majority of the
members of the board of directors will be elected by members holding USPB Class
A units.

Compensation of Directors

The board of directors meets from time to time at
such time and place as may be fixed by resolution adopted by a majority of the
whole board of directors. Members of the board of directors receive a per diem
payment of $250 for each activity on behalf of USPB, as well as direct
reimbursement of travel expenses related to service on the board of directors.

Manager
Compensation

We are not required to pay
additional remuneration to our managers for serving as such. There are no
family relationships among any of the managers or executive officers.

Audit
Committee

The board of managers has an
audit committee consisting of Messrs. Ryan, Giles, Laue and Nelson. Mr.
Giles is an "audit committee financial expert" within the meaning of the rules
and regulations of the Securities and Exchange Commission and has sufficient
background and experience in sophisticated financial and accounting matters
necessary to fulfill the duties and obligations of the audit committee.

Code of Ethics

USPB has adopted a corporate code
of ethics for its principal executive officer, principal financial officer and
principal accounting officer or controller within the meaning of the rules and
regulations of the Securities and Exchange Commission; that is, to deter
wrongdoing and promote honest and ethical conduct; provide full, fair,
accurate, timely and understandable disclosure in public reports; comply with
applicable laws; ensure prompt internal reporting of code violations; and
provide accountability for adherence to the code.  This code is enforced
throughout all levels of management.

51












TABLE_OF_CONTENTS

ITEM 11. EXECUTIVE COMPENSATION

The goal of USPB's executive compensation policy
is to ensure that an appropriate relationship exists between executive pay,
USPB's financial performance and the creation of unitholder value, while at the
same time motivating and retaining key employees. The base salaries for senior
management are reviewed periodically to determine if such salaries fall within
the range of those persons holding comparably responsible positions at other
companies. Individual salaries are also based upon an evaluation of other
factors, such as individual past performance, potential with USPB and level and
scope of responsibility. Those responsibilities include, among other
responsibilities, oversight of the activities of USPB's partially-owned entity,
NBP, as well as analysis of and negotiations regarding the pricing grid used to
establish the payments members USPB receive for their cattle. USPB believes
that the base salaries of the members of senior management as a whole are
comparable with the base salaries of other persons similarly situated.

USPB's relationship with NBP and the complexity
of USPB's obligations under its various contracts with NBP require USPB to
retain the services of key senior management personnel with the experience,
skill and expertise necessary to manage an enterprise competitive with other
sophisticated participants in the beef and meat industries. Each employee is compensated
through the payment of a base salary with eligibility for incentive bonuses. In
addition, each senior management employee is eligible to participate in
benefits programs maintained by USPB. These programs include group medical
insurance, disability and accidental death and dismemberment insurance,
retirement plan and similar programs.

Upon completion of the restructuring, the current
senior management of USPB will hold the comparable offices in the LLC on a
full-time basis. The following table shows the compensation paid by the
cooperative in the years indicated to its Chief Executive Officer (to be the
President and Chief Executive Officer of the LLC following the conversion) and
the three other individuals who were serving as senior executive officers of
the cooperative at the end of fiscal year 2003.

52




|Summary
  Compensation Table
|----------------------------
|                            
|Name and Principal Position 
|                            
|Steven D. Hunt              
|Chief Executive Officer     
|                            
|                            
|Stan Linville               
|Chief Operating Officer     
|                            
|                            
|Lyn Holtmann                
|Chief Reporting and         
|Compliance Officer          
|                            
|Danielle Imel               
|Treasurer                   
|                            
|                            
|                            
|(1)                         
|                            
|(2)                         
|                            
|(3)                         
|                            
|(4)                         
|                            
|(5)                         
|                            

53




Employment Agreements

USPB is party to an employment agreement with its
Chief Executive Officer, Steven D. Hunt. The agreement provides for
Mr. Hunt's employment for an initial period from September 1, 2003 through August 31, 2009. Under the agreement, USPB is to pay Mr. Hunt
an annual base salary of $550,000 for the years ending August 31, 2004, August 31, 2005, and August 31, 2006; and $700,000 for the years
ending August 31, 2007, August 31, 2008, and August 31, 2009. USPB shall, if Mr. Hunt is still employed by USPB as of the last day of
each fiscal year during the term of the agreement, pay an annual "incentive"
bonus equal to two percent (2.0%) of the sum of the total financial benefits to
the Company (USPB Total Benefits) that exceed $18,000,000. USPB Total Benefits
are: (1) audited fiscal year-end USPB earnings before tax; and
(2) two times the fiscal year USPB grid premiums which is the net sum of
all USPB member grid premiums and discounts calculated through the USPB grid,
taking into account all calculators including, but not limited to, base price,
dressing percent, quality grade, outlier cattle and other specific categories,
less the base price calculator excluding any set base price premium. In
addition to Mr. Hunt's base salary and annual incentive bonus, if
Mr. Hunt is employed by USPB as of August 31, 2006, and as of
August 31, 2009, he will be paid a "long-term incentive" bonus based on a
percentage of the amount that USPB Total Benefits exceed certain benchmarks, as
of August 31, 2006, and as of August 31, 2009, respectively.
Mr. Hunt is also entitled to a "full-term" bonus in the amount of $550,000
if he is employed by USPB through August 31, 2006, and additionally, $700,000 if he is employed through August 31, 2009. The agreement also vests phantom stock rights to 20,000 phantom shares with an exercise price of
$55 per share in Mr. Hunt. Mr. Hunt is entitled to receive paid
vacations, holidays and sick days; reimbursement of reasonable business
expenses and other fringe benefits under the USPB's group benefit plans. If USPB
terminates the agreement for cause or if Mr. Hunt terminates the agreement
for any or no reason, USPB needs only pay salary earned to the date of the
termination. If USPB terminates the agreement for any reason other than cause,
or if Mr. Hunt terminates the agreement for good reason, Mr. Hunt
shall be entitled to salary and benefits through August 31, 2009; the
annual incentive bonus for the year in which the termination occurs and each
subsequent year through August 31, 2009; the long-term incentive bonus
that would have accrued had Mr. Hunt been employed through August 31,
2009; and the payment on or before October 2, 2006 or 2009 of the
full-term bonuses that would have accrued if Mr. Hunt had remained
employed through August 31, 2006 or August 31, 2009, respectively.

The Company has established a savings plan for
certain qualifying employees. Under the plan, employees may contribute a
portion of their compensation to a vested account under the savings. The
employee's contribution is eligible for a matching contribution by the Company
for up to 4% of the employee's qualifying compensation.

54






TABLE_OF_CONTENTS

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table furnishes information, as of November 22 , 2004 regarding ownership of the LLC's Class A and Class B units by
each person known by us to beneficially own more than 5% of the LLC's issued
and outstanding units, each of the LLC's directors and senior management and all
of the LLC's directors and senior management as a group.

Beneficial Ownership ofClass A and Class B UnitsName
  
  
  Number(1)
  
  Percentage(2)Douglas A. Laue(3)
  
  
  
  95,000
  
  
  
  13.7314Terry Ryan(4)
  
  
  
  49,750
  
  
  
  7.1909John Fairleigh(5)
  
  
  
  52,288
  
  
  
  7.5578N. Terry Nelson(6)
  
  
  
  9,400
  
  
  
  1.3587Mark Gardiner(7)
  
  
  
  3,000
  
  
  
  0.4336John Adams(8)
  
  
  
  1,000
  
  
  
  0.1445Kelly K. Giles(9)
  
  
  
  200
  
  
  
  0.0289Steven D. Hunt
  
  
  
  -
  
  
  
  -Stan Linville
  
  
  
  -
  
  
  
  -Danielle Imel
  
  
  
  -
  
  
  
  -Lyn Holtmann
  
  
  
  -
  
  
  
  -Officers and Directors as a group (11 persons)(10)
  
  
  
  210,638
  
  
  
  30.4458


|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|---- | -------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | (1)                                                                                                | Each cooperative shareholder received one Class A
  unit and one Class B unit in the LLC for each share of cooperative
  common stock held prior to the conversion.                                                                                                                                                                                
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (2)                                                                                                | Represents the percentage of Class A units and the
  percentage of Class B units held by the named party.                                                                                                                                                                                                                                          
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (3)                                                                                                | Includes i) 90,000 Class A and Class B units
  held by Black Diamond Cattle Co., Inc., of which Mr. Laue is the owner
  and ii) 5,000 Class A and Class B units held by Black Diamond Custom
  Feeders, of which Mr. Laue is the owner.                                                                                                            
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (4)                                                                                                | Includes i) 43,500 Class A and Class B units
  held by Crown H Cattle Co., Inc., of which Mr. Ryan is the manager, and
  ii) 2,250  Class A and Class B units held by AELA Cattle Company,
  of which Mr. Ryan has sole voting and investment power. In each case,
  Mr. Ryan holds voting power with respect to the unitholder's LLC
  membership.
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (5)                                                                                                | Includes 52,288 Class A and Class B units held by
  Fairleigh Corporation, of which Mr. Fairleigh is an owner.                                                                                                                                                                                                                                     
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (6)                                                                                                | Includes 9,400 Class A and Class B units held by
  Nelson Farms, Inc., of which Mr. Nelson is an owner.                                                                                                                                                                                                                                            
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (7)                                                                                                | Includes 3,000 Class A and Class B units held by the
  Mark Gardiner Revocable Trust, over which Mr. Gardiner has sole voting
  and investment power.                                                                                                                                                                                              
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (8)                                                                                                | Includes 1,000 Class A and Class B units held by Adams
  Cattle Co., of which Mr. Adams is an owner.                                                                                                                                                                                                                                               
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    
|     | (9)                                                                                                | Includes 200 Class A and Class B units held by Giles
  Land Co., of which Mr. Giles is an owner.                                                                                                                                                                                                                                                   
|(10) | Reflects unit ownership by all seven directors and
  four members of senior management of the LLC.
|     |                                                                                                    |                                                                                                                                                                                                                                                                                                                                                    

55

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TABLE_OF_CONTENTS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Directors who are shareholders

All of the cooperative's directors hold
common stock of the cooperative and are also agricultural producers and
shareholders of the cooperative. By virtue of their shareholder status and
ownership of common stock, each of these individuals is obligated to deliver
cattle to the cooperative. The amount and terms of the payments received by
these individuals (or the entities they represent) for the delivery of cattle
are made on exactly the same basis as those received by other shareholders of
the cooperative for the delivery of their cattle.

Certain Arrangements in connection with the Acquisition

Simultaneous
with the Acquisition, all of the holders of NBP's membership interests entered
into a limited liability company agreement that provides for, among other
things, election of its board of managers, the powers of its board of managers
and its officers, approval rights for certain of its equity holders, restrictions
and rights related to the transfer, sale or purchase of its membership
interests, and preemptive and repurchase rights.

The
limited liability company agreement provides that NBPCo Holdings and the
members of management who hold membership interests in us have the right to
request that we purchase their membership interests under certain
circumstances.

Transactions with NBP

In December 1997, USPB entered into a
contract with FNB to deliver cattle annually to NBP  relative to: (i)  USPB's
ownership in NBP and (ii) the number of cattle processed annually by NBP.   All
sales of USPB are to NBP.  Sales to NBP for the fiscal year ended August 28, 2004 of $614.3 million and the related receivable balance at August 28, 2004 of $15.6 million were eliminated in consolidation.  During FYE 2004 we
provided approximately 18% of NBP's total cattle requirements.  The purchase
price for the cattle is determined by a pricing grid, which, under the terms of
our agreement with NBP, must be competitive with the formula pricing of our
competitors and may not be less favorable than formula pricing it offers to
other suppliers. Under the terms of the Acquisition, any new purchase
agreements and payment formulas with NBP must be consistent with the agreement
existing at the time of the Acquisition.

Transactions with Beef Products, Inc.

NBP entered into various transactions
with Beef Products, Inc., a company affiliated with NBPCo Holdings in the
ordinary course of business. Sales transactions were based upon prevailing market
prices, and purchases were on terms no less favorable to NBP than would be
obtained from an unaffiliated party. During the year ended August 28, 2004, the Company had aggregate sales of trim of $52.7 million and aggregate purchases of
processed lean beef of $16.7 million with Beef Products, Inc.

Aircraft Leases

In December 1998, FNB entered into
an aircraft lease agreement under which it leased a business jet aircraft from
John R. Miller Enterprises, LLC, a Utah limited liability company of which John
R. Miller, NBP's Chief Executive Officer, is the majority member. The term of
the lease is for five years and may be terminated by either John R. Miller
Enterprises, LLC or NBP on 90 days prior written notice. During the FYE August 28, 2004, NBP paid $0.2 million to lease the aircraft and $0.07 million into
an engine replacement reserve account. The funds in the reserve account are to
be used to finance new engines installed on the aircraft.  The lease terminated
on December 15, 2003 and was not renewed. This lease expired on December 15, 2003.  The Company still uses the aircraft on an as needed basis, with
payment based on the hours used, not to exceed the monthly lease payment we
paid while the lease was active.  There is no lease agreement in effect for
this aircraft.

56

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In March 2001, FNB entered into a
second aircraft lease agreement under which it leased an additional business
jet aircraft from John R. Miller Enterprises, LLC The term of the lease
automatically renews every 11 months unless either John R. Miller Enterprises,
LLC or NBP requests termination within 90 days of the end of the lease term.
During the FYE August 28, 2004, NBP paid $0.4 million to lease the
aircraft and $0.05 million into an engine replacement reserve account. The
funds in the reserve account are to be used to finance new engines installed on
the aircraft.

In October 2003, NBP
entered into an additional aircraft lease agreement under which it leases a
third business jet aircraft from John R. Miller Enterprises III, LLC, a Utah limited
liability company of which John R. Miller, NBP's Executive Officer, is the
beneficial owner.   The term of the lease is 81 months. This aircraft replaced
the aircraft leased in December 1998. The monthly lease payments will
range from $25,400 in the first year of the lease to $45,380 in the fourth year
of the lease and thereafter, and are adjusted quarterly based on the change in
the three month LIBOR interest rate.  During the FYE August 28, 2004, NBP paid $0.3 million to lease the aircraft and $0.08 million into an engine
replacement reserve account.  The funds in the reserve account are to be used
to finance new engines installed on the aircraft.

We believe that the terms of
these aircraft leases are at least as favorable to us as we could have obtained
from unaffiliated third parties.

NBP pays a rental fee and cleaning expenses to
Icky Investments, LLC, a limited liability company in which John R. Miller
holds a beneficial interest, on a condominium unit in Kansas City used by John
R. Miller. In FYE 2004 it paid $0.01 million under this arrangement.

NBP pays a per person fee for
lodging and meals to J. R. Miller Ranches, LLC, a limited liability company in
which John R. Miller holds a beneficial interest, for management meetings held
at John R. Miller's property in Montana. In FYE 2004 it paid $0.01 million
under this arrangement.

NBP pays office rent and parking
fees for office space in Salt Lake City, Utah to Wasatch Plaza Holdings, LLC, a
limited liability company in which John R. Miller holds an interest. In FYE
2004 it paid $0.04 million under this arrangement.

NBP reimburses JRM-C Management,
LLC, a limited liability company in which John R. Miller holds a beneficial
interest, for ordinary office expenses including office supplies, telephone
expenses and postage that are paid by this entity on John R. Miller's behalf.
In FYE 2004 it paid $0.02 million under this arrangement.

TABLE_OF_CONTENTS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

KPMG LLP, an independent
registered public accounting firm, served as our auditors for the fiscal years
ended August 28, 2004 and August 30, 2003.



Type of Service
  FYE 2004
  
  FYE 2003(amounts in
  thousands)Audit Fees
  $             271
  
  $            404Audit-Related Fees
  239
  
  17Tax Fees
  202
  
  141Total
  $             712
  
  $            562


57

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Audit Fees

Audit fees relate to the
audits of our consolidated financial statements including the audit of the
consolidated financial statements of NBP filed on Form 10-K and the reviews of
quarterly reports on Form 10-Q.

Audit-Related Fees

Audit-related fees primarily related to our
filings of Registration Statements on Form S-4 and NBP's Prospectus under Rule
424(b)(3) of the Securities Act of 1933 for our senior notes.

Tax Fees

Tax fees related to tax compliance, tax advice
and tax planning services.

All Other Fees

We did not pay any other type of fee and did not
receive any other services from KPMG LLP during the fiscal years ended August 28, 2004 and August 30, 2003.

Our audit committee appoints our independent
auditors.  The audit committee is solely and directly responsible for the
approval of the appointment, re-appointment, compensation and oversight of our
independent auditors.  The audit committee approves in advance all work to be
performed by the independent auditors.



PART IV

TABLE_OF_CONTENTS

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.

(a) Financial Statements and Financial Statement
Schedules

(1)The
consolidated financial statements filed as part of this report at Item 8 are
listed in the Index to the Consolidated Financial Statements on page F-1
contained herein.

(2)      The
financial statement schedule required to be filed by Item 8 of this report is set
forth in "Item 15(c) Financial Statement Schedules" contained herein.

(b) The following documents are filed or incorporated by
reference as exhibits to this report:

2.1                           Agreement and Plan of
Merger between U.S. Premium Beef, Ltd. and U.S. Premium Beef, Inc.
(incorporated herein by reference to Appendix A to voting materials-prospectus
contained in U.S. Premium Beef, Inc. Registration Statement on Form S-4 (File
No. 333-115164) filed with the SEC on August 5, 2004).

2.2                           Plan of Conversion
adopted by U.S. Premium Beef, Inc. (incorporated herein by reference to Appendix
B to the voting materials - prospectus contained in U.S. Premium Beef, Inc.
Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on
August 5, 2004).

3.1                           Certificate
of Formation of U.S. Premium Beef, LLC (incorporated herein by reference to
Appendix C to the voting materials - prospectus contained in U.S. Premium Beef,
Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with the
SEC on August 5, 2004).

58

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3.2                           Limited
Liability Agreement of U.S. Premium Beef, LLC (incorporated herein by reference
to Appendix D to the voting materials - prospectus contained in U.S. Premium
Beef, Inc. Registration Statement on Form S-4 (File No. 333-115164) filed with
the SEC on August 5, 2004).

3.3                           Limited
Liability Company Agreement of National Beef Packing Company, LLC, dated as of August 6, 2003. (incorporated herein by reference to Exhibit 3.1 to Registration Statement
on Form S-4 (File No. 333-111407) filed by National Beef Packing Company, LLC
with the SEC on December 19, 2003).

3.4                           Certificate
of Incorporation of NB Finance Corp.  (incorporated herein by reference to
Exhibit 3.2 to Registration Statement on Form S-4 (File No. 333-111407) filed
by National Beef Packing Company, LLC with the SEC on December 19, 2003).

3.5                           Bylaws of NB Finance
Corp.  (incorporated herein by reference to Exhibit 3.3 to Registration
Statement on Form S-4 (File No. 333-111407) filed by National Beef Packing
Company, LLC with the SEC on December 19, 2003).

4.1                           Indenture dated as of August 6, 2003 by and among National Beef Packing Company, L.P., NB Finance Corp and U.S.
Bank National Association.  (incorporated herein by reference to Exhibit 4.1 to
Registration Statement on Form S-4 (File No. 333-111407) filed by National Beef
Packing Company, LLC with the SEC on December 19, 2003).

4.2                           Form of Series B Senior Note
due 2011 (incorporated herein by reference to Exhibit 4.2 to Registration
Statement on Form S-4 (File No. 333-111407) filed by National Beef Packing
Company, LLC with the SEC on December 19, 2003).

4.3                           Registration Rights Agreement
dated as of August 6, 2003 by and among National Beef Packing Company, L.P., NB
Finance Corp., Deutsche Bank Securities Inc., U.S. Bancorp Piper Jaffray Inc.
and Rabo Securities USA, Inc.  (incorporated herein by reference to Exhibit 4.3
to Registration Statement on Form S-4 (File No. 333-111407) filed by National
Beef Packing Company, LLC with the SEC on December 19, 2003).

10.1                         Cattle Purchase and Sale
Agreement dated as of December 1, 1997 by and among Farmland National Beef
Packing Company, L.P. and U.S. Premium Beef, Ltd. (incorporated herein by
reference to Exhibit 4.3 to Registration Statement on Form S-4 (File No.
333-111407) filed by National Beef Packing Company, LLC with the SEC on
December 19, 2003).

10.2                         Form of Uniform Delivery
and Marketing Agreement - Even Slots (incorporated herein by reference to
Exhibit 10.2 to U.S. Premium Beef Registration Statement on Form S-4 (File No.
333-115164) filed with the SEC on August 5, 2004)

10.3                         Form of Uniform Delivery
and Marketing Agreement - Odd Slots (incorporated herein by reference to
Exhibit 10.3 to U.S. Premium Beef Registration Statement on Form S-4 (File No.
333-115164) filed with the SEC on August 5, 2004).

10.4                         Office Lease by and
between HDP - Kansas City, LLC and U.S. Premium Beef, Ltd.  (incorporated
herein by reference to Exhibit 10.5 to U.S. Premium Beef Registration Statement
on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).

10.5                         * U.S. Premium Beef, Ltd.
Management Incentive Plan (incorporated herein by reference to Exhibit 10.8 to
U.S. Premium Beef Registration Statement on Form S-4 (File No. 333-115164)
filed with the SEC on August 5, 2004).

59

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10.6                         Fifth Amendment to Credit
Agreement, dated September 30, 2004, by and among U.S. Premium Beef, Ltd. and
CoBank, ACB, as agent for the benefit of the syndication parties.  (filed
herewith)

10.7                         Fourth Amendment to
Credit Agreement, dated August 6, 2003, by and among U.S. Premium Beef, Ltd.
and CoBank, ACB, as agent for the benefit of the syndication parties.
(incorporated herein by reference to Exhibit 10.9 to U.S. Premium Beef
Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).

10.8                         Third Amendment to Credit
Agreement, dated August 29, 2002, by and among U.S. Premium Beef, Ltd. and
CoBank, ACB, as agent for the benefit of the syndication parties  (incorporated
herein by reference to Exhibit 10.10 to U.S. Premium Beef Registration
Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5,
2004).

10.9                         Second Amendment to
Credit Agreement, dated August24, 2001, by and among U.S. Premium Beef, Ltd.
and CoBank, ACB, as agent for the benefit of the syndication parties
(incorporated herein by reference to Exhibit 10.11 to U.S. Premium Beef
Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on
August 5, 2004).

10.10                       First Amendment to Credit
Agreement, dated February 25, 2000, by and among U.S. Premium Beef, Ltd. and
CoBank, ACB, for its own benefit as a lender and as agent for the benefit of
the syndication parties (incorporated herein by reference to Exhibit 10.12 to
U.S. Premium Beef Registration Statement on Form S-4 (File No. 333-115164)
filed with the SEC on August 5, 2004).

10.11                       Credit Agreement, dated
November 25, 1997, by and among U.S. Premium Beef, Ltd. and CoBank, ACB, for
its own benefit as a lender and as agent for the benefit of the syndication
parties (incorporated herein by reference to Exhibit 10.13 to U.S. Premium Beef
Registration Statement on Form S-4 (File No. 333-115164) filed with the SEC on
August 5, 2004).

10.12                       *CEO Employment Agreement
by and between Steven D. Hunt and U.S. Premium Beef, LLC adopted September 1,
2004 (incorporated herein by reference to Exhibit 10.14 to U.S. Premium Beef Registration
Statement on Form S-4 (File No. 333-115164) filed with the SEC on August 5,
2004).

10.13                       Purchase Agreement dated July 31, 2003 by and among NB Acquisition, LLC, National Beef Packing Company, L.P., NB
Finance Corp., Deutsche Bank Securities Inc., U.S. Bancorp Piper Jaffray Inc.
and Rabo Securities USA, Inc.  (incorporated herein by reference to Exhibit
10.1 to Registration Statement on Form S-4 (File No. 333-111407) filed by
National Beef Packing Company, LLC with the SEC on December 19, 2003).

10.14*                     Employment Agreement dated
as of August 6, 2003 by and between National Beef Packing Company, LLC and John
R. Miller (incorporated herein by reference to Exhibit 10.2 to Registration
Statement on Form S-4 (File No. 333-111407) filed by National Beef Packing
Company, LLC with the SEC on December 19, 2003).

10.15*                     Deferred
Equity Incentive Compensation Agreement dated August 6, 2003 by and between
National Beef Packing Company, LLC and John R. Miller (incorporated herein by
reference to Exhibit 10.3 to Registration Statement on Form S-4 (File No.
333-111407) filed by National Beef Packing Company, LLC with the SEC on
December 19, 2003).

10.16*                     Employment
Agreement dated as of August 6, 2003 by and between National Beef Packing
Company, LLC and Timothy M. Klein (incorporated herein by reference to Exhibit
10.4 to Registration Statement on Form S-4 (File No. 333-111407) filed by
National Beef Packing Company, LLC with the SEC on December 19, 2003).

60

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10.17*                     Deferred
Equity Incentive Compensation Agreement dated August 6, 2003 by and between
National Beef Packing Company, LLC and Timothy M. Klein (incorporated herein by
reference to Exhibit 10.5 to Registration Statement on Form S-4 (File No.
333-111407) filed by National Beef Packing Company, LLC with the SEC on
December 19, 2003).

10.18                       Third
Amended and Restated Credit Agreement, dated as of August 6, 2003 (the "Credit
Agreement"), by and among Farmland National Beef Packing Company, L.P., CoBank,
ACB, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International," New York Branch, Farm Credit Services of Minnesota Valley, PCA,
dba FCS  Commercial Finance Group, Agfirst Farm Credit Bank, Amarillo
National Bank, Farm Credit Bank of Wichita, dba U.S. Agbank, F.C.B., Farm
Credit Services of America, PCA, First National Bank of Omaha, ING Capital LLC
and U.S. Bank National Association (incorporated herein by reference to Exhibit
10.6 to Registration Statement on Form S-4 (File No. 333-111407) filed by
National Beef Packing Company, LLC with the SEC on December 19, 2003).

10.19                       First
Amendment dated as of January 28, 2004 to the Credit Agreement (incorporated
herein by reference to the Quarterly Report on Form 10-Q for the quarter ended
February 28, 2004, filed by National Beef Packing Company, LLC with the SEC on
April 13, 2004).

10.20                       Second
Amendment dated as of August 2, 2004 to the Credit Agreement (incorporated
herein by reference to Exhibit 10.4(c) the Annual Report on Form 10-K for the
fiscal year ended August 28, 2004, filed by National Beef Packing Company, LLC
with the SEC on November 22, 2004).

10.21                       Waiver
and Consent dated as of October 6, 2004 to the Credit Agreement (incorporated
herein by reference to Exhibit 10.4(d) to the Annual Report on Form 10-K for
the fiscal year ended August 28, 2004, filed by National Beef Packing Company,
LLC with the SEC on November 22, 2004).

10.22                       Third
Amendment dated as of November 19, 2004 to the Credit Agreement (incorporated
herein by reference to Exhibit 10.4(e) to the Annual Report on Form 10-K for
the fiscal year ended August 28, 2004, filed by National Beef Packing Company,
LLC with the SEC on November 22, 2004).

10.23                       Lease
Agreement dated as of February 1, 1999 between City of Dodge City, Kansas and
Farmland National Beef Packing Company, L.P. securing $1,000,000 City of Dodge
City, Kansas Industrial Development Revenue Bonds (Farmland National Beef
Packing Company, L.P. Project), Series 1999 (incorporated herein by reference
to Exhibit 10.8 to Registration Statement on Form S-4 (File No. 333-111407)
filed  by National Beef Packing Company, LLC with the SEC on December 19,
2003).

10.24                       Indenture
of Trust dated as of February 1, 1999 between City of Dodge City, Kansas and
Commerce Bank, N.A., as trustee, securing $1,000,000 City of Dodge City, Kansas
Industrial Development Revenue Bonds (Farmland National Beef Packing Company,
L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.9 to
Registration Statement on Form S-4 (File No. 333-111407) filed by National Beef
Packing Company, LLC with the SEC on December 19, 2003).

61

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10.25                       Amended
and Restated Lease Agreement dated as of January 1, 1999 between City of
Liberal, Kansas and Farmland National Beef Packing Company, L.P. securing
$1,000,000 City of Liberal, Kansas Industrial Development Revenue Bonds
(Farmland National Beef Packing Company, L.P. Project), Series 1999
(incorporated herein by reference to Exhibit 10.10 to Registration Statement on
Form S-4 (File No. 333-111407) filed by National Beef Packing Company, LLC with
the SEC on December 19, 2003).

10.26                       Indenture
of Trust dated as of January 1, 1999 between City of Liberal, Kansas and
Commerce Bank, N.A., as trustee, securing $1,000,000 City of Liberal, Kansas
Industrial Development Revenue Bonds (Farmland National Beef Packing Company,
L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.11
to Registration Statement on Form S-4 (File No. 333-111407) filed by National
Beef Packing Company, LLC with the SEC on December 19, 2003).

10.27                       Lease
Agreement dated as of March 1, 2000 between City of Dodge City, Kansas and
Farmland National Beef Packing Company, L.P. securing $6,000,000 City of Dodge
City, Kansas Industrial Development Revenue Bonds (Farmland National Beef
Packing Company, L.P. Project), Series 2000 (incorporated herein by reference
to Exhibit 10.12 to Registration Statement on Form S-4 (File No. 333-111407)
filed by National Beef Packing Company, LLC with the SEC on December 19, 2003).

10.28                       Indenture
of Trust dated as of  March 1, 2000 between City of Dodge City, Kansas and
Commerce Bank, N.A., as trustee, securing $6,000,000 City of Dodge City, Kansas
Industrial Development Revenue Bonds (Farmland National Beef Packing Company,
L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.13
to Registration Statement on Form S-4 (File No. 333-111407) filed by National
Beef Packing Company, LLC with the SEC on December 19, 2003).

10.29                       Lease
Agreement dated as of March 1, 2000 between City of Liberal, Kansas and
Farmland National Beef Packing Company, L.P. securing  $5,850,000 City of
Liberal, Kansas Industrial Development Revenue Bonds (Farmland National Beef
Packing Company, L.P. Project), Series 2000 (incorporated herein by reference
to Exhibit 10.14 to Registration Statement on Form S-4 (File No. 333-111407)
filed by National Beef Packing Company, LLC with the SEC on December 19, 2003).

10.30                       Indenture
of Trust dated as of March 1, 2000 between City of Liberal, Kansas and Commerce
Bank, N.A., as trustee, securing  $5,850,000 City of Liberal, Kansas
Industrial Development Revenue Bonds (Farmland National Beef Packing Company,
L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.15
to Registration Statement on Form S-4 (File No. 333-111407) filed by National
Beef Packing Company, LLC with the SEC on December 19, 2003).

10.31                       Aircraft
Lease dated March 2, 2001 by and among John R. Miller Enterprises, L.L.C. and
Farmland National Beef Packing Company, L.P.  (incorporated herein by reference
to Exhibit 10.16 to Registration Statement on Form S-4 (File No. 333-111407)
filed by National Beef Packing Company, LLC with the SEC on December 19, 2003).

10.32                       Aircraft
Lease dated December 15, 1998 by and among John R. Miller Enterprises, L.L.C.
and Farmland National Beef Packing Company, L.P.  (incorporated herein by
reference to Exhibit 10.17 to Registration Statement on Form S-4 (File No.
333-111407) filed by National Beef Packing Company, LLC with the SEC on
December 19, 2003).

10.33                       Lease
Amendment Number One, dated January 4, 1999, to Aircraft Lease dated December 15, 1998 by and among John R. Miller Enterprises, L.L.C. and Farmland National
Beef Packing Company, L.P.  (incorporated herein by reference to Exhibit 10.18
to Registration Statement on Form S-4 (File No. 333-111407) filed by National
Beef Packing Company, LLC with the SEC on December 19, 2003).

10.34                       Agreement
dated December 22, 2003 by and between National Beef and United Food and
Commercial Workers International Union, AFL-CIO-CK, UFCW District Local Two
(incorporated herein by reference to Exhibit 10.25 to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-111407) filed by National Beef
Packing Company, LLC with the SEC on February 11, 2004).

62

---

10.35                       Lease
agreement dated as of January 16, 2001 between Joint Development Authority of
Brooks, Colquitt, Grady, Mitchell and Thomas counties and Farmland National
Beef Company (incorporated herein by reference to Exhibit 10.20 to Registration
Statement on Form S-4 (File No. 333-111407) filed by National Beef Packing
Company, LLC with the SEC on December 19, 2003).

10.36                       Aircraft
Lease dated October 15, 2003 by and among John R. Miller Enterprises III, LLC
and National Beef Packing Company, LLC.  (incorporated herein by reference to
Exhibit 10.22 to Registration Statement on Form S-4 (File No. 333-111407) filed
by National Beef Packing Company, LLC with the SEC on December 19, 2003).

10.37*                     National
Beef Packing Company, LLC Management Incentive Program (incorporated herein by
reference to Exhibit 10.23 to Registration Statement on Form S-4 (File No.
333-111407) filed by National Beef Packing Company, LLC with the SEC on
December 19, 2003).

10.38*                     National
Beef Packing Company, LLC Management Long Term Incentive Plan (incorporated
herein by reference to Exhibit 10.24 to Registration Statement on Form S-4
(File No. 333-111407) filed by National Beef Packing Company, LLC with the SEC
on December 19, 2003).

21.1                         Subsidiaries
of U.S. Premium Beef, LLC (incorporated herein by reference to Exhibit 21.1 to
U.S. Premium Beef, Inc. Registration Statement on Form S-4 (File No.
333-115164) filed with the SEC on August 5, 2004).

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

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

32.1                         Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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

_____________

*  Management
contract or compensatory plan or arrangement.

(c) Financial Statement Schedules:

The
following table represents the rollforward of the allowance for returns and
doubtful accounts for the fiscal year ended August 28, 2004, the 24 days ended August 30, 2003, the 340 days ended August 6, 2003 and the fiscal year ended  August 31, 2002.

63

---

U.S. Premium Beef, Ltd.

Doubtful
Accounts/Claims Rollforward

|                |  |                  |  |             |  |            |  |             |     |  |               | 
|--------------- |  | ---------------- |  | ----------- |  | ---------- |  | ----------- | --- |  | ------------- | 
|Period Ending   |  | BeginningBalance |  | Provision   |  | Charge Off |  | Other       |     |  | EndingBalance | 
|                |  |                  |  |             |  |            |  |             |     |  |               | 
|August 28, 2004 |  | (5,133,549)      |  | (3,609,812) |  | 3,129,816  |  | -           |     |  | (5,613,545)   | 
|August 30, 2003 |  |                  |  | (296,768)   |  | 216,256    |  | (5,053,037) | (1) |  | (5,133,549)   | 
|August 31, 2002 |  | -                |  | -           |  | -          |  | -           |     |  | -             | 

|(1) | Represents the acquisition of Farmland National Beef Packing
  Company, L.P.
|--- | ----------------------------------------------------------------------------

64

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE

The Board of Directors and Stockholders

U.S. Premium Beef, LLC:

Under date of November 22, 2004, we reported on the consolidated balance sheets of U.S. Premium Beef, Ltd. and subsidiaries as of August 28, 2004 and August 30, 2003, and the related consolidated statements of
operations, comprehensive income, capital shares and equities and cash flows
for each of the years in the three year period ended August 28, 2004. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in the Form 10-K. The consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this consolidated financial statement schedule based on our audits.

In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

The audit report on the consolidated financial statements of
U.S. Premium Beef, Ltd. and subsidiaries referred to above contains an explanatory
paragraph that states that as discussed in Note 2 to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, on September 1, 2002.

KPMG LLP

Kansas City, Missouri
November 22, 2004

65

---

SIGNATURES



Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

U.S. Premium
Beef, Ltd.

By: /s/ Steven D. Hunt

Name: Steven D.
HuntChief
Executive Officer and Manager
(Principal
Executive Officer)

Date: November 22, 2004

* * * *

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacity and on the dates
indicated.

Signature
  Title
  Date/s/ Steven D. Hunt
  Steven D. Hunt
  Chief Executive Officer and Manager
	(Principal Executive Officer)
  November 22   , 2004/s/ Lyn Holtmann
  Lyn Holtmann
  Chief Financial and
	Reporting Officer
	(Principal Financial and Accounting Officer)
  November 22, 2004Terry Ryan
  Chairman of the Board of Managers
  November 22   , 2004/s/ Mark Gardiner
  Mark Gardiner
  Vice Chairman of the Board
  November 22   , 2004/s/ John Farleigh
  John Fairleigh
  Secretary/Treasurer of the Board
  November 22   , 2004/s/ John Adams
  John Adams
  Director
  November 22   , 2004/s/ Kelly K. Giles
  Kelly K. Giles
  Director
  November 22   , 2004/s/ Douglas A. Laue
  Douglas A. Laue
  Director
  November 22   , 2004/s/ Terry Nelson
  Terry Nelson
  Director
  November 22   , 2004


66

---



U.S. PREMIUM BEEF, LTD.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

Audited Consolidated
  Financial Statements:Report of Independent Registered Public
  Accounting Firm
  link 1Consolidated Balance Sheets at August 28, 2004 and August 30, 2003
  link
	2Consolidated Statements of Operations for the years
  ended August 28, 2004, August 30, 2003 and August 31, 2002
  link 3Consolidated Statements of Comprehensive Income for
  the years ended August 28, 2004, August 30, 2003 and August 31, 2002
  link 4Consolidated Statements of Capital Shares and Equities
  for the years ended August 28, 2004, August 30, 2003 and August 31, 2002
  link
	5Consolidated Statements of Cash Flows for the years
  ended August 28, 2004, August 30, 2003 and August 31, 2002
  link 6Notes to Consolidated Financial Statements
  link 7National Beef Packing
  Company, LLC and Subsidiaries Audited Consolidated Financial Statements
  link 8


---





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and
Shareholders
U.S. Premium Beef, LLC:

We have audited the accompanying consolidated balance sheets
of U.S. Premium Beef, Ltd. and subsidiaries (the Company) as of August 28, 2004 and August 30, 2003, and the related consolidated statements of
operations, comprehensive income, capital shares and equities, and cash flows
for each of the years in the three-year period ended August 28, 2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of U.S. Premium Beef, Ltd. and subsidiaries as of August 28, 2004 and
August 30, 2003, and the results of their operations and their cash flows
for each of the years in the three-year period ended August 28, 2004, in conformity
with U.S. generally accepted accounting principles.

As discussed in note 2 to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, on September 1, 2002.

KPMG LLP

Kansas City, Missouri
 November 22, 2004

---

U.S. PREMIUM BEEF, LTD. AND SUBSIDIARIESConsolidated Balance SheetsAugust 28, 2004 and August 30, 2003(in thousands)Assets
  
  2004
  
  2003Current assets:Cash and cash equivalents
  $
  43,611
  
  42,228Accounts receivable, less
  allowance for returns and doubtfulaccounts of $5,614 and
  $5,134 in 2004 and 2003, respectively
  
  185,000
  
  160,765Inventory
  
  
  85,962
  
  77,587Deposits
  
  
  
  1,192
  
  20,768Other current assets
  
  9,590
  
  9,932Total current assets
  
  
  
  
  325,355
  
  311,280Property, plant, and
  equipment, net
  
  222,059
  
  210,607Goodwill
  
  
  
  
  78,858
  
  78,858Other intangible assets, net
  of accumulated amortization of $1,722and $196 in 2004 and 2003,
  respectively
  
  30,039
  
  31,565Other assets
  
  
  
  7,446
  
  8,900Total assets
  
  
  
  $
  663,757
  
  641,210Liabilities and Capital Shares and EquitiesCurrent liabilities:Accounts payable
  $
  51,854
  
  43,867Patronage refunds payable in
  cash
  
  847
  
  8,370Cattle purchases payable
  
  37,586
  
  41,546Accrued compensation and
  benefits
  
  13,793
  
  23,890Accrued insurance
  
  13,903
  
  16,639Current installments of
  long-term debt
  
  10,483
  
  7,614Distributions payable
  
  2,296
  
  14,629Other accrued expenses and
  liabilities
  
  14,725
  
  15,809Total current
  liabilities
  
  
  
  
  145,487
  
  172,364Long-term liabilities:Long-term debt, excluding
  current installments
  
  331,812
  
  312,688Interest rate exchange
  agreement
  
  105
  
  479Other
  
  
  
  
  5,237
  
  3,311Total long-term liabilities
  
  
  
  
  337,154
  
  316,478Total liabilities
  
  
  
  
  482,641
  
  488,842Minority interest in
  National Beef Packing Co. and Kansas City Steak, LLC
  
  63,108
  
  53,963Capital shares and equities:Common stock, $0.01 par
  value; authorized 5,000,000 shares, 691,845 sharesissued and outstanding
  
  7
  
  7Members' contributed capital
  
  39,531
  
  39,504Nondelivery fee
  
  1,330
  
  -Patronage refunds for
  reinvestment
  
  50,752
  
  49,480Unallocated equity
  
  26,375
  
  9,159Accumulated other
  comprehensive income:Cash flow hedge for interest
  rate exchange agreement
  
  -
  
  256Foreign currency translation
  adjustment
  
  13
  
  (1)Total capital shares and
  equities
  
  
  
  118,008
  
  98,405Total liabilities and
  capital shares and equities
  
  
  $
  663,757
  
  641,210See accompanying notes to
  consolidated financial statements.


---



|U.S. PREMIUM BEEF, LTD. AND
  SUBSIDIARIES                      
|----------------------------------------------------------------
|Consolidated Statements of Operations                           
|Years ended August 28, 2004, August 30, 2003 and August 31, 2002
|(in thousands)                                                  
|                                                                
|Net sales                                                       
|Costs and expenses:                                             
|                                                                
|                                                                
|                                                                
|                                                                
|Other income (expense):                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Income tax (expense) benefit                                    
|                                                                
|See accompanying notes to consolidated financial
  statements.  
|Consolidated Statements of Comprehensive
  Income               
|Years ended August 28, 2004, August 30, 2003 and August 31, 2002
|(in thousands)                                                  
|                                                                
|Net income                                                      
|Other comprehensive income:                                     
|                                                                
|                                                                
|                                                                
|                                                                
|See accompanying notes to
  consolidated financial statements.  
|                                                                

U.S. PREMIUM BEEF, LTD. AND SUBSIDIARIESConsolidated Statements of Capital Shares and
  EquitiesYears ended August 28, 2004, August 30, 2003   and August 31, 2002(in thousands)AccumulatedMembers'
  
  
  
  
  
  Patronage
  
  
  
  other
  
  Total capitalCommon
  
  contributed
  
  Unit
  
  Nondelivery
  
  refunds for
  
  Unallocated
  
  comprehensive
  
  shares andstock
  
  capital
  
  retainage
  
  fee
  
  reinvestment
  
  equity
  
  income
  
  equitiesBalance at August 25, 2001
  $
  7
  
  39,380
  
  5,416
  
  6
  
  29,874
  
  1,851
  
  -
  
  76,534Collection of membership
  fees
  
  -
  
  88
  
  -
  
  -
  
  -
  
  -
  
  -
  
  88Accumulation of unit
  retainage
  
  -
  
  -
  
  435
  
  -
  
  -
  
  -
  
  -
  
  435Collection of nondelivery
  fee
  
  -
  
  -
  
  -
  
  165
  
  -
  
  -
  
  -
  
  165Allocation of net income for
  the year endedAugust 31, 2002
  
  -
  
  -
  
  -
  
  -
  
  11,754
  
  4,002
  
  -
  
  15,756Unit retainage payable in
  cash transferred tocurrent liabilities
  
  -
  
  -
  
  (5,851)
  
  -
  
  -
  
  -
  
  -
  
  (5,851)Nondelivery fee payable in
  cash transferred tocurrent liabilities
  
  -
  
  -
  
  -
  
  (6)
  
  -
  
  -
  
  -
  
  (6)Patronage refunds payable in
  cash transferredto current liabilities
  
  -
  
  -
  
  -
  
  -
  
  (4,702)
  
  -
  
  -
  
  (4,702)Balance at August 31, 2002
  
  7
  
  39,468
  
  -
  
  165
  
  36,926
  
  5,853
  
  -
  
  82,419Collection of membership
  fees
  
  -
  
  36
  
  -
  
  -
  
  -
  
  -
  
  -
  
  36Change in fair value of cash
  flow hedge for interest
  
  -
  
  -
  
  -
  
  -
  
  -
  
  -
  
  256
  
  256rate exchange agreementForeign currency translation
  adjustment
  
  -
  
  -
  
  -
  
  -
  
  -
  
  -
  
  (1)
  
  (1)Allocation of net income for
  the year endedAugust 30, 2003
  
  -
  
  -
  
  -
  
  -
  
  20,924
  
  3,306
  
  -
  
  24,230Nondelivery fee payable in
  cash transferred tocurrent liabilities
  
  -
  
  -
  
  -
  
  (165)
  
  -
  
  -
  
  -
  
  (165)Patronage refunds payable in
  cash transferredto current liabilities
  
  -
  
  -
  
  -
  
  -
  
  (8,370)
  
  -
  
  -
  
  (8,370)Balance August 30, 2003
  
  7
  
  39,504
  
  -
  
  -
  
  49,480
  
  9,159
  
  255
  
  98,405Collection of membership
  fees
  
  -
  
  27
  
  -
  
  -
  
  -
  
  -
  
  -
  
  27Change in fair value of cash
  flow hedge for interest
  
  -
  
  -
  
  -
  
  -
  
  -
  
  -
  
  (256)
  
  (256)rate exchange agreementForeign currency translation
  adjustment
  
  -
  
  -
  
  -
  
  -
  
  -
  
  -
  
  14
  
  14Assesssment of nondelivery fee
  
  -
  
  -
  
  -
  
  1,330
  
  -
  
  -
  
  -
  
  1,330Allocation of net income for
  the year endedAugust 28, 2004
  
  -
  
  -
  
  -
  
  -
  
  2,119
  
  16,977
  
  -
  
  19,096Adjustment to fair value of
  minority interest
  
  -
  
  -
  
  -
  
  -
  
  -
  
  239
  
  -
  
  239Patronage refunds payable in
  cash transferredto current liabilities
  
  -
  
  -
  
  -
  
  -
  
  (847)
  
  -
  
  -
  
  (847)Balance August 28, 2004
  $
  7
  
  39,531
  
  -
  
  1,330
  
  50,752
  
  26,375
  
  13
  
  118,008See accompanying notes to
  consolidated financial statements.


U.S. PREMIUM BEEF, LTD. AND SUBSIDIARIESConsolidated Statements of Cash FlowsYears ended August 28, 2004, August 30, 2003 and August 31, 2002(in thousands)2004
  
  2003
  
  2002Cash flows from operating
  activities:Net income
  
  $
  19,096
  
  24,230
  
  15,756Adjustments to reconcile net
  income to net cash providedby operating activities:Depreciation and
  amortization
  
  21,215
  
  2,106
  
  45Loss on disposal of
  property, plant, and equipment
  
  42
  
  598
  
  -Equity in earnings of
  National Beef PackingCo./Farmland National Beef
  
  -
  
  (22,586)
  
  (20,330)Distributions from National
  Beef PackingCo./Farmland National Beef
  
  -
  
  9,257
  
  41,621Minority interest
  
  19,631
  
  4,874
  
  -Interest rate exchange
  agreement
  
  (630)
  
  -
  
  570Changes in assets and
  liabilities (net of acquisition):Accounts receivable
  
  (24,235)
  
  (6,371)
  
  1,690Inventory
  
  (8,375)
  
  (3,781)
  
  -Other assets
  
  21,372
  
  (305)
  
  78Accounts payable
  
  2,009
  
  (2,276)
  
  (35)Accrued compensation and
  benefits
  
  (10,097)
  
  (1,659)
  
  1,269Accrued insurance
  
  (2,736)
  
  4,468
  
  -Other accrued liabilities
  
  1,225
  
  6,867
  
  (475)Cattle purchases payable
  
  (3,922)
  
  3,769
  
  (212)Net cash provided by
  operating activities
  
  34,595
  
  19,191
  
  39,977Cash flows used in investing
  activities:Capital expenditures,
  including interest capitalized
  
  (32,484)
  
  (1,707)
  
  (48)Acquisition of National Beef
  Packing Co., net of cash acquired
  
  -
  
  (226,445)
  
  -Proceeds from sale of
  property, plant, and equipment
  
  1,301
  
  226
  
  -Net cash used in investing
  activities
  
  (31,183)
  
  (227,926)
  
  (48)Cash flows from financing
  activities:Proceeds from membership and
  registration fees
  
  27
  
  36
  
  88Proceeds from unit retainage
  
  -
  
  -
  
  435Proceeds from nondelivery
  fees
  
  1,330
  
  -
  
  165Net receipts under revolving
  credit lines
  
  29,249
  
  12,375
  
  -Proceeds from issuance of
  term note
  
  -
  
  21,875
  
  -Proceeds from issuance of
  senior notes
  
  -
  
  160,000
  
  -Payments of notes payable
  and fees
  
  (7,256)
  
  (929)
  
  (22,636)Payments of patronage
  refunds
  
  (8,370)
  
  (4,702)
  
  (6,741)Payments of unit retainage
  
  -
  
  -
  
  (8,081)Payments of nondelivery fees
  
  -
  
  (165)
  
  (21)Cash paid for financing
  costs
  
  -
  
  (10,283)
  
  -Change in overdraft balances
  
  5,556
  
  10,690
  
  (1,340)Member contributions
  
  -
  
  45,964
  
  -Partnership distributions
  
  (22,579)
  
  -
  
  -Net cash (used in) provided
  by financing activities
  
  (2,043)
  
  234,861
  
  (38,131)Effect of exchange rate
  changes on cash
  
  14
  
  (1)
  
  -Net increase in cash
  
  1,383
  
  26,125
  
  1,798Cash and cash equivalents at
  beginning of period
  
  42,228
  
  16,103
  
  14,305Cash and cash equivalents at
  end of period
  $
  43,611
  
  42,228
  
  16,103Supplemental disclosures:Cash paid during the period
  for interest
  $
  23,462
  
  1,037
  
  963Cash paid (received) during
  the period for taxes, net of refunds
  
  608
  
  (73)
  
  -See accompanying notes to
  consolidated financial statements.


U.S. PREMIUM BEEF, LTD. AND SUBSIDIARIESNotes to Consolidated
	Financial StatementsAugust 28, 2004, August 30, 2003 and August 31, 2002


(1)      Description of
Business and the Acquisition

U.S. Premium Beef, Ltd.
(USPB) was formed as a closed marketing cooperative on July 1, 1996. Its mission is to increase the quality of beef and long‐term profitability of
cattle producers by creating a fully integrated producer‐owned beef
processing system that is a global supplier of high quality, value added beef
products responsive to consumer desires.

On December 1, 1997, USPB became operational by acquiring 25.4966% of Farmland National Beef Packing
Co., L.P. (FNB), a partnership owned by USPB and Farmland Industries, Inc.
(Farmland). USPB acquired an additional 3.29% partnership interest in
February 1998, bringing its ownership to 28.7866% of FNB. Farmland then
owned the remaining 71.2134%.

On May 31, 2002, Farmland and four of its subsidiaries filed voluntary petitions to reorganize under
Chapter 11 of the United States Bankruptcy Code. FNB was not a party of these
filings. Provisions of FNB's Operating Agreement and its financing agreement
restricted partners' access to FNB's assets. In the fourth quarter of fiscal
2003, as a result of the acquisition of Farmland's interest by USPB and others,
as more fully described below, USPB acquired a controlling interest in the
former FNB, now National Beef Packing Company, LLC (NBP), and the assets,
liabilities, and operating results of NBP are consolidated with those of USPB
effective August 7, 2003. Prior to the acquisition date, USPB accounted for its
noncontrolling interest in FNB under the equity method.

On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the merger of the
cooperative into a wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation.  The merger was effective on August 29, 2004. The Delaware corporation then, in a statutory conversion authorized under Delaware law,
converted into a Delaware limited liability company (see note 11(g)).
 Following the effective date of the merger and the statutory conversion,
the business of the cooperative will be continued in the limited liability
company form of business organization.

NBP sells its meat products to
customers in the foodservice, international, further processor, and retail
distribution channels. NBP also produces and sells by‐products that are
derived from its meat processing operations and variety meats to customers in
various industries.

NBP operates beef slaughter
and fabrication facilities in Liberal and Dodge City, Kansas, case‐ready
beef and pork processing facilities in Hummels Wharf, Pennsylvania and Moultrie, Georgia, and holds a 76.9% interest in Kansas City Steak Company, LLC, a portion
control processing facility in Kansas City, Kansas. NBP's wholly-owned
subsidiary, National Carriers, Inc., located in Liberal, Kansas, provides
trucking services to NBP and third parties.

In connection with its initial
acquisition of its interest in FNB, USPB obtained the right, and became subject
to the obligation to deliver cattle annually to NBP relative to: (i) 
USPB's ownership in NBP and (ii) the number of cattle processed annually by
NBP. This agreement remains in effect with NBP. The price received for cattle
is based upon a price grid determined by USPB and NBP, which reflects current
market conditions. The Cattle Purchase Agreement is effective as long as USPB
is a partner in NBP. Cattle delivered by USPB, which approximated 18.4% of
NBP's total cattle processed in fiscal 2004, are processed in NBP's two
processing facilities.

USPB acquires all its cattle
requirements from its members under Uniform Delivery and Marketing Agreements.
Members are obligated to deliver a designated number of cattle to USPB during
specified delivery periods, as defined. The agreements are for a term of ten
years and provide for minimum quality standards, delivery variances, and
termination provisions, as defined.

Cattle acquired from members
pursuant to the Uniform Delivery and Marketing Agreements are concurrently sold
to NBP pursuant to the Cattle Purchase Agreement.  Both agreements remain in
effect under the new LLC structure.

The Acquisition- On June 12, 2003, USPB entered into an agreement with Farmland to acquire all of the interests in FNB held by Farmland,
which approximated 71.2%. USPB, which held the remaining interest in FNB,
formed NB Acquisition, LLC (NB Acquisition) to consummate the acquisition.
USPB, NBPCo Holdings, LLC (NBPCo Holdings), and certain members of management
of NBP purchased equity in NB Acquisition for $46.0 million in cash. NB
Acquisition used a portion of these funds to purchase all of the membership
interest of an affiliate of Farmland that held Farmland's general partnership
interest in FNB, giving NB Acquisition voting control of FNB. Immediately
thereafter, to finance the purchase of Farmland's remaining interest, FNB
issued $160.0 million of 10 1/2% Senior Notes due 2011 (the Senior
Notes) and amended its existing credit facility. A portion of the proceeds of
the Senior Notes offering and borrowings under the amended credit facility were
transferred to NB Acquisition. Subsequently, NB Acquisition merged into FNB,
and converted into a limited liability company, NBP, under Delaware law. These
transactions closed on August 6, 2003. NBP continues to hold all of the
same assets FNB held before the consummation of the transactions, including
equity in subsidiaries, except that Farmland retained a 49% interest in a NBP
subsidiary, National Beef aLF, LLC, which holds a 47.5% interest in aLF
Ventures, LLC. From July 2006 to July 2008, Farmland has a put right
of this interest in National Beef aLF, LLC to NBP at its then fair market
value. If the interest in National Beef aLF, LLC is not repurchased, NBP is
required to put the entire interest up for sale. Due to uncertainties in aLF
Ventures, LLC's ability to generate future revenues, no amounts were allocated
to the put option in the consolidated financial statements. NBP's investment in
National Beef aLF, LLC is accounted for under the equity method.

The following table sets forth the approximate sources
and uses of funds (in millions) in connection with the Acquisition as it
occurred on August 6, 2003.

Sources
  
  
  
  UsesAvailable cash in FNB
  $
  3.2
  
  Purchase of Farmland's interest
  $
  232.0Revolving credit facility(1)
  
  16.0
  
  Refinancing of existingTerm loan
  
  
  
  
  125.0
  
  
  credit facility
  
  
  
  103.1Senior notes
  
  
  
  160.0
  
  USPB's investment in FNB
  
  91.4NBPCo Holdings' equity of NBP (2)
  
  35.4
  
  Membership interests issued asUSPB's initial interest in NBP (3)
  
  96.4
  
  
  deferred compensation (4)
  
  10.0NBP Management's equity of NBP (4)
  
  15.6
  
  Transaction costs (5)
  
  15.1Total
  $
  451.6
  
  
  
  
  
  
  
  
  Total
  $
  451.6


(1)NBP had total availability, including the
amount presented, of $140.0 million under the amended revolving credit
facility at August 6, 2003. Actual borrowings under the amended revolving
credit facility at the closing of the Acquisition were $16.0 million.

(2)Represents cash equity from NBPCo Holdings.

(3)Includes $5.0 million in cash and the
predecessor basis of the 28.8% equity interest in FNB held by USPB prior to the
Acquisition.

(4)Includes $5.6 million in cash and
$10.0 million of cash incentive compensation earned as of closing that was
issued as compensation on a deferred basis in the form of additional membership
interests in NBP.

(5)Includes
commitment, placement, financial advisory and other transaction fees, and
legal, accounting, and other professional fees.

The total purchase price (including expenses and other
consideration) has been allocated to the net assets based on their estimated
fair values at the date of acquisition to the extent of the approximately 71.2%
change in ownership as of the date of closing. The Acquisition is within the
scope of Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, which resulted in a new basis of accounting in accordance
with the Emerging Issues Task Force (EITF) 88‐16, Basis in Leveraged
Buyout Transactions. In accordance with that guidance, the interest of
USPB, a minority owner of FNB, was carried over at its predecessor basis
because a change in control has occurred in which USPB obtained unilateral
control of NBP. The excess of the purchase price over USPB's predecessor basis
of net assets acquired was recognized as a reduction in members' capital of
NBP.

USPB, NBPCo Holdings, and
management of NBP each hold Class A and Class B interests in NBP. In
addition, members of management of NBP will be issued a fixed number of
additional Class A and Class C interests in NBP in lieu of cash
payments owed under existing employment arrangements.

Capital Structure of NBP

Class A Interests-
Class A interests are non-voting and are entitled to a priority
distribution of 5% per year on the face amount of the Class A interests,
payable quarterly in cash to the extent permitted by NBP's senior lenders and
the indenture governing the Senior Notes. The face amount of the Class A
interests, together with all unpaid priority distributions, will be distributed
on a priority basis upon liquidation.

Class B Interests-
Class B interests, together with the Class C interests described
below, are entitled to receive all assets available for distribution upon
liquidation after payment of the Class A face amount together with all
unpaid Class A priority distributions. Class B interests will also be
allocated all items of income and loss earned or incurred by NBP after
allocation of income attributable to the Class A priority distribution. In
addition, the holders of Class B interests are entitled to receive
quarterly distributions of 48% of NBP's taxable net income to make tax
payments. Certain of the Class B interests (B‐2 interests) issued to
management of NBP are in the form of "profits interests" issued in exchange for
services previously rendered. The B‐2 interests have rights in
liquidation only to the extent of their profits interest. The voting power of
the members (voting either directly or by action of the board of managers
designated by the members) is determined based upon the number of Class B
interests held.

Class C Interests-
Rights to Class C interests are held only by owners of Class B‐2
interests. Class B‐2 and Class C interests, collectively, have
equal value and rights as Class B‐1 interests. The face amount of
the Class C interests will be distributed out of the assets available for
distribution upon liquidation on a parity basis with the Class B interests
after payment of the Class A face amount together with all unpaid
Class A priority distributions.

USPB holds approximately 53.2%
of the Class B interests, as well as Class A interests with an
aggregate face amount of approximately $88.8 million; NBPCo Holdings owns
approximately 20.2% of the Class B interests, as well as Class A
interests with an aggregate face amount of approximately $31.6 million;
and members of management of NBP own approximately 26.6% of the Class B
interests, as well as Class A interests with an aggregate face amount of
approximately $1.5 million. After a specified period following completion
of the Acquisition, certain members of management of NBP will be issued a fixed
number of additional Class A interests with an aggregate face amount of
approximately $9.1 million and Class C interests with an aggregate
face amount of approximately $0.9 million in lieu of cash payments owed
under existing employment arrangements pursuant to deferred compensation
agreements entered into in connection with the Acquisition. These amounts were
previously expensed as compensation expense in FNB's financial statements.

Minority Interest represents
Class A, B, and C interests held by management of NBP and NBPCo Holdings,
which include repurchase rights of the holders (see note 12).

Prior to the current
ownership, NBP was organized as a limited partnership of which NBPCo., LLC and
USPBCo., LLC were the general partners and Farmland and USPB were the limited
partners. Farmland was the ultimate parent company of NBPCo., LLC and USPB was
the ultimate parent company of USPBCo., LLC

Prior to the close of the Acquisition on August 6, 2003 as well as on August 31, 2002, the partners and their ownership
interests of the Partnership were as follows:

OwnershipPartner name
  
  Type
  
  interestNBPCo., LLC
  
  
  
  General
  
  2.5034%USPBCo., LLC
  
  
  General
  
  0.4966Farmland
  
  
  
  
  Limited
  
  68.7100USPB
  
  
  
  
  
  Limited
  
  28.2900100.0000%


NBP continues to hold all of
the same assets after the consummation of the Acquisition, including equity in
its subsidiaries, with the exception of a 49% interest in its previously
wholly-owned subsidiary, National Beef aLF, LLC (aLF, LLC), which holds a 47.5%
interest in aLF Ventures, LLC. This 49% interest in aLF, LLC was retained by
Farmland concurrent with the closing of the Acquisition. After the Acquisition,
NBP continues to hold a 24.2% interest in aLF Ventures, LLC through its 51%
interest retained in aLF, LLC.

(2)       Basis of
Presentation and Accounting Policies

(a)       Basis of
Presentation and Consolidation

The consolidated financial
statements include the accounts of USPB and its wholly-owned subsidiary,
USPBCo., LLC for the periods up to August 6, 2003 and, as of and for the
periods after August 6, 2003, as a result of the Acquisition described in
note 1, they include NBP and its direct and indirect subsidiaries (collectively
the Company). Prior to August 7, 2003, USPB accounted for its investment
in FNB under the equity method of accounting. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform to the current year
presentation.

The
aggregate purchase price for the Acquisition described in note 1 above was
$236.8 million (including approximately $4.8 million of transaction
costs), of which $190.8 million was funded through various incremental
debt instruments, and the remainder funded through contributed or retained
equity. The Acquisition and the financial statements of the Acquired Interest
provided herein have been accounted for as a purchase in accordance with SFAS
No. 141 and EITF Issue 88‐16.

(b)       Fiscal Year

The Company's fiscal year
ends on the last Saturday in August. Fiscal years 2004, 2003, and 2002
consisted of fifty‐two, fifty‐two and fifty‐three weeks,
respectively. All references to years in these notes to consolidated financial
statements represent fiscal years unless otherwise noted.

(c)        Use of
Estimates

The consolidated financial
statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, using management's best
estimates and judgments where appropriate. These estimates and judgments affect
the reported amounts of assets and liabilities and disclosure of the contingent
assets and liabilities at the date of the financial statements. The estimates and
judgments will also affect the reported amounts for certain revenues and
expenses during the reporting period. Actual results could differ materially
from these estimates and judgments.

(d)  Cash and Cash Equivalents

The Company considers all
highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.

(e)        Allowance for
Returns and Doubtful Accounts

The allowance for returns and
doubtful accounts is the Company's best estimate of the amount of probable
returns and credit losses in its existing accounts receivable. The Company
determines these allowances based on historical experience and management's
judgments. Specific accounts are reviewed individually for collectibility.

(f)        Inventories

Inventories
consist primarily of meat products and supplies. Product inventories are stated
at the lower of cost or market. The cost of inventories of the beef‐packing
operation, except supply inventories, is determined using the first‐in,
first‐out (FIFO) method or market. The cost of all other inventories is
determined using FIFO, specific, or average cost methods. The components of
inventories are as follows (dollars in thousands):

August 28,
  August 30,2004
  2003Product inventories:Dressed and boxed meat products
  $
  67,801
  60,781Beef by-products
  
  9,158
  8,738Supplies
  
  
  
  
  9,003
  8,068$
  85,962
  77,587


(g)       Property,
Plant, and Equipment

Property, plant,
and equipment purchased as part of the Acquisition were recorded at estimated
fair value, based on independent appraisals, to the extent of the approximately
71.2% change in ownership. All other purchases of property, plant and equipment
are recorded at cost. Property, plant, and equipment are depreciated principally
on a straight‐line basis over the estimated useful life (based upon
original acquisition date) of the individual asset by major asset class as
follows:

Buildings and improvements
  
  15 to 25 yearsMachinery and equipment
  
  2 to 8 yearsTrailers and automotive
  equipment
  
  2 to 5 yearsFurniture and fixtures
  
  3 to 5 years


Upon disposition of these
assets, any resulting gain or loss is included in operations. Major repairs and
maintenance costs that extend the useful life of the related assets are
capitalized. Normal repairs and maintenance costs are charged to operations.

The Company capitalizes the
cost of interest on borrowed funds, which are used to finance the construction
of certain property, plant, and equipment. Such capitalized interest costs are
charged to the property, plant, and equipment accounts and are amortized
through depreciation charges over the estimated useful lives of the assets.
Interest capitalized was $0.1 million and $0.02 million for the fiscal years
ended August 28, 2004 and August 30, 2003, respectively.

The Company reviews its long‐lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
assets held and used is assessed based on estimated undiscounted future cash
flows. Impairment, if any, is recognized based on fair value of the assets.
Assets to be disposed of are reported at the lower of cost or fair value less
costs to sell, and are no longer depreciated.

On October 3, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, Accounting
for the Impairment or Disposal of Long‐Lived Assets, which addresses
financial accounting and reporting for the impairment or disposal of long‐lived
assets. While this Statement supersedes SFAS No. 121, Accounting for
Impairment of Long‐Lived Assets and for Long‐Lived Assets to be
Disposed Of, it retains many of the fundamental provisions of that
Statement. The Company adopted SFAS No. 144 on September 1, 2002. The adoption of this Statement has not had a significant impact on the
Company's consolidated financial statements.

A summary of cost
and accumulated depreciation for property, plant, and equipment as of August 28, 2004 and August 30, 2003 follows (dollars in thousands):

2004
  
  2003Land and improvements
  $
  7,817
  
  6,319Building and improvements
  
  60,601
  
  52,524Machinery and equipment
  
  139,833
  
  123,913Furniture and fixtures
  
  2,985
  
  2,197Trailers and automotive
  equipment
  
  2,233
  
  3,025Computer equipment
  
  36
  
  37Construction in process
  
  29,398
  
  24,542Total property, plant and
  equipment, at cost
  
  242,903
  
  212,557Accumulated depreciation
  
  (20,844)
  
  (1,950)Property, plant, and equipment,
  net
  $
  222,059
  
  210,607


(h)       Debt Issuance
Costs

Costs related to the issuance
of debt are capitalized and amortized to interest expense using the straight‐line
method, which approximates the effective interest method, over the period the
debt is outstanding. The Company had unamortized costs of $6.8 million in
other non-current assets and $1.8 million in other current assets as of August 28, 2004. Amortization of $1.7 and $0.2 million was charged to interest
expense during the fiscal years ended August 28, 2004 and August 30, 2003, respectively, related to these costs.



(i)       Goodwill and
Other Intangible Assets

The Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets, as of September 1, 2002. SFAS No. 142 provides that goodwill and other intangible
assets with indefinite lives shall not be amortized but shall be tested for
impairment on an annual basis. Identifiable intangible assets with definite
lives are amortized over their estimated useful lives. The Company evaluates
goodwill and other indefinite life intangible assets annually for impairment
and, if there is impairment, the carrying amount of goodwill and other
intangible assets is written down to the implied fair value.  For goodwill,
this test involves comparing the fair value of each reporting unit to the
unit's book value to determine if any impairment exists.  The fair value of
each reporting unit is calculated using estimates of future cash flows. In
accordance with SFAS No. 142, goodwill was tested for impairment and, as of August 28, 2004, management determined there was no impairment.   See note 3 for a
discussion of the purchase accounting associated with the Acquisition and the
determination of additional goodwill.

The excess of the Company's
investment in FNB over its share of the underlying net assets of FNB prior to
the Acquisition, which was classified as a part of the investment in FNB, had
been amortized on a straight‐line basis over twenty‐five years and
was recognized as an adjustment to equity in earnings. At August 31, 2002, the unamortized balance of this excess amounted to $40.2 million.

Prior to the adoption of SFAS
No. 142, the Company reviewed its long‐lived assets, including
goodwill, whenever events or changes in circumstances indicated that the
carrying amount of an asset may not be recoverable. Recoverability of assets
held and used was assessed based on estimated undiscounted future cash flows.
Impairment, if any, was recognized based on fair value of the assets. Assets to
be disposed of are reported at the lower of cost or fair value less costs to
sell.

The following
table reflects the impact of goodwill amortization on net income for fiscal
year end 2002 (dollars in thousands):

August 31,2002Reported net income
  $
  15,756Add goodwill amortization
  
  1,986Adjusted net income
  $
  17,742


In connection with the Acquisition, intangible assets
were identified and valued by an independent third party. As a result of this
valuation, to the extent of the approximately 71.2% change of ownership,
Trademarks were recorded at $20.4 million and Customer Relationships were
recorded at $11.3 million. Trademarks are not scheduled for amortization due to
their expected indefinite useful life. The Company will amortize the recorded fair
value of the Customer Relationships over seven years on a straight‐line
basis. For the years ended August 28, 2004 and August 30, 2003, the Company recognized $1.5 million and $0.2 million, respectively, of amortization
expense. The following table reflects the anticipated amortization expense
relative to intangible assets recognized in the Company's balance sheet as of August 28, 2004, for each of the next five years and thereafter (dollars in
thousands):

Estimated amortization expensefor fiscal years ended:2005
  
  
  
  
  1,6132006
  
  
  
  
  1,6132007
  
  
  
  
  1,6132008
  (1)
  
  
  
  1,6442009
  
  
  
  
  1,613Thereafter
  
  
  1,505(1)
  FYE 2008 consists of 53 weeks.




(j)        Overdraft
Balances

The majority of the Company's
bank accounts are zero balance accounts where cash needs are funded as checks
are presented for payment by the holder. Checks issued pending clearance that
result in overdraft balances for accounting purposes are included in the trade
accounts payable and cattle purchases payable balances, and the change in the
related balances is reflected in financing activities on the statement of cash
flows. Overdraft balances of $68.3 million and $62.7 million were
included in trade accounts and cattle purchases payables at August 28, 2004 and August 30, 2003, respectively.

(k)       Self‐Insurance

NBP is self‐insured for
certain losses relating to worker's compensation, auto liability, general
liability, and employee medical and dental benefits. NBP has purchased stop‐loss
coverage in order to limit its exposure to any significant levels of claims.
Self‐insured losses are accrued based upon NBP's estimates of the
aggregate uninsured claims incurred using actuarial assumptions accepted in the
insurance industry and NBP's historical experience rates.

(l)        Environmental
Expenditures and Remediation Liabilities

Environmental expenditures
that relate to current or future operations and which improve operational
capabilities are capitalized at time of expenditure. Expenditures that relate
to an existing or prior condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments and/or remedial efforts are
probable and the costs can be reasonably estimated.

(m)      Foreign Currency
Translation

NBP has representative
offices located in Tokyo, Japan and Seoul, South Korea. The primary activity of
these offices is to assist customers with product and order related issues. For
foreign operations, the local currency is the functional currency. Translation
into U.S. dollars is performed for assets and liabilities at the exchange
rates as of the balance sheet date. Income and expense accounts are translated
at average exchange rates for the period. Adjustments resulting from the
translation are reflected as a separate component of other comprehensive
income.

(n)       Income Taxes

The Company is a farmers'
cooperative within the meaning of Section 521(b)(1) of the Internal
Revenue Code and is exempt from federal income taxes. However, the Company is
subject to the federal alternative minimum tax and to certain state income and
franchise taxes. As an exempt farmers' cooperative, the Company distributes all
of its earnings to members. The Company uses federal taxable income for
purposes of distributing earnings to members. The excess of earnings for
financial reporting purposes over taxable income is reflected as deferred
patronage within unallocated equity (see note 9). Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
non-patronage source differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.

The provision for income taxes for NBP is computed on a
separate legal entity basis. Accordingly, NBP does not provide for income taxes
as the results of operations are included in the taxable income of the
individual members. However, to the extent that subsidiary entities provide for
income taxes, deferred tax assets and liabilities are recognized based on the
differences between the financial statement and tax bases of assets and
liabilities at each balance sheet date using enacted tax rates expected to be
in effect in the year the differences are expected to reverse.

(o)      Fair Value of Financial Instruments

The carrying amounts of the
Company's financial instruments, including cash and cash equivalents, short‐term
trade receivables and payables, approximate their fair values due to the short‐term
nature of the instruments as of August 28, 2004 and August 30, 2003. At August 28, 2004, the Senior Notes had a carrying value of $160.0 million and
a fair value of $162.0 million, based on a calculation using a weekly High
Yield Market report prepared by Deutsche Bank. The carrying value of other debt
also approximates its fair value at August 28, 2004 as substantially all such debt has a variable interest rate.

(p)       Revenue
Recognition

NBP recognizes revenue from
the sale of products at the time of shipment, when NBP determines the risk of loss
has transferred, collection of the relevant receivable is probable, persuasive
evidence of an arrangement exists, and the price is fixed or determinable.
National Carriers, Inc. recognizes revenue when shipments are complete.

(q)       Shipping Costs

Pass‐through finished
goods delivery costs reimbursed by customers are reported in sales, while an
offsetting expense is included in cost of sales.

(r)        Advertising
and Promotion Expenses

Advertising and promotion
expenses are charged to operations in the period incurred. Advertising and
promotion expenses were $1.7 million and $0.2 million in the years ended August 28, 2004 and August 30, 2003, respectively.

(s)        Comprehensive
Income

Comprehensive income consists
of net income, foreign currency translation adjustments, and unrealized gains
or losses on interest rate exchange agreements accounted for as cash flow
hedges. NBP deems its foreign investments to be permanent in nature and does
not provide for taxes on currency translation adjustments arising from converting
the investment in a foreign currency to U.S. dollars.

(t)        Derivatives
and Hedging Activities

NBP uses futures contracts to
reduce exposure associated with entering into firm commitments to purchase live
cattle at a price determined prior to the delivery of the cattle as well as to
sell certain beef at a sales price determined prior to shipment. In accordance
with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, NBP accounts for these futures contracts and their
related firm commitments at fair value. Most firm commitments are treated as
"normal purchases and sales" and are not marked to market.  SFAS No. 133
imposes extensive record‐keeping requirements to designate a derivative
financial instrument as a hedge. Derivatives qualify for treatment as hedges
when there is a high correlation between the change in fair value of the
instrument and the related change in value of the underlying commitment. For
derivatives that qualify as effective hedges, the change in fair value has no
net impact on net income until the hedged transaction affects net income. For
derivatives that are not designated as hedging instruments, or for the
ineffective portion of a hedging instrument, the change in fair value does
affect current period net income. While management believes each of these
instruments manages various market risks, they are not designated and accounted
for as hedges under SFAS No. 133 as a result of the extensive record‐keeping
requirements of this Statement. Accordingly, the offsetting gains and losses
associated with changes in the market value of the futures contracts and the
changes in market value of certain of the firm commitments related to the
futures contracts are recorded to income and expense in cost of sales in the
period of change.

The fair value of derivative
assets is recognized within other current assets, while the fair value of
derivative liabilities is recognized within accrued liabilities. The net fair
value of derivatives recognized within other current assets and other accrued
liabilities at August 28, 2004 and August 30, 2003 is not significant.

USPB entered into an interest
rate exchange agreement, which terminates January 3, 2005, which involves the exchange of fixed-rate and variable-rate interest payments and effectively
results in the conversion of specifically identified, variable-rate debt into
fixed-rate debt. These financial instruments are recorded in the Company's
balance sheet at fair value, and the change in fair value, to the extent effective,
is recorded as a component of accumulated other comprehensive income. The
ineffective portion is recorded in the statement of operations as a component
of other income (expense).

The fair value of derivative
assets is recognized within other current assets, while the fair value of
derivative liabilities is recognized within accrued liabilities. The net fair
value of derivatives recognized within other current assets and other accrued
liabilities at August 28, 2004 and August 30, 2003 is not significant.

(u)       Earnings Per
Share

Per share data has been
omitted because, under the cooperative structure, earnings of the Company are
distributed as patronage dividends to members and associate members, those who
lease delivery rights from shareholders, based on the level of business
conducted with the Company as opposed to a common shareholder's proportionate
share of underlying equity in the Company.

(3)       Equity
Investment and Purchase Accounting

Through August 6, 2003, the Company accounted for its non-controlling 28.78% investment in FNB on the equity
method of accounting. The excess of the Company's investment in FNB over its
share of the underlying net assets of FNB was being amortized, prior to September 1, 2002, on a straight-line basis over a period of 25 years and recognized as an
adjustment to equity in earnings.

A summary of the activity in the investment account
for the 340 days ended August 6, 2003 and for the year ended August 31, 2002 follows (dollars in thousands):

2003
  
  2002Balance at beginning of period
  $
  83,105
  
  104,396Equity in earnings
  
  22,586
  
  20,330Distributions received
  
  (9,257)
  
  (41,621)USPB basis at date of
  acquisition
  
  (96,434)
  (1)
  -Balance at end of period
  $
  -
  
  83,105


(1)Includes a distribution of approximately $5.0 million
that was declared by FNB but had not been received as of August 6, 2003.

Summary financial
data for FNB as of August 31, 2002 and for the 340 days ended August 6, 2003 and for the year ended August 31, 2002 follows (dollars in thousands):

340 daysendedAugust 6,2003
  
  2002Current assets
  
  
  
  $
  241,106Non-current assets
  
  
  
  156,610Total assets
  
  
  $
  397,716Current liabilities
  
  
  
  $
  144,358Non-current liabilities
  
  
  
  116,106Partners' equity
  
  
  
  
  137,252Total liabilities andpartners' equity
  
  
  $
  397,716Revenues
  
  
  
  $
  3,378,623
  
  3,246,831Costs and expenses
  
  3,300,162
  
  3,169,307Net income
  $
  78,461
  
  77,524


During 2003, USPB acquired a
controlling interest in FNB, as more fully described in note 1 as the
Acquisition. The Acquisition has been accounted for using the purchase method
of accounting as of August 6, 2003. The allocation of the purchase price
to the net assets acquired has been performed in accordance with SFAS No. 141,
giving consideration to EITF 88‐16, and resulted in goodwill of
approximately $78.9 million. The beginning equity of NBP reflects the
predecessor basis of USPB's interest in FNB plus the cash contributed by USPB
and the new members of NBP, and the contribution of earned deferred
compensation by certain members of management of FNB. The calculation of the
allocated purchase price for the Acquisition, as presented below, reflects the
net book value of the business as of August 6, 2003. In addition, the allocation of the purchase price reflects the fair value of the individual assets
acquired and liabilities assumed to the extent of the approximate 71.2% change
in ownership. The purchase of the controlling interest was consummated by USPB
following the bankruptcy of Farmland in order to maintain its relationship with
NBP.

The following
details the adjustment to historical net book values based on the fair values
of acquired assets and liabilities included in the Acquisition. The adjustment
to historical net book values of acquired assets and liabilities of the
Acquired Interest is calculated as follows (dollars in thousands):

Total purchase price and other
  consideration for Acquired Interest
  $
  232,000Fees and expenses
  
  4,821236,821Net book value of Acquired
  Interest on August 6, 2003
  
  (114,635)Excess purchase price to be
  allocated
  $
  122,186Amount allocated to:Property, plant, and equipment
  $
  51,738Trademarks
  
  
  20,438Customer relationships
  
  11,323Goodwill
  
  
  
  38,687Excess purchase price allocated
  $
  122,186USPB's predecessor basis in FNB
  $
  91,447Net book value of USPB's
  interest on August 6, 2003
  
  (51,276)Excess of USPB's basis over net
  book value at August 6, 2003attributable to goodwill
  $
  40,171Goodwill reconciliation:Allocated to goodwill from
  Acquired Interest
  $
  38,687Excess of USPB's basis
  attributable to goodwill (previously includedas a component of Investment in
  FNB)
  
  40,171Total goodwill
  $
  78,858


In
connection with USPB's initial investment in FNB, USPB paid an amount in excess
of the proportionate underlying book value of the net assets acquired that
amounted to $40.2 million. Because USPB held a minority interest in the
Predecessor, this excess investment, which was attributed to goodwill, was not
recorded in the FNB financial statements but was recorded as an investment in
USPB's financial statements. As a result, USPB's predecessor basis in FNB was
$40.2 million higher than its proportionate 28.8% of the underlying net book
value of FNB. In accordance with EITF 88‐16, USPB carried over its
predecessor basis, resulting in the recognition of the $40.2 million of
goodwill in NBP's financial statements, and, as a result of the consolidation
of NBP in 2003, the reclassification of $40.2 million from an investment in FNB
to goodwill in the Company's consolidated financial statements.

Pro forma results
(unaudited) as if the Acquisition occurred on the first day of the periods
presented below are as follows (dollars in thousands):

Fiscal Year EndedAugust 30,
  
  August 31,2003
  
  2002Revenue
  
  
  $
  3,661,455
  
  3,246,831Net income
  
  
  30,110
  
  22,504


(4)       Long‐Term
Debt and Loan Agreements

The Company
entered into various debt agreements to finance the Acquisition described in
note 1 and to provide liquidity to operate the business on a going forward basis. 
Long‐term debt consisted of the following (dollars in thousands):

August 28,
  
  August 30,2004
  
  2003Short-term debt:Current portion of long-term
  debt (term loan)(a)
  $
  1,030
  
  1,006Current portion of long-term
  debt (term loan)(b)
  
  9,375
  
  6,250Current portion of capital lease
  obligations(e)
  
  78
  
  35810,483
  
  7,614Long-term debt:Term loan facility, net of
  current portion(a)
  
  6,178
  
  7,208Term loan facility, net of
  current portion(b)
  
  109,375
  
  118,750Senior Notes(c)
  
  160,000
  
  160,000Industrial Development Revenue
  Bonds(d)
  
  13,850
  
  13,850Revolving credit facility(b)
  
  42,059
  
  12,309Long-term capital lease
  obligations and other(e)
  
  350
  
  571331,812
  
  312,688Total debt
  $
  342,295
  
  320,302


The aggregate
principal maturities of long‐term debt at August 28, 2004 are as follows (dollars in thousands):

2005
  
  $
  10,4832006
  
  
  13,5302007
  
  
  16,6552008
  
  
  124,3392009
  
  
  1,030After 2009
  
  
  176,258$
  342,295


(a)        CoBank Term Debt

Effective August 28, 2004, the CoBank debt was amended for extended terms and favorable changes to the interest rate and
covenants.  Under the new amendment, CoBank term debt is payable in equal
quarterly installments with final payment due in July 2011, bearing
interest at the LIBOR index plus 2.50%, adjusted quarterly (4.10% at August 28,
2004 and 3.36% at August 30, 2003).

The debt agreement with
CoBank contains certain covenants which require, among other things: reporting
requirements, a minimum working capital reserve, a minimum debt service
coverage ratio, a minimum net worth, restrictions on transactions with related
parties and restrictions on dividend payments. The Company was in compliance
with all CoBank debt covenants as of August 28, 2004. The debt is secured by USPB's interest in NBP.

The Company's rate margin is
determined pursuant to a table based on the NBP leverage ratio, as of the end
of each fiscal year of NBP. Based on the table, the rate margin was 2.50% at August 28, 2004 and 2.25% at August 30, 2003.

(b)        Senior Credit Facilities

On August 6, 2003, NBP amended and restated its credit
agreement to provide senior credit facilities which allow borrowings from time
to time up to $265.0 million, consisting of a term loan of $125.0 million and a
revolving credit facility of up to $140.0 million both of which terminate on August 6, 2008. Up to $60.0 million of the revolving credit facility is available for the
issuance of letters of credit. With respect to both revolving loan borrowings
and term loan borrowings, the interest rate is adjusted quarterly based on NBP's
financial performance level.  At August 28, 2004  (a) LIBOR rate loans had
rates of 2.50% per annum plus the applicable LIBOR rate, and (b) base rate
loans had rates of 1.00% per annum plus the greater of (i) the prime rate
announced by US Bank or (ii) the federal funds rate plus one half of one
percent (0.5%). The Transaction was financed, in part, with approximately
$141.0 million of advances under NBP's senior credit facilities, consisting of
$125.0 million drawn under the term loan facility and $16.0 million drawn under
the revolving credit facility. The senior credit facilities are secured by a
first priority lien on substantially all of NPB's assets. A fee of 0.5% per
annum is payable quarterly on the daily average unused amount of the revolving
credit facility.

Availability. Availability under
the revolving credit facility is subject to a borrowing base. The borrowing
base is based on NBP's and certain of its domestic wholly-owned subsidiaries'
assets. The borrowing base consists of percentages of NBP's eligible accounts
receivable, inventory and supplies less certain eligibility and availability
reserves. NBP is required to report the borrowing base on a monthly basis and,
as a result, the availability under the senior credit facilities is subject to
change. At August 28, 2004, $10.7 million, based on the most restrictive
financial covenant ratio calculation, was available under the revolving credit
facility.

Repayment and Prepayment.
Loans outstanding under the term loan require 20 quarterly principal repayments
beginning on the last business day of the fiscal quarter ending November 2003
as follows: (i) $1,562,500 for quarters 1-4, (ii) $2,343,750 for quarters
5-8, (iii) $3,125,000 for quarters 9-12, (iv) $3,906,250 for quarters 13-16 (v)
$4,687,500 for quarters 17-19 and (vi) $67,187,500 on August 6, 2008.

The revolving credit facility
terminates and all amounts outstanding thereunder must be repaid in full on the
fifth anniversary of the closing date.

Mandatory and Optional Prepayments.
NBP is required to prepay borrowings under the term loan in specified
circumstances and amounts, as follows:

              
100% of the net cash proceeds,
including insurance and condemnation proceeds, of any sale or other disposition
by NBP of any assets, other than inventory sold in the ordinary course of
business, subject to exceptions if the aggregate amount of such net proceeds
does not exceed a certain amount or if such proceeds are used to replace the
assets;

              
100% of the net cash proceeds of
any issuance of debt or equity interests or securities, including capital
contributions in respect of equity interests or securities previously issued,
subject to certain limited exceptions; and

              
50% of excess cash flow, as
defined in the amended credit facility, for any fiscal year, until NBP's total
funded debt to EBITDA ratio has been reduced to not greater than 2.00 to 1.00.

Prepayments will be applied to principal
installments of the term loan in inverse order of maturity. Subject to certain
conditions, NBP is permitted to make optional prepayments of the term loan
without premium or penalty.

Affirmative Covenants. NBP's
senior credit facilities contain customary affirmative covenants, including
providing financial statements, insurance, conduct of business, maintenance of
properties, etc.

Financial Covenants. NBP's senior
credit facilities contain covenants that limit its ability to incur additional
indebtedness, sell or dispose of assets, pay certain dividends and prepay or
amend certain indebtedness among other matters. In addition, these facilities,
which have been amended for fiscal year 2005 as noted below, also contained
financial covenants as of August 28, 2004 requiring NBP to:

              
not exceed a maximum funded debt
to EBITDA ratio of 4.25x;

              
not exceed a maximum senior
secured funded debt to EBITDA ratio of 2.40x;

              
maintain a minimum four quarter
EBITDA of $92 million; and

              
not fall below a minimum fixed
charge coverage ratio of 1.15x.

As defined in NBP's senior credit
facilities, EBITDA contains specified adjustments. NBP was in compliance with
all financial covenants under its senior credit facilities on August 28, 2004, with the exception of the four-quarter rolling measure of EBITDA, as
defined in the Third Amended and Restated Credit Agreement dated as of August 6, 2003 (the Credit Agreement).  As of October 6, 2004, the lenders under the Credit Agreement have agreed to waive this event of default. The calculation of
this ratio is not allowed to include an add back for the charge of $18.8
million incurred after the discovery of a single Holstein dairy cow in December
2003 in the state of Washington that tested positive for Bovine Spongiform
Encephalopathy (BSE).

Effective November 19, 2004, NBP amended its credit facility further to reflect changes in financial covenants. 
Available borrowings would have been $54.9 million as of August 28, 2004 had these covenant changes been in place.  The amended credit facility, as amended,
contains the following financial covenants, effective throughout fiscal year
2005:

           maximum funded debt to
EBITDA ratio of 7.25x;

           maximum senior secured
funded debt to EBITDA ratio of 4.50x;

           minimum four quarter rolling
EBITDA of $50 million;

           minimum working capital of
$92.25 million;

           maximum capital expenditures
of $30 million.

Beginning with fiscal year 2006, the
financial covenants (except for the limitation on maximum annual capital
expenditures) will revert to, and be adjusted in accordance with, those
contained in the amended credit facility as in effect immediately prior to the November 19, 2004 amendment.  The financial covenants which will be in place in fiscal
year 2006 under the amended credit facility as of August 6, 2003, will be more restrictive than those covenants in place in fiscal year 2005 under the November 19, 2004 amendment, and more restrictive than those covenants in place in fiscal
year 2004.

(c)        Senior Notes

In connection with the Transaction, on August 6, 2003, NBP issued $160.0 million of its 101/2% Senior Notes due 2011. The Senior Notes will mature on August 1, 2011. Interest on the Senior Notes is payable semi-annually in arrears on August
1 and February 1 of each year, and commenced on February 1, 2004. The Senior Notes are senior unsecured obligations, ranking equal in right of payment with
all other senior unsecured obligations of NBP. With limited exceptions, the
Senior Notes are not redeemable before August 1, 2007. During the 12 month period commencing August 1, 2007 and August 1, 2008, the Senior Notes may be
redeemed at 105.250% and 102.625%, respectively, of the principal amount.
Thereafter, the Senior Notes may be redeemed at 100% of face value. The
Indenture governing the Senior Notes contains certain covenants that restrict
NBP's ability to:

              
incur additional indebtedness;

              
make restricted payments;

              
sell assets;

              
direct NBP's restricted
subsidiaries to pay dividends or make other payments;

              
create liens;

              
merge or consolidate with another
entity; and

              
enter into transactions with
affiliates.

As of August 28, 2004, NBP was in compliance with all covenants associated with the Senior Notes.

NB Finance Corp., a wholly-owned finance
subsidiary of NBP, is a co-issuer on a joint and several basis with NBP of the
Senior Notes. NB Finance Corp. has nominal assets and conducts no business or
operations. There are no significant restrictions on the ability of subsidiaries
to transfer funds to NBP.

(d)        Industrial Development Revenue Bonds

Industrial Development
Revenue Bonds-The cities of Liberal
and Dodge City, Kansas issued an aggregate of $13.8 million of industrial
development revenue bonds on the Predecessor's behalf to fund the purchase of
equipment and construction improvements at NBP's facilities in those cities.
These bonds were issued in 1999 and 2000 in four series of $1.0 million, $1.0
million, $6.0 million and $5.8 million and are due on February 1, 2029, March 1, 2027, March 1, 2015 and October 1, 2009. These bonds were assumed by NBP in
connection with the Transaction. Pursuant to a lease agreement, NBP leases the
facilities, equipment and improvements from the respective cities and make
lease payments in the amount of principal and interest due on the bonds. After
giving effect to the Transaction, each series of bonds are backed by a letter
of credit under NBP's senior credit facilities.

The bonds are variable rate demand
obligations that bear interest at a rate that is adjusted weekly, which rate
will not exceed 10% per annum. The per annum interest rate for each series of
bonds was 1.3% in 2004, 1.5% in 2003 and 1.8% in 2002. NBP has the option to
redeem a series of bonds at any time for an amount equal to the principal plus
accrued interest to the date of such redemption. The holders of the bonds have
the option to tender the bonds upon seven days' notice for an amount equal to
par plus accrued interest. To the extent that the remarketing agent for the bonds
is unable to resell any of the bonds that are tendered, the remarketing agent
will use the letter of credit to fund such tender.

An event of default would occur under
the lease agreements if NBP fails to make any lease payment or other required
payment, if a petition of bankruptcy is filed by or against NBP, if a receiver
is appointed on NBP's behalf, or if NBP fails to observe and perform any
covenant, condition, obligation or agreement under the lease agreements.

(e)        Capital and Operating Leases

The Company leases a variety of buildings, equipment
and tractors and trailers under operating lease agreements that expire in
various years. Future minimum lease payments required at August 28, 2004, under capital and non-cancelable operating leases with terms exceeding one year,
are as follows:

Non-CancelableCapitalized
  
  OperatingLease
  
  LeaseObligations
  
  Obligations(dollars in
  thousands)For the fiscal years ended
  August:2005
  
  
  
  
  $
  81
  
  7,9432006
  
  
  
  
  
  -
  
  4,7712007
  
  
  
  
  
  -
  
  3,2982008
  
  
  
  
  
  -
  
  2,3142009
  
  
  
  
  
  -
  
  1,729Thereafter
  
  
  
  -
  
  2,336Net minimum lease payments
  
  81
  $
  22,391Less amount representing
  interest
  
  (3)Present value of net minimum
  leasepayments
  $
  78


Rent expense associated with operating leases was $8.5
million, $0.5 million and $0.1 million in the fiscal years 2004, 2003 and 2002,
respectively.  The Company expects that it will renew lease agreements or enter
into new leases as the existing leases expire.

Not included in the table above are the
anticipated obligations under a tentative agreement for a utilities commitment
at the Dodge City, Kansas, facility. To meet the continuing growth needs for
water and wastewater services of the Dodge City facility, over a period of time
from May 20, 2002 to April 24, 2003, NBP signed a memorandum of understanding
with subsequent clarifying supplements with the City of Dodge City, Kansas
whereby NBP expressed its intention of entering into a services agreement for
the city to provide NPB water and wastewater services at a price and term
sufficient to permit the city to recoup up to one half of the capital cost of
providing fresh water service from a parcel of land owned by NBP 11 miles south
of the City and of providing upgraded city wastewater facilities to help
service the needs of the Dodge City facility.  The total cost of these
improvements was approximately $22.1 million.  The city sold twenty year
municipal bonds to pay for these improvements and NBP is in the process of
finalizing the water services agreement.  It is anticipated this agreement will
be finalized in the near future and that NBP's payments to the city will be approximately
$0.8 million annually.

Additionally, we make a verbal
commitment to cattle producers to purchase cattle about one week in advance of
delivery of the live animals to our plants, with the actual price paid for the
cattle determined after the cattle are delivered and inspected at our
facilities.   NBP's estimated cattle commitments as of August 28, 2004 were $42.4 million.

(5)      Interest Rate
Exchange Agreement

At August 25, 2001, the Company had an interest rate exchange agreement in place effectively fixing
the interest rate on approximately $27.5 million of variable rate debt to a
fixed rate of 6.153% plus 1.25%. The Company entered into the interest rate
exchange agreement concurrent with its variable rate term debt agreement to
reduce its exposure to changes in interest rates. The Company initially
designated the interest rate exchange agreement to be 100% effective in hedging
its variable interest rate risk, as both the variable interest rate of the debt
obligation and the interest rate exchange agreement are based on LIBOR, reprice
on the same dates, and had the same term. Effective August 25, 2001, the Company determined that it was no longer probable that it would continue to
be exposed to interest rate risk as a result of the intention of FNB to make a
significant cash distribution to its partners. As a result of this
determination, in accordance with SFAS No. 133, the Company recognized the
fair value on August 25, 2001 of the interest rate exchange agreement
recorded in accumulated other comprehensive income of $1.2 million as a charge
to operations. The difference in interest payments as a result of the interest
rate exchange agreement has been recognized in interest rate exchange agreement
expense in the amount of $422,771 in fiscal 2002.

On August 31, 2001, the Company received a $36.0 million cash payment from FNB. The payment was
comprised of a discretionary cash dividend of $32.3 million and the normal
quarterly distribution of $3.7 million. A portion of these proceeds were used
to reduce the term loan by $20.0 million on September 10, 2001. The Company also reduced the notional amount of its interest rate exchange agreement
by $17.5 million through September 26, 2001 at a cost of $1.0 million.
Changes in the fair value of the remaining notional amount of the interest rate
exchange agreement were charged to operations in 2002 and amounted to $0.6
million.

On
 August 31, 2002, the notional amount of the interest rate exchange
agreement was realigned with the principal balance of the debt obligation,
effectively fixing the interest rate on approximately $9.1 million of the
variable rate debt to a fixed rate of 6.153% plus the applicable rate margin
(note 4). The rate margin was 2.50% at August 28, 2004 and 2.25% at August 30, 2003. As a result of this development, the Company designated the
revised interest rate exchange agreement as a hedge of its forecasted variable
rate interest payments and determined the hedge is and will continue to be
highly effective in accordance with SFAS No. 133.  In 2003, the Company
recorded the change in the fair value of its interest rate swap as an increase
to equity through Accumulated Other Comprehensive Income (AOCI), rather than as
other income.  In 2004, the balance in the AOCI of $256,430 was adjusted
to recognize the fair value of the interest rate swap as other income and
current year changes in the fair value of the remaining notional amount of the
exchange agreement were charged to operations in accordance with SFAS No.
133.  Future changes in the fair value will also be charged to operations.  The fair value of the
interest rate exchange instrument at August 28, 2004 was approximately $(0.1 million).

This interest rate exchange
agreement has a termination date of January 3, 2005 and at this time the Company does not anticipate entering into another interest rate exchange agreement.

((6)       Employee
Compensation and Benefits

The Company has established a
phantom stock option plan which provides for the issuance of 20,000 phantom
stock options with an exercise price of $55 per share, all of which have been
issued and are exercisable upon election. The Company recognized $0.4 million,
$0.5 million and $0.3 million in compensation expense under this plan for the
years ended August 28, 2004, August 30, 2003 and August 31, 2002, respectively.

The Company maintains tax‐qualified
employee savings and retirement plans (the 401(k) Plans) covering its
non-union employees. Pursuant to the 401(k) Plans, eligible employees may elect
to reduce their current compensation by up to the lesser of a percentage of
their annual compensation (prescribed by the 401(k) Plans) or the statutorily
prescribed annual limit and have the amount of such reduction contributed to
the 401(k) Plans. The 401(k) Plans provide for additional matching
contributions by the Company, based on specific terms contained in the 401(k)
Plans. The trustee of the 401(k) Plans, at the direction of each participant,
invests the assets of the 401(k) Plans in designated investment options. The
401(k) Plans are intended to qualify under Section 401 of the Internal
Revenue Code. Expenses related to the 401(k) Plans totaled approximately $0.5
million, $0.1 million and $0.0 million for the fiscal years ended August 28,
2004, August 30, 2003 and August 31, 2002, respectively.

The Company has agreed to make
contributions to the United Food & Commercial Workers International Union‐Industry
Pension Fund (the UFCW Plan) for employees covered by a collective bargaining
agreement as provided for in that agreement. Expenses related to the UFCW Plan
totaled approximately $0.6 million and $0.0 million for the years ended August 28, 2004 and August 30, 2003, respectively.

Postretirement Benefits- Certain
former employees are covered by an unfunded postretirement benefit plan that
provides medical and dental benefits.  Costs associated with this plan, which
relate primarily to insurance premiums, benefit payments and changes in the
accumulated benefit obligation were $1.9 million and $0.0 million for fiscal
years 2004 and August 30, 2003, respectively, are included in cost of sales.

The health care trend rate used to
value the accumulated benefit obligation at August 28, 2004 is an initial rate
of 10% per year, declining by 1% per year to an ultimate rate of 5% in 2009 and
thereafter.  The discount rate used to value the accumulated benefit obligation
is 6.25%.  The unfunded accumulated benefit obligation was $3.7 million and
$1.8 million at August 28, 2004 and August 30, 2003, respectively, and has been recorded as a liability in the financial statements.

(7)      Deposits

Previously, NBP elected to
place funds in a trust to satisfy requirements of the Packers and Stockyards
Act of 1921 (PSA). The deposits held in trust totaled $0.4 million at August 28, 2004 and $20.0 million at August 30, 2003.  As of August 28, 2004 NBP has secured a bond of $22.5 million to satisfy these requirements.  The bond is supported
by a $10.0 million letter of credit.  The remaining deposit in trust was 
returned to NBP during fiscal year 2005, after a period of time designated
under the PSA for continuity of coverage.

(8)       Other Income
(Expense)

Other income, net for the fiscal year ended August 28, 2004 includes approximately $1.1 million the Company received through the
demutualization of a company which held annuities for NBP's employees. Other
income, net for fiscal year 2003 includes fees associated with a bridge loan
commitment obtained in connection with the Acquisition of approximately
$1.7 million.

(9)           Income Taxes

Income tax expense
(benefit) includes the following current and deferred provisions (dollars in
thousands):

Year EndedAugust 28,
  
  August 30,
  
  August 31,2004
  
  2003
  
  2002Current provision:Federal
  
  
  
  $
  868
  
  (69)
  
  (30)State
  
  
  
  
  
  155
  
  (12)
  
  -Foreign
  
  
  
  
  20
  
  (3)
  
  -Total current tax expense
  (benefit)
  
  1,043
  
  (84)
  
  (30)Deferred provision:Federal
  
  
  
  
  131
  
  9
  
  -State
  
  
  
  
  
  23
  
  2
  
  -Foreign
  
  
  
  
  -
  
  -
  
  -Total current tax expense
  (benefit)
  
  154
  
  11
  
  -Total income tax expense
  (benefit)
  $
  1,197
  
  (73)
  
  (30)


In 2002, the alternative
minimum tax credit was utilized, which was generated in 2001.

Income tax expense
differed from the "expected" income tax (computed by applying the federal
income tax rate of 35% to earnings before income taxes) as follows (dollars in
thousands):

Year EndedAugust 28,
  
  August 30,
  
  August 31,2004
  
  2003
  
  2002Computed "expected" income tax expense
  $
  7,103
  
  8,455
  
  5,504Patronage deduction
  
  (742)
  
  (7,323)
  
  (4,114)Deferred patronage
  
  (1,874)
  
  (603)
  
  (1,007)Foreign income exclusion
  
  (162)
  
  (551)
  
  (383)State taxes, net of federal
  
  (116)
  
  (7)
  
  -Foreign taxes
  
  
  
  -
  
  (3)
  
  -Recognition of initial net deferred tax asset
  
  -
  
  (4,394)
  
  -Change in valuation allowance
  
  (3,019)
  
  4,394
  
  -Other
  
  
  
  
  
  7
  
  (41)
  
  (30)Total income tax expense (benefit)
  $
  1,197
  
  (73)
  
  (30)


The tax effects of
temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities at August 28, 2004 and August 30, 2003 are presented below (dollars in thousands):

Deferred tax assets:
  
  2004
  
  2003Accounts receivable, due to allowance for doubtful
  accounts
  $
  682
  
  617Expense accruals
  
  52
  
  784Investments
  
  
  39
  
  79Charitable contribution carryforward
  
  35
  
  11Self-insurance and workers compensation accruals
  
  6,046
  
  5,868Total gross deferred tax assets before valuation allowance
  
  
  
  
  6,854
  
  7,359Valuation allowance
  
  (1,375)
  
  (4,394)Total gross deferred tax assets
  
  
  
  
  5,479
  
  2,965Deferred tax liabilities:Goodwill and other intangible assets
  
  642
  
  291Prepaid expenses
  
  204
  
  169Property, plant, and equipment, principally due to
  differences in depreciation
  
  3,365
  
  1,083Total gross deferred tax liabilities
  
  
  
  
  4,211
  
  1,543Net deferred tax assets
  
  
  
  $
  1,268
  
  1,422


Net deferred tax
assets and liabilities at August 28, 2004 and August 30, 2003 are included in the consolidated balance sheet as follows (dollars in thousands):

2004
  
  2003Other current assets
  $
  2,435
  
  2,666Other liabilities
  
  1,167
  
  1,244$
  1,268
  
  1,422


Net deferred tax assets result
from National Carriers, Inc., a C Corp subsidiary.

Upon the acquisition of FNB in
2003, USPB established deferred tax assets attributable to differences between financial
statement and tax basis of assets and liabilities. Such differences may result
in non-patronage income (expense) in future periods. However, management
believes that it is more likely than not that the results of future
non-patronage operations will not generate sufficient taxable income to realize
the deferred tax assets. Accordingly, a valuation allowance of $1.4 million and
$4.4 million have been recorded at August 28, 2004 and August 30, 2003, respectively.

Subchapter T of the
Internal Revenue Code sets forth rules for the tax treatment of cooperatives
and applies both to cooperatives exempt from tax under Section 521 of the
Internal Revenue Code and to nonexempt cooperatives. The Company operates as an
exempt cooperative. As an exempt cooperative, it is not taxed on amounts of
patronage and nonpatronage source income withheld from its patrons in the form
of qualified per-unit retains or on amounts distributed to its patrons in the
form of Qualified Written Notices of Allocation. Such amounts are instead taxed
directly to the patrons. If the Company was not entitled to be taxed under
Subchapter T, its income would be taxed to the Company similar to a corporation
and the patrons would be taxed when and if dividends are distributed. The
characterization of income as patronage or non-patronage source income is
subject to challenge by the Internal Revenue Service. Non-patronage source
income, which is deemed more than incidental, is subject to tax at the entity
level instead of passed through to the patrons in the form of a patronage
distribution.  Notwithstanding the acquisition of a controlling interest in NBP
on August 6, 2003, management continues to believe that its non-patronage
source income, if any, is incidental and would vigorously defend any such
challenge by the Internal Revenue Service. However, USPB has recognized tax
expense in the accompanying consolidated financial statements on a portion of
its earnings for periods after August 6, 2003 to provide for such potential
recharacterization of income from patronage-source to nonpatronage source,
which may be asserted by the Internal Revenue Service.

(10)     Related Party
Transactions

All of the cooperative's
directors hold common stock of the cooperative and are also agricultural
producers and shareholders of the cooperative. By virtue of their shareholder
status and ownership of common stock, each of these individuals is obligated to
deliver cattle to the cooperative. The amount and terms of the payments
received by these individuals (or the entities they represent) for the delivery
of cattle are made on exactly the same basis as those received by other
shareholders of the cooperative for the delivery of their cattle.   This
remains the same under the new LLC structure.

All sales of USPB are to NBP. 
Prior to the Acquisition, sales to FNB for the 340 day period ended
August 6, 2003 and the fiscal year ended August 31, 2002 were $589.0
million and $697.4 million, respectively, and are included in the financial
statements. Sales to NBP for the fiscal year ended August 28, 2004 and for the 24 day period ended August 30, 2003 of $614.3 million and $36.3
million, respectively, and the related receivable balance at August 28, 2004 of $15.6 million and at August 30, 2003 of $8.5 million were
eliminated in consolidation.  These sales fulfilled approximately 18%, 22% and
27% of NBP's total cattle requirements for the fiscal years 2004, 2003 and
2002, respectively.  The purchase price for the cattle is determined by a
pricing grid, which, under the terms of the agreement with U.S. Premium
Beef, must be competitive with the pricing grids of NBP's competitors and may
not be less favorable than pricing grids offered to other suppliers.

At August 28, 2004 and August 30, 2003, the Company had payables due to members for the purchase of
cattle in the amount of $3.6 million and $1.6 million, respectively. All cattle
purchases during the respective periods were from members.

NBP entered into various
transactions with Beef Products, Inc., a company affiliated with NBPCo Holdings
in the ordinary course of business. Sales transactions were based upon
prevailing market prices, and purchases were on terms no less favorable to NBP
than would be obtained from an unaffiliated party. During the years ended August 28, 2004 and August 30, 2003, NBP had sales of $52.7 million and $1.9 million,
respectively, and purchases of $16.7 million and $1.1 million, respectively,
with Beef Products, Inc. At August 28, 2004 and August 30, 2003, the amount due from Beef Products, Inc. was $2.9 million and $0.7 million, respectively,
while the amount due to Beef Products, Inc. was $0.4 million in both years.

In December 1998, FNB
entered into an aircraft lease agreement under which it leased a business jet
aircraft from John R. Miller Enterprises, LLC, a Utah limited liability company
of which John R. Miller, NBP's Chief Executive Officer, is the majority member.
The term of the lease is for five years and may be terminated by either John R.
Miller Enterprises, LLC or NBP on 90 days prior written notice. During the year
ended August 28, 2004 and the 24 day period ended August 30, 2003, NBP
paid $0.2 million and $0.02 million, respectively, to lease the aircraft and
$0.07 million and $0.0 million in the respective years into an engine replacement
reserve account. The funds in the reserve account are to be used to finance new
engines installed on the aircraft.  This lease expired on December 15, 2003.  NBP still uses the aircraft on an as needed basis, with payment based on the hours
used, not to exceed the monthly lease payment NBP paid while the lease was
active.  There is no lease agreement in effect for this aircraft.

In March 2001, FNB
entered into a second aircraft lease agreement under which it leased a business
jet aircraft from John R. Miller Enterprises, LLC The term of the lease
automatically renews every 11 months unless either John R. Miller Enterprises,
LLC or NBP requests termination within 90 days of the end of the lease term.
During the year ended August 28, 2004 and the 24 day period ended August
30, 2003, NBP paid $0.4 million and $0.04 million, respectively, to lease the
aircraft and $0.05 million and 0.01 million, respectively, into an engine
replacement reserve account. The funds in the reserve account are to be used to
finance new engines installed on the aircraft.

In October 2003, NBP
entered into an additional aircraft lease agreement under which it leases a
third business jet aircraft from John R. Miller Enterprises III, LLC, a Utah
limited liability company of which John R. Miller, NBP's Chief Executive
Officer, is the beneficial owner. The term of the lease is 81 months. This
aircraft replaced the aircraft leased in December 1998. The monthly lease
payments will range from $25,400 in the first year of the lease to $45,380 in
the fourth year of the lease and thereafter, and are adjusted quarterly based
on the change in the three month LIBOR interest rate.  During the fiscal year
ended August 28, 2004, NBP paid $0.3 million to lease the aircraft and $0.08
million into an engine replacement reserve account.  The funds in the reserve
account are to be used to finance new engines installed on the aircraft.

NBP believes that the terms of these
aircraft leases are at least as favorable to it as it could have obtained from
unaffiliated third parties.

(11)     Capital Shares
and Equities

(a)       Common Stock

The Company is authorized to
issue 5,000,000 shares of common stock, $0.01 par value. At August 28, 2004 and August 30, 2003, there were 691,845 shares of common stock issued
and outstanding. Ownership of common stock is restricted to agricultural
producers of cattle, as defined, who reside in the territory served by the
Company, and who qualify for membership in the Company. Membership requirements
include payments of membership and registration fees, execution of a Uniform
Delivery and Marketing Agreement, and approval by the Board of Directors.

Members holding at least 100
shares of common stock are entitled to vote; however, each voting member has
only one vote regardless of the number of shares of common stock held. No
dividends are paid on the common stock.

(b)       Preferred Stock

The Company is authorized to
issue 5,000,000 shares of preferred stock, $0.01 par value. At August 28, 20004
and August 30, 2003, there were no shares of preferred stock issued or
outstanding. Preferred stock has no voting rights. Dividends may be paid as
determined by the Board of Directors.

(c)        Members'
Contributed Capital

Members' contributed capital
represents amounts paid in excess of the par value of common stock, and
membership and registration fees collected from members.

(d)       Nondelivery Fee

A nondelivery fee represents amounts retained by the Company
($12 per head) in relation to the nondelivery of cattle by members in
accordance with the Uniform Delivery and Marketing Agreement. A nondelivery fee
is held by the Company and then distributed back to the members upon approval
of the Board of Directors. This approval is at the complete and sole discretion
of the Board and since these had not been approved for payment as of August 28, 2004, they are not considered to be a liability of the Company.  There were
$1.3 million in outstanding nondelivery fees as of August 28, 2004 and zero as of August 30, 2003.

(e)  Patronage Refunds

The Company may pay patronage
refunds with respect to cattle delivered to the Company in the form of cash,
stock, or written notices of allocation, or any combination thereof based on
each member's patronage business with the Company. Patronage refunds for
reinvestment represent the portion of patronage refunds payable from current
year earnings in equities.

For purposes of patronage
refunds, current year earnings are determined in accordance with federal income
tax regulations. For the years ended August 28, 2004, August 30, 2003 and August 31, 2002, 40% of current year earnings was
distributed in cash and the remaining 60% was distributed in equities.

The difference in net income
for financial reporting purposes, determined in accordance with accounting
principles generally accepted in the United States of America, and current
patronage refunds determined on a federal taxable income basis is reflected as
deferred patronage, which will be allocated to members when the resulting
temporary differences reverse. Deferred patronage is included in unallocated
equity in the accompanying Consolidated Statements of Capital Shares and Equities.

(f)        Unallocated
Equity

Unallocated
equity represents equities not allocated to members. Unallocated equity at August 28, 2004 and August 30, 2003 represents the following (dollars in thousands):

2004
  
  2003Deferred patronage
  $
  9,492
  
  3,991Earned surplus
  
  16,883
  
  5,168$
  26,375
  
  9,159


Earned surplus consists of
foreign sales income not distributed, the net loss incurred during the Company's
development stage (prior to December 1, 1997) and corporate subsidiaries.

(g)       New LLC
Structure

On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved the merger of the cooperative into a
wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation. The
merger was effective on August 29, 2004. The Delaware corporation then, in a
statutory conversion authorized under Delaware law, converted into a Delaware limited liability company. Under the new ownership structure, each share of common
stock of the cooperative was converted to one unit of Class A interest and one
unit of Class B interest.  Immediately following the conversion, there
were 691,845 units of Class A interests and 691,845 units of Class B interests. 
For a period to be determined by the board of directors, each Class A unit will
be linked to its corresponding Class B unit and each pair of linked units must,
if transferred, be transferred together.  Patronage Refunds for
Reinvestment in the cooperative were carried over at their face amount into the
LLC as Patronage Notices.

Class A Interests.  Holders of
Class A interests are entitled to a pro rata share of 33% of the profits and
losses; to receive distributions of the Company's net cash flow when declared
by the board of directors; to participate in the distribution of the Company's
assets if it dissolves or liquidates after payment of the Patronage Notices,
and, if the holder is a member, to vote on matters submitted to a vote of the
Company's members.  Holders of Class A interests are committed under
Uniform Delivery and Marketing Agreements to deliver one head of cattle to the
Company annually for each unit held.

Class B Interests.  Holders of
Class B interests are entitled to a pro rata share of 67% of the profits and
losses; to receive distributions of the Company's net cash flow when declared
by the board of directors; to participate in the distribution of the Company's
assets if it dissolves or liquidates after the payment of the Patronage Notices,
and, if the holder is a member, to vote on matters submitted to a vote of the
Company's members.  Holders of Class B interests have no cattle delivery
commitment.

Patronage Notices.  Holders of
Patronage Notices do not constitute units or membership interests in the
Company, and holders will not be unitholders or members of the Company by
virtue of holding Patronage Notices. As was the case in the cooperative,
Patronage Notices will be paid by the Company at such time and in such amounts
as may be determined by the board of directors in its sole and absolute
discretion. Upon liquidation, holders of Patronage Notices will be paid before
Holders of Class A and Class B interests.  Patronage Notices carry no
other or additional rights.

(12)    Minority Interest

At any time after certain
dates, the earliest being July 31, 2008, the latest being July 31,
2011, certain members of management of NBP and/or NBPCo Holdings have the right
to request that NBP repurchase their interests, the value of which to be determined
by a mutually agreed-upon appraisal process. If NBP is unable to effect the
repurchase within a specified time, the requesting member(s) have the right to
cause a sale process of NBP to commence. NBP accounts for changes in the
redemption value of these interests by accreting the change over the period
from the date of issuance to the earliest redemption date of the interest using
the interest method. At August 28, 2004, the Minority Interest in NBP was
revalued by an independent appraisal process, and the value was determined to
be $62.3 million.  Under the interest method, the carrying value of the
Minority Interest in NBP has been increased by approximately $0.2 million to
$62.5 million as reflected in the accompanying Consolidated Balance Sheet as of
 August 28, 2004.

(13)     Legal
Proceedings

On July 1, 2002, a lawsuit was
filed against FNB, ConAgra Beef Company, Tyson Foods, Inc. and Excel
Corporation in the United States District Court for the District of South
Dakota seeking certification of a class of all persons who sold cattle to the
defendants for cash, or on a basis affected by the cash price for cattle,
during the period from April 2, 2001 through May 11, 2001 and for some period
up to two weeks thereafter. USPB was not named a party to this proceeding, but
is at risk by being the majority owner of NBP (formerly FNB). The case was
filed by three named plaintiffs on behalf of a putative nationwide class that
plaintiffs estimate is comprised of hundreds or thousands of members. The
complaint alleges that the defendants, in violation of the Packers and
Stockyards Act of 1921, knowingly used, without correction or disclosure,
incorrect and misleading boxed beef price information generated by the USDA to
purchase cattle offered for sale by the plaintiffs at a price substantially
lower than was justified by the actual and correct price of boxed beef during
this period. Plaintiffs also seek recovery against all defendants under a
theory of unjust enrichment.  The plaintiffs seek damages in excess of $50.0
million from all defendants as a group on behalf of the class.  FNB answered
the complaint and joined with the three other defendants in moving to dismiss
this action. An amended complaint was filed and FNB joined in the other
defendants' motion to dismiss. The joint motion to dismiss was denied, and the
judge ruled that the plaintiffs adequately alleged a violation of the Packers
and Stockyards Act of 1921. The case was certified as a class-action matter in
June 2004.  Accordingly, the lawsuit will proceed to trial. Management believes
that FNB acted properly and lawfully in dealings with cattle producers.
Management is currently unable to predict the outcome of this matter or to
estimate the amount of potential loss, if any. In accordance with SFAS No. 5,
Accounting for Contingencies, NBP has not established a loss accrual associated
with this claim.

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

(14)         Business Segments

In June of 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes annual
and interim reporting standards for operating segments of a company. It also
requires entity‐wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and reports
revenues, and its major customers. USPB is not organized by multiple operating
segments for the purpose of making operating decisions or assessing
performance. Accordingly, USPB operates in one operating segment and reports
only certain enterprise‐wide disclosures.

(a)       Customer
Concentration

In the fiscal year ended August 28, 2004, one customer with its consolidated subsidiaries represented 9.1% of NBP's
total sales, with no other customer representing more than 3.3% of total
sales.  In the fiscal year ended August 30, 2003, FNB represented 67.6% of USPB's reported sales. These are sales from USPB to FNB prior to the
Acquisition that were not eliminated in consolidation. For the fiscal year
ended August 30, 2003, one customer with its consolidated subsidiaries
represented 10.3% of NBP's total sales with no other single customer
representing more than 2.9% of NBP's total sales.

(b)       Sales to
Foreign Countries

NBP
had sales outside the United States of America for the year ended August 28, 2004 and the 24 day period ended August 30, 2003 of approximately $395.5 million and $48.9 million, respectively. No single country accounted for
more than 10% of total sales. The amount of assets maintained outside the United States of America is not material.

(15)     United States BSE Outbreak

On December 23, 2003, it was announced by the United States Department of Agriculture (USDA)
that a single Holstein dairy cow was discovered in the state of Washington to have tested positive for bovine spongiform encephalopathy (BSE).  The origin
of the animal was subsequently traced to a farm in Canada.  Shortly after the
announcement, several countries representing a substantial share of NBP's
export business closed their borders to the importation of edible beef products
from the United States.  Responding to the loss of export markets, live cattle
prices in the United States declined by approximately 18% within 3 days.  In
the fiscal year end 2003, NBP's total export sales were approximately 17% of
total sales, including sales of non-food beef products such as hides.  In
fiscal year end 2004, NBP's total export sales were approximately 10% of total
net sales.

During the second quarter
of fiscal year end 2004, NBP recorded charges to earnings totaling
approximately $18.8 million due to the market impacts of the closure of
international borders as a result of the BSE discovery in late December.  These
charges, recorded in sales and cost of sales in the Company's Consolidated
Statement of Operations, reflect:  (1) volatility in the U.S. markets for
finished goods and live cattle, with an impact noted in immediate margin
erosion resulting from a rapid fall in cutout or sales values; (2)  some
product already destined for foreign markets re-routed for resale in the U.S.,
generally at prices lower than their original export value; and (3) lower value
for certain inventory items which had been in the production pipeline and had
not yet left the U.S. as they had no comparable domestic market.  Certain
by-products have been classified as Specified Risk Materials (SRMs), and have
been banned from use in feedstocks and the human food chain. Some of these
products previously enjoyed a market in foreign countries.  The impacts of BSE
were positively offset, in part, by strong domestic demand for beef products.

In addition, the
USDA and the Food Safety Inspection Service (FSIS) published new regulations in
response to the discovery of BSE in the state of Washington.  These new
regulations, among other things, govern the removal of SRMs during slaughter,
cover the ban on the slaughtering of non-ambulatory animals for human food use,
set forth the prohibition on the production of mechanically separated meat and
ban certain techniques used in the slaughter process.  The USDA also issued a
notice announcing that FSIS inspectors will not mark ambulatory cattle that
have been targeted for BSE surveillance testing as "inspected and passed" until
negative test results are obtained.  NBP does not anticipate that these new
regulations, individually or in the aggregate, will have a material adverse
effect on its business.

While exports of
some beef products have commenced once again to Mexico, NBP cannot anticipate
the duration of other continuing beef import bans or whether additional
countries may impose similar restrictions.  Thus far, the effect of resumed
export of beef products to Mexico has been marginal on the United States beef industry.  Fed cattle slaughter levels in the United States for the
fiscal year end 2004 fell approximately 8.9% below year-ago levels, reflecting
constrained cattle supplies and reduced demand for export products.

The closure of U.S.
borders to the importation of Canadian feeder and fattened (ready for
slaughter) animals which occurred in May 2003 following the discovery of BSE in
Alberta that same month tightened the U.S. cattle supply; and, although the
U.S. border opened to Canadian produced boxed beef in September 2003, the entire
U.S. Beef industry continued at a price disadvantage while the ban on
importation of Canadian livestock was maintained.   This continued closure of
the U.S. border to Canadian livestock has resulted in higher overall feeder and
fed cattle prices in the U.S., negatively impacting raw material prices.

The USDA has
published a proposed rule revising its policy to keep the U.S. border closed to live animals for processing in the U.S.  The comment period for this
proposed rule closed on April 7, 2004 and publication of a final rule was
anticipated within a reasonable time following closure of the comment period. 
In the interim, Ranchers Cattlemen Action Legal Fund United Stockgrowers of
America (R-CALF -  a northern states cattle producer's organization) was
successful in obtaining an injunction against the USDA allowing importation of
certain beef products produced in Canada pursuant to this rule, because the
USDA did not follow the "Administrative Procedures Act" prior to issuing its
order allowing such action.  The final rule is drafted and is being reviewed
within the USDA.  It is expected to be sent to the federal government Office of
Management and Budget (OMB) after the U. S. presidential election.  The OMB
could take up to 90 days to return it to the USDA, but many expect the final
rule to be published before the end of the year with the markets opening in the
first quarter of calendar 2005, although NBP can provide no assurance that this
will occur.

A United
States/Japanese Commission was formed to look at the optimal "science based"
approach to resolving the issues between the U.S. and Japan.  The commission held its last meeting in July 2004.  Following this meeting, trade
representatives from the United States and Japan continued their discussions on
reopening of the Japanese market to imported beef products from the United States.

On October 23, 2004, the USDA announced that Japan and the U.S. had reached an agreement on
opening the border for export to Japan.  Over the coming months, many details
will have to be worked out by both governments.  Part of the agreement involves
the tracking of animals of known age from the ranch so that only meat from
animals less than 21 months of age can be shipped to Japan.  It may require
considerable effort and resources for NBP to develop and implement such a
system over the coming months.  It is expected that the markets will begin to
open for some products in the first quarter of calendar 2005, although no
assurance can be given that this will occur.

NBP cannot
presently assess the full economic impact of the consequences of BSE on the U.S. beef industry or on its operations.  The Company's revenues and net income may be
materially adversely affected in the event existing import restrictions
continue indefinitely, additional countries announce similar restrictions,
additional regulatory restrictions are put into effect or domestic consumer
demand for beef declines substantially.

(16)     Quarterly
Results (Unaudited)

Selected quarterly
financial data for 2004 and 2003 is set forth below (dollars in thousands):

Equity inEarningsof FarmlandNationalBeef PackingOperating
  
  Company,
  
  NetNet sales
  
  Income
  
  LLP
  
  Income2004 quarterly results:November 29, 2003
  $
  1,058,306
  
  24,914
  
  -
  
  9,607February 28, 2004 (1)
  
  932,036
  
  6,177
  
  -
  
  225May 29, 2004
  
  1,018,740
  
  15,888
  
  -
  
  3,928August 28, 2004
  
  1,080,429
  
  15,781
  
  -
  
  5,336$
  4,089,511
  
  62,760
  
  -
  
  19,0962003 quarterly results:November 30, 2002
  $
  151,739
  
  (772)
  
  4,634
  
  3,707February 22, 2003
  
  132,575
  
  (880)
  
  2,480
  
  1,447May 31, 2003
  
  145,834
  
  (1,304)
  
  4,838
  
  3,399August 30, 2003 (2)
  
  441,626
  
  13,352
  
  10,634
  
  15,677$
  871,774
  
  10,396
  
  22,586
  
  24,230


(1)As
more fully described in note 15, the Company recorded charges to earnings
totaling approximately $18.8 million due to the market impacts of the closure
of international borders as a result of the BSE discovery in late December.

(2)As
more fully described in note 1, USPB acquired a controlling interest in
FNB in the fourth quarter of 2003. Accordingly, the results of NBP have been
consolidated for the 24 day period ended August 30, 2003 in the accompanying statement of operations. Prior to August 6, 2003, USPB accounted for its investment in FNB under the equity method of accounting.






NATIONAL BEEF PACKING
COMPANY, LLC AND SUBSIDIARIES

INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

PageAudited
			Consolidated Financial Statements:Report of Independent Registered Public Accounting Firm
			F-2Consolidated Balance
			Sheets at August 28, 2004 and August 30, 2003
			F-3Consolidated
			Statements of Operations for the fiscal year ended August 28,
			2004, 
			the 24 days ended August 30, 2003, the 340 days ended August 6,
			2003 and the fiscal year ended August 31, 2002
			F-4Consolidated
			Statements of Cash Flows for the fiscal year ended August 28,
			2004,
			the 24 days ended August 30, 2003, the 340 days ended August 6,
			2003 and the fiscal year ended August 31, 2002
			F-5Consolidated Statements of Partners' and Members' Capital for
			the fiscal year ended August 28, 2004,
			the 24 days ended August 30, 2003, the 340 days ended August 6,
			2003 and the fiscal year ended August 31, 2002
			F-6Consolidated Statements of Comprehensive Income for the fiscal
			year ended August 28, 2004,
			the 24 days ended August 30, 2003, the 340 days ended August 6,
			2003 and the fiscal year ended August 31, 2002
			F-7Notes to Consolidated Financial Statements
			F-8


F-1




Report
of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
National Beef Packing Company, LLC:

We have audited the accompanying
consolidated balance sheets of National Beef Packing Company, LLC and
subsidiaries (Successor) as of August 28, 2004 and August 30, 2003, and the
related consolidated statements of operations, members' capital,
comprehensive income, and cash flows for the fiscal year ended August 28,
2004 and for the 24 days ended August 30, 2003 (Successor periods), and the
consolidated statements of operations, partners' capital, comprehensive
income, and cash flows of Farmland National Beef Packing Company, LP and
subsidiaries (Predecessor) for the 340 days ended August 6, 2003 and for
the fiscal year ended August 31, 2002 (Predecessor periods).  These
consolidated financial statements are the responsibility of the Companies'
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the aforementioned
Successor consolidated financial statements present fairly, in all material
respects, the financial position of National Beef Packing Company, LLC and
subsidiaries as of August 28, 2004 and August 30, 2003, and the results of
their operations and cash flows for the Successor periods, in conformity
with U.S. generally accepted accounting principles.  Further, in our
opinion, the aforementioned Predecessor consolidated financial statements
present fairly, in all material respects, the results of operations and
cash flows of Farmland National Beef Packing Company, LP and subsidiaries
for the Predecessor periods, in conformity with U.S. generally accepted
accounting principles.

As discussed in Note 3 to the
consolidated financial statements, effective August 7, 2003, U.S. Premium
Beef, Ltd. acquired a controlling interest in Farmland National Beef
Packing Company, LP and subsidiaries in a business combination accounted
for as a purchase.  As a result of the transaction, the consolidated
financial information for the periods after the acquisition (Successor
periods) are presented on a different cost basis than that for the periods
before the acquisition (Predecessor periods) and, therefore, are not
comparable.

KPMG LLP
Kansas City, Missouri
November 22, 2004

F-2




NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Balance Sheets(in thousands)August 28, 2004
			
			August 30, 2003AssetsCurrent assets:Cash and cash equivalents
			$
			27,998
			
			$
			31,304Accounts receivable, less allowance for returns
			and 
			                    doubtful accounts of $5,614 and 
			                    $5,134, respectively
			177,614
			
			155,858Due from affiliates
			2,873
			
			732Other receivables
			3,288
			
			4,143Inventories
			85,962
			
			77,587Deposits
			1,192
			
			20,768Other current assets
			9,590
			
			9,932Total current assets
			308,517
			
			300,324Property, plant and
			equipment, at cost:Land and improvements
			7,817
			
			6,319Buildings and improvements
			60,601
			
			52,524Machinery and equipment
			139,761
			
			123,819Trailers and automotive equipment
			2,148
			
			2,940Furniture and fixtures
			2,913
			
			2,128Construction in progress
			29,398
			
			24,542242,638
			
			212,272Less accumulated depreciation
			20,633
			
			1,751Net property, plant, and equipment
			222,005
			
			210,521Goodwill
			78,858
			
			78,858Other intangibles, net of accumulated amortization of 
			                    $1,722 and $196, respectively
			30,039
			
			31,565Other assets
			7,102
			
			8,553$
			646,521
			
			$
			629,821Liabilities and Members' CapitalCurrent liabilities:Current installments of long-term debt
			$
			9,453
			
			$
			6,608Cattle purchases payable
			49,569
			
			48,416Accounts payable - trade
			39,207
			
			36,925Due to affiliates
			416
			
			383Accrued compensation and benefits
			10,520
			
			21,026Accrued insurance
			13,903
			
			16,639Other accrued expenses and liabilities
			13,895
			
			15,309Distributions payable
			5,541
			
			22,386Total current liabilities
			142,504
			
			167,692Long-term debt, excluding current installments
			325,634
			
			305,480Other liabilities
			5,237
			
			3,311Total liabilities
			473,375
			
			476,483Minority interest
			632
			
			419Capital subject to redemption
			62,476
			
			53,623Members' capital:Members' capital
			110,025
			
			99,297Accumulated other comprehensive income (loss)
			13
			
			(1)Total Members' capital
			110,038
			
			99,296Commitments and contingencies
			-
			
			-$
			646,521
			
			$
			629,821See accompanying notes to
			consolidated financial statements.


F-3




NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated
			Statements of Operations(in thousands)Successor Entity
			
			Successor
			Entity
			
			Predecessor Entity
			
			Predecessor EntityNational Beef 
			Packing 
			Company, LLC 
			and Subsidiaries
			
			National Beef
			Packing Company, 
			LLC and 
			Subsidiaries
			
			Farmland National
			 Beef Packing
			Company, L.P. and
			 Subsidiaries
			
			Farmland National 
			Beef Packing 
			Company, L.P. and
			Subsidiaries52 weeks ended
			
			24 days ended
			
			340 days ended
			
			53 weeks endedAugust 28, 2004
			
			August 30, 2003
			
			August 6, 2003
			
			August 31, 2002Net sales
			$
			4,089,511
			
			$
			282,832
			
			$
			3,378,623
			
			$
			3,246,831Costs and expenses:Cost of sales
			3,969,666
			
			264,776
			
			3,250,960
			
			3,126,288Selling, general, and administrative
			30,672
			
			2,169
			
			24,895
			
			23,032Depreciation and amortization
			21,170
			
			2,055
			
			18,368
			
			18,024Total costs and expenses
			4,021,508
			
			269,000
			
			3,294,223
			
			3,167,344Operating income
			68,003
			
			13,832
			
			84,400
			
			79,487Other income (expense):Interest income
			549
			
			41
			
			511
			
			271Interest expense
			(24,853)
			
			(1,619)
			
			(5,021)
			
			(6,842)Minority owners' interest in net
			    income of  Kansas City 
			    Steak, LLC
			(313)
			
			(2)
			
			(121)
			
			(211)Equity in loss of aLF Ventures, LLC
			(837)
			
			(41)
			
			(1,343)
			
			(943)Other, net
			2,192
			
			(1,714)
			
			332
			
			4,709Income before taxes
			44,741
			
			10,497
			
			78,758
			
			76,471Income tax (expense)
			benefit
			(729)
			
			74
			
			(297)
			
			1,053Net income
			$
			44,012
			
			$
			10,571
			
			$
			78,461
			
			$
			77,524See accompanying notes to
			consolidated financial statements.


F-4




NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated
			Statements of Cash FlowsSuccessor Entity
			Successor Entity
			PredecessorEntity
			Predecessor 
			EntityNational Beef 
			Packing 
			Company, LLCand Subsidiaries
			National Beef 
			Packing 
			Company, LLCand Subsidiaries
			Farmland 
			National Beef
			 Packing 
			Company, L.P.and Subsidiaries
			Farmland 
			National Beef 
			Packing 
			Company, L.P. and Subsidiaries52 weeks ended
			24 days ended
			340 days ended
			53 weeks endedAugust 28, 2004
			August 30, 2003
			August 6, 2003
			August 31, 2002(in thousands)Cash flows from operating
			activities:Net income
			$
			44,012
			$
			10,571
			$
			78,461
			$
			77,524Adjustments to reconcile net income to net cash
			
			provided by operating activities:Depreciation and amortization
			21,170
			2,055
			18,368
			18,024Loss (gain) on disposal and impairment of 
			property, plant, and equipment
			42
			598
			(10)
			1,158Minority interest
			213
			2
			162
			211Change in assets and liabilities:Accounts receivable
			(21,756)
			(8,535)
			(30,015)
			8,882Due from affiliates
			(2,141)
			2,005
			308
			(1,420)Other receivables
			855
			1,126
			(3,173)
			519Inventories
			(8,375)
			(3,781)
			(9,551)
			6,748Deposits
			19,576
			-
			(598)
			(19,432)Other assets
			1,793
			(323)
			(1,489)
			(805)Accounts payable
			1,801
			632
			10,551
			(1,611)Due to affiliates
			33
			(2,954)
			(2,386)
			4,473Accrued compensation and benefits
			(10,506)
			(1,889)
			7,102
			(5,810)Accrued insurance
			(2,736)
			4,468
			2,827
			(1,090)Accrued expenses and liabilities
			512
			6,862
			(1,385)
			(1,609)Cattle purchases payable
			1,191
			3,953
			(5,763)
			422Net cash provided by operating activities
			45,684
			14,790
			63,409
			86,184Cash flows from investing
			activities:Capital expenditures, including interest
			capitalized
			(32,471)
			(1,698)
			(31,996)
			(21,300)Acquisition of interest in Predecessor Entity
			-
			(236,821)
			-
			-Acquisition of National Carriers, Inc.
			-
			-
			(5,025)
			-Proceeds from sale of property, plant, and
			equipment
			1,301
			226
			304
			1,282Net cash used in investing activities
			(31,170)
			(238,293)
			(36,717)
			(20,018)Cash flows from financing
			activities:Net receipts (payments) under revolving credit
			      lines
			29,249
			12,375
			797
			(26,630)Repayments of term note
			(6,250)
			-
			-
			-Proceeds from issuance of term note
			-
			21,875
			-
			125,000Proceeds from issuance of senior notes
			-
			160,000
			-
			-Cash paid for financing costs
			-
			(10,283)
			-
			(2,522)Change in overdraft balances
			443
			9,501
			(1,330)
			4,861Principal payments of debt
			-
			-
			(9,375)
			(12,508)Member contributions
			-
			45,964
			-
			-Member distributions
			(41,276)
			-
			-
			-Partnership distributions
			-
			-
			(32,158)
			(144,583)Net cash provided by (used in) financing
			activities
			(17,834)
			239,432
			(42,066)
			(56,382)Effect of exchange rate
			changes on cash
			14
			(1)
			4
			10Net increase (decrease) in
			cash
			(3,306)
			15,928
			(15,370)
			9,794Cash and cash equivalents
			at beginning of period
			31,304
			15,376
			30,746
			20,952Cash and cash equivalents
			at end of period
			$
			27,998
			$
			31,304
			$
			15,376
			$
			30,746Supplemental Disclosures:Cash paid during the period
			for interest
			$
			22,783
			$
			316
			$
			4,957
			$
			6,066Cash paid during the period
			for taxes
			$
			633
			$
			203
			$
			67
			$
			95


See
accompanying notes to consolidated financial statements.

F-5




NATIONAL BEEF PACKING
COMPANY, LLC
AND SUBSIDIARIESConsolidated Statements of Partners' and Members' Capital
(in thousands)

Predecessor EntityFarmland National Beef Packing Company, L.P.
			and SubsidiariesGeneral partners
			
			Limited partners
			
			TotalBalance at August 25, 2001
			$
			6,102
			
			$
			197,313
			
			$
			203,415Allocation of net income
			2,326
			
			75,198
			
			77,524Distributions
			(4,321)
			
			(139,712)
			
			(144,033)Foreign currency
			translation adjustments
			-
			
			10
			
			10Balance at August 31, 2002
			$
			4,107
			
			$
			132,809
			
			$
			136,916Allocation of net income
			2,354
			
			76,107
			
			78,461Distributions
			(1,117)
			
			(36,138)
			
			(37,255)Foreign currency
			translation adjustments
			-
			
			4
			
			4Balance at August 6, 2003
			$
			5,344
			
			$
			172,782
			
			$
			178,126


Successor EntityNational Beef Packing Company, LLC and
			SubsidiariesCapital Subject to RedemptionClass A
			
			Class B-1
			
			Class B-2
			and C(a)
			
			TotalBalance at August 7, 2003
			$
			-
			
			$
			-
			
			$
			-
			
			$
			-Issuance of Class A and
			Class B-1 Units for cash
			33,068
			
			7,896
			
			-
			
			40,964Contribution of earned
			deferred compensation for Class
			    B-2 Units and rights to Class A and Class C Units
			9,086
			
			-
			
			914
			
			10,000Allocation of net income
			-
			
			4,437
			
			514
			
			4,951Class A 5% Priority
			Distributions
			(109)
			
			-
			
			-
			
			(109)Class B Distributions
			-
			
			(1,956)
			
			(227)
			
			(2,183)Balance at August 30, 2003
			$
			42,045
			
			$
			10,377
			
			$
			1,201
			
			$
			53,623Allocation of net income
			1,649
			
			15,924
			
			1,844
			
			19,417Class A 5% Priority
			Distributions
			(1,540)
			
			-
			
			-
			
			(1,540)Class B Distributions
			-
			
			(7,893)
			
			(892)
			
			(8,785)Appraisal valuation
			adjustment
			-
			
			(214)
			
			(25)
			
			(239)Balance at August 28, 2004
			$
			42,154
			
			$
			18,194
			
			$
			2,128
			
			$
			62,476


Members' CapitalClass A
			
			Class B-1
			
			Accumulated
			Other
			Comprehensive
			Income
			
			TotalBalance at August 7, 2003
			$
			-
			
			$
			-
			
			$
			-
			
			$
			-Issuance of Class A and
			Class B-1 Units in exchange for
			    U.S. Premium's interest in FNBPC
			86,447
			
			5,000
			
			-
			
			91,447Issuance of Class B-1 Units
			for cash
			-
			
			5,000
			
			-
			
			5,000Allocation of net income
			-
			
			5,620
			
			-
			
			5,620Class A 5% Priority
			Distributions
			(292)
			
			-
			
			-
			
			(292)Class B Distributions
			-
			
			(2,478)
			
			-
			
			(2,478)Foreign currency
			translation adjustments
			-
			
			-
			
			(1)
			
			(1)Balance at August 30, 2003
			$
			86,155
			
			$
			13,142
			
			$
			(1)
			
			$
			99,296Allocation of net income
			4,427
			
			20,168
			
			-
			
			24,595Class A 5% Priority
			Distributions
			(4,135)
			
			-
			
			-
			
			(4,135)Class B Distributions
			-
			
			(9,971)
			
			-
			
			(9,971)Appraisal valuation
			adjustment
			-
			
			239
			
			-
			
			239Foreign currency
			translation adjustments
			-
			
			-
			
			14
			
			14Balance at August 28, 2004
			$
			86,447
			
			$
			23,578
			
			$
			13
			
			$
			110,038


____________

(a)     Class B-2 and Class C collectively have equal value
and rights as Class B-1

See
accompanying notes to consolidated financial statements.

F-6




NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Statement of Comprehensive Income(in thousands)Successor Entity
			
			Successor Entity
			
			Predecessor Entity
			
			Predecessor EntityNational Beef Packing Company, LLC and
			Subsidiaries
			
			National Beef Packing Company, LLC and
			Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries52 weeks ended
			
			24 days ended
			
			340 days ended
			
			53 weeks endedAugust 28, 2004
			
			August 30, 2003
			
			August 6, 2003
			
			August 31, 2002Net income
			$
			44,012
			
			$
			10,571
			
			$
			78,461
			
			$
			77,524Other comprehensive income(loss):Foreign currency translation adjustments
			14
			
			(1)
			
			4
			
			10Comprehensive income
			$
			44,026
			
			$
			10,570
			
			$
			78,465
			
			$
			77,534See accompanying notes to
			consolidated financial statements.


F-7




NOTE 1. 
DESCRIPTION OF BUSINESS AND THE TRANSACTION

National
Beef Packing Company, LLC ("NBP" or "Successor"), is a Delaware limited
liability company which is the successor entity to the former Farmland
National Beef Packing Company, L.P. ("FNBPC" or "Predecessor") as a result
of the transaction described below, which occurred on August 6, 2003. Since
the assets and liabilities of NBP are presented on a new basis of
accounting, the financial information for NBP is not comparable to the
financial information of FNBPC prior to August 7, 2003.

NBP sells
its meat products to customers in the foodservice, international, further
processor and retail distribution channels. NBP also produces and sells
by-products that are derived from its meat processing operations and
variety meats to customers in various industries.

NBP
operates beef slaughter and fabrication facilities in Liberal and Dodge
City, Kansas, case-ready beef and pork processing facilities in Hummels
Wharf, Pennsylvania and Moultrie, Georgia and holds a 76.9% interest in
Kansas City Steak Company, LLC, a portion control processing facility in
Kansas City, Kansas. A wholly-owned subsidiary, National Carriers, Inc.,
("National Carriers") located in Liberal, Kansas, provides trucking
services to NBP and third parties.

Approximately 2,700 employees at the Liberal, Kansas facility are
represented under a collective bargaining agreement scheduled to expire
December 16, 2007.

The
Transaction-On June 12, 2003, U.S. Premium Beef, Ltd. ("U.S. Premium
Beef") entered into an agreement with Farmland Industries, Inc.,
("Farmland"), to acquire all of the partnership interests in Farmland
National Beef Packing Company, L.P. ("FNBPC") held by Farmland, which
approximated 71.2%. U.S. Premium Beef, which held the remaining interest in
FNBPC, formed NB Acquisition, LLC ("NB Acquisition") to consummate the
acquisition. U.S. Premium Beef, NBPCo Holdings, LLC ("NBPCo Holdings"), and
certain members of management purchased equity in NB Acquisition for $46.0
million in cash. NB Acquisition used a portion of these funds to purchase
all of the membership interest of an affiliate of Farmland that held
Farmland's general partnership interest in FNBPC, giving NB Acquisition
voting control of FNBPC. Immediately thereafter, to finance the purchase of
Farmland's remaining interest, FNBPC issued $160.0 million of 101/2%
Senior Notes due 2011 (the "Senior Notes") and amended its existing credit
facility. A portion of the proceeds of the Senior Notes offering and
borrowings under the amended credit facility were transferred to NB
Acquisition. Subsequently, NB Acquisition merged into FNBPC, and converted
into a limited liability company, NBP, under Delaware law. These
transactions closed on August 6, 2003. NBP continues to hold all of the
same assets FNBPC held before the consummation of the transactions,
including equity in subsidiaries, except that Farmland retained a 49%
interest in a NBP subsidiary National Beef aLF, LLC, which holds a 47.5%
interest in aLF Ventures, LLC. From July 2006 to July 2008, Farmland has a
put right of this interest in National Beef aLF, LLC to NBP at its then
fair market value. If the interest in National Beef aLF, LLC is not
repurchased, NBP is required to put the entire interest up for sale. Due to
uncertainties in aLF Ventures, LLC's ability to generate future revenues,
no amounts were allocated to the put option in the consolidated financial
statements.

The
following table sets forth the approximate sources and uses of funds (in
millions) in connection with the Transaction as it occurred on August 6,
2003.

SourcesAvailable cash
			
			$
			3.2Revolving credit facility(1)
			
			
			16.0Term loan
			
			
			125.0Senior Notes
			
			
			160.0NBPCo Holdings equity(2)
			
			
			35.4U.S. Premium Beef equity(3)
			
			
			96.4Management equity(4)
			
			
			15.6Total
			
			$
			451.6


F-8




UsesPurchase of Farmland's interest
			
			$
			232.0Refinancing of existing credit facility
			
			
			103.1U. S. Premium Beef rollover equity
			
			
			91.4Membership interests issued as deferred
			compensation(4)
			
			
			10.0Transaction costs(5)
			
			
			15.1Total
			
			$
			451.6





|(1) | NBP had total availability,
		including the amount presented, of $140.0 million under the amended
		revolving credit facility at August 6, 2003. Actual borrowings
		under the amended revolving credit facility at the closing of the
		Transaction were $16.0 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents cash equity from NBPCo Holdings.
|--- | -------------------------------------------

|(3) | Includes $5.0 million in cash
		and the predecessor basis of the 28.8% equity interest in FNBPC
		held by U.S. Premium Beef prior to the Transaction.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes $5.6 million in cash
		and $10.0 million of cash incentive compensation earned as of
		closing that was issued as compensation on a deferred basis in the
		form of additional membership interests in NBP.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes commitment,
		placement, financial advisory and other transaction fees, and
		legal, accounting and other professional fees.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

The total
purchase price (including expenses and other consideration) has been
allocated to the net assets based on their estimated fair values at the
date of acquisition to the extent of the approximately 71.2% change in
ownership as of the date of closing. The Transaction is within the scope of
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, which resulted in a new basis of accounting in accordance
with the Emerging Issues Task Force ("EITF") 88-16, Basis in Leveraged
Buyout Transactions. In accordance with that guidance, the interest of
U.S. Premium Beef, a minority owner of the Predecessor, was carried over at
its predecessor basis because a change in control has occurred in which
U.S. Premium Beef obtained unilateral control of NBP. The excess of the
purchase price over U.S. Premium Beef's predecessor basis of net assets
acquired was recognized as a reduction in members' capital.

U.S.
Premium Beef, NBPCo Holdings and management each hold Class A and Class B
interests in NBP. In addition, members of management will be issued a fixed
number of additional Class A and Class C interests in NBP in lieu of cash
payments owed under existing employment arrangements.

Class A
Interests. Class A interests are non-voting and are entitled to a
priority distribution of 5% per year on the face amount of the Class A
interests, payable quarterly in cash to the extent permitted by NBP's
senior lenders and the indenture governing the Senior Notes. The face
amount of the Class A interests, together with all unpaid priority
distributions, will be distributed on a priority basis upon liquidation.

Class B
Interests. Class B interests, together with the Class C interests
described below, are entitled to receive all assets available for
distribution upon liquidation after payment of the Class A face amount
together with all unpaid Class A priority distributions. Class B interests
will also be allocated all items of income and loss earned or incurred by
NBP after allocation of income attributable to the Class A priority
distribution. In addition, the holders of Class B interests are entitled to
receive quarterly distributions of 48% of NBP's taxable net income to make
tax payments. Certain of the Class B interests (B-2 interests) issued to
management are in the form of "profits interests" issued in exchange for
services previously rendered. The B-2 interests have rights in liquidation
only to the extent of their profits interest. The voting power of the
members (voting either directly or by action of the board of managers
designated by the members) is determined based upon the number of Class B
interests held.

F-9




Class C
Interests.Rights to Class C interests are held only by owners of Class
B-2 interests. Class B-2 and Class C interests collectively, have equal
value and rights as Class B-1 interests. The face amount of the Class C
interests will be distributed out of the assets available for distribution
upon liquidation on a parity basis with the Class B interests after payment
of the Class A face amount together with all unpaid Class A priority
distributions.

U.S.
Premium Beef holds approximately 53.2% of the Class B interests, as well as
Class A interests with an aggregate face amount of approximately $88.8
million, NBPCo Holdings owns approximately 20.2% of the Class B interests,
as well as Class A interests with an aggregate face amount of approximately
$31.6 million, and members of management own approximately 26.6% of the
Class B interests, as well as Class A interests with an aggregate face
amount of approximately $1.5 million. After a specified period following
completion of the Transaction, certain members of management will be issued
a fixed number of additional Class A interests with an aggregate face
amount of approximately $9.1 million and Class C interests with an
aggregate face amount of approximately $0.9 million in lieu of cash
payments owed under existing employment arrangements pursuant to deferred
compensation agreements entered into in connection with the Transaction.
These amounts were previously expensed as compensation expense in the
Predecessor financial statements.

Capital
subject to redemption represents Class A, B and C interests held by
management and NBPCo Holdings, which include repurchase rights of the
holders (see Note 10).

Prior to
the current ownership, NPB was organized as a limited partnership of which
NBPCo., L.L.C. and USPBCo., L.L.C. were the general partners and Farmland
and U. S. Premium Beef were the limited partners. Farmland is the ultimate
parent company of NBPCo., L.L.C. and U.S. Premium Beef is the ultimate
parent company of USPBCo., L.L.C.

Prior to
the close of the Transaction on August 6, 2003 as well as on August 31,
2002, the partners and their ownership interests of the Partnership were as
follows:

Partner Name
			
			Type
			
			Ownership interestNBPCo., L.L.C.
			
			General
			
			2.5034
			%USPBCo., L.L.C.
			
			General
			
			0.4966Farmland
			
			Limited
			
			68.7100U.S. Premium Beef
			
			Limited
			
			28.2900100.0000
			%


NBP
continues to hold all of the same assets after the consummation of the
Transaction, including equity in its subsidiaries, with the exception of a
49% interest in its previously wholly-owned subsidiary National Beef aLF,
LLC, or aLF, LLC, which holds a 47.5% interest in aLF Ventures, LLC. This
49% interest in aLF, LLC was transferred to Farmland concurrent with the
closing of the Transaction. After the transaction, NBP continues to hold a
24.2% interest in aLF Ventures, LLC through its 51% interest retained in
aLF, LLC.

NOTE 2.  BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation

The
aggregate purchase price for the Transaction described in Note 1 above was
$236.8 million (including approximately $4.8 million of transaction costs),
of which $190.8 million was funded through various incremental debt
instruments, and the remainder funded through contributed or retained
equity. The Transaction and the financial statements of the Acquired
Interest provided herein have been accounted for as a purchase in
accordance with SFAS No. 141 and EITF 88-16.

Accounting
principles generally accepted in the United States of America require NBP's
operating results prior to the Transaction to be reported as the results of
the Predecessor for periods prior to August 7, 2003 in the historical
financial statements. NBP's operating results subsequent to the Transaction
are presented as the Successor's results in the historical financial
statements and include the fiscal year ended August 28, 2004 and the 24
days ended August 30, 2003. Since the assets and liabilities of NBP are
presented on a new basis of accounting, the financial information for NBP
is not comparable to the financial information of FNBPC prior to August 7,
2003. Certain prior year amounts have been reclassified in order to conform
to the current year presentation.

F-10




Consolidation

The
consolidated financial statements include the accounts of NBP and its
direct and indirect subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Fiscal Year

NBP's
fiscal year consists of 52 or 53 weeks, ending on the last Saturday in
August. Fiscal 2004 and 2003 were 52 week fiscal years, while fiscal 2002
consisted of 53 weeks. All references to years in these notes to
consolidated financial statements represent fiscal years unless otherwise
noted.

Use
of Estimates

The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
using management's best estimates and judgments where appropriate. These
estimates and judgments affect the reported amounts of assets and
liabilities and disclosure of the contingent assets and liabilities at the
date of the financial statements. The estimates and judgments will also
affect the reported amounts for certain revenues and expenses during the
reporting period. Actual results could differ materially from these
estimates and judgments.

Cash
and Cash Equivalents

NBP
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.

Allowance for Returns and Doubtful Accounts

The
allowance for returns and doubtful accounts is NBP's best estimate of the
amount of probable returns and credit losses in NBP's existing accounts
receivable. NBP determines these allowances based on historical experience
and management's judgments. Specific accounts are reviewed individually for
collectibility.

Inventories

Inventories consist primarily of meat products and supplies. Product
inventories are stated at the lower of cost or market. The cost of
inventories of the beef-packing operation, except supply inventories, is
determined using the first-in, first-out (FIFO) method or market. The cost
of all other inventories is determined using FIFO, specific, or average
cost methods. The components of inventories are as follows:

F-11




August 28, 2004
			
			August 30, 2003(in thousands)Product inventories:Dressed and boxed
			meat products
			
			$
			67,801
			
			$
			60,781Beef by-products
			
			
			9,158
			
			
			8,738Supplies
			
			
			9,003
			
			
			8,068$
			85,962
			
			$
			77,587


Property, plant and
equipment

Property,
plant and equipment purchased as part of the Transaction were recorded at
estimated fair value, based on independent appraisals, to the extent of the
approximately 71.2% change in ownership. Purchases of property, plant and
equipment subsequent to the Transaction date, August 6, 2003, are recorded
at cost. Accumulated depreciation as of the Transaction date was
reclassified as a reduction of property, plant and equipment. Property,
plant, and equipment are depreciated principally on a straight-line basis
over the estimated useful life (based upon original acquisition date) of
the individual asset by major asset class as follows:

Buildings and improvements
			
			15 to 25 yearsMachinery and equipment
			
			2 to 8 yearsTrailers and automotive equipment
			
			2 to 4 yearsFurniture and fixtures
			
			3 to 5 years


Upon
disposition of these assets, any resulting gain or loss is included in
operations. Major repairs and maintenance costs that extend the useful life
of the related assets are capitalized. Normal repairs and maintenance costs
are charged to operations.

NBP
capitalizes the cost of interest on borrowed funds, which are used to
finance the construction of certain property, plant, and equipment. Such
capitalized interest costs are charged to the property, plant, and
equipment accounts and are amortized through depreciation charges over the
estimated useful lives of the assets. Interest capitalized was $0.1
million, $0.02 million, $0.2 million, and $0.2 million for the fiscal year
ended August 28, 2004, the 24 days ended August 30, 2003, the 340 days
ended August 6, 2003, and the fiscal year ended August 31, 2002,
respectively.

NBP
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets held and used is assessed based on
estimated undiscounted future cash flows. Impairment, if any, is recognized
based on fair value of the assets. Assets to be disposed of are reported at
the lower of cost or fair value less costs to sell, and are no longer
depreciated.

The
Predecessor recorded an impairment charge of approximately $1.0 million
during fiscal 2002, which is included in selling, general and
administrative expenses in the consolidated statements of operations. The
impairment charge relates primarily to equipment in conjunction with
abandoned plans to open a third case-ready facility. The estimated fair
value of these assets was based primarily on salvage values, which
approximated $0.7 million at August 28, 2004. This charge is included in
the Core Beef segment.

On October
3, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No
144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While this statement supersedes SFAS No.
121, Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, it retains many of the fundamental provisions
of that statement. The Predecessor adopted SFAS No. 144 on September 1,
2002. The adoption of this standard has not had a significant impact on the
Predecessor's or the Successor's consolidated financial statements.

F-12




Depreciation and amortization expense was $21.2 million, $2.1 million,
$18.4 million, and $18.0 million for the fiscal year ended August 28, 2004,
the 24 days ended August 30, 2003, the 340 days ended August 6, 2003, and
the fiscal year ended August 31, 2002, respectively.

Debt
Issuance Costs

Costs
related to the issuance of debt are capitalized and amortized to interest
expense using the straight line method, which approximates the effective
interest method, over the period the debt is outstanding. NBP has
capitalized $10.3 million in debt issuance costs associated with amending
the existing credit facility and with the issuance of Senior Notes in 2003.
These costs are being amortized over the life of the related debt
instruments. Amortization of $1.7 million and $0.1 million was charged to
interest expense during the fiscal year ended August 28, 2004 and the 24
days ended August 30, 2003 related to these costs. During the 340 days
ended August 6, 2003, the Predecessor expensed the unamortized portion of
$1.6 million of debt issuance costs associated with the credit facility
prior to its amendment.

Goodwill and Other Intangible Assets

The Predecessor adopted
SFAS No. 142, Goodwill and Other Intangible Assets, as of September
1, 2002. SFAS No. 142 provides that goodwill and other intangible assets
with indefinite lives shall not be amortized but shall be tested for
impairment on an annual basis. Identifiable intangible assets with definite
lives are amortized over their estimated useful lives.  NBP evaluates
goodwill and other indefinite life intangible assets annually for
impairment and, if there is impairment, the carrying amount of goodwill and
other intangible assets is written down to the implied fair value.    For
goodwill, this test involves comparing the fair value of each reporting
unit to the unit's book value to determine if any impairment exists.  NBP
calculates the fair value of each reporting unit using estimates of future
cash flows.  In connection with the Transaction, NBP recognized excess cost
over the fair value of the net tangible and identifiable intangible assets
acquired, and recorded this excess as goodwill, which has been allocated to
the Core Beef segment.  See Note 3 for a discussion of the purchase
accounting associated with the Transaction and the determination of
goodwill.  In accordance with SFAS 142, goodwill was tested for impairment
and, as of August 28, 2004, management determined there was no impairment.

Goodwill
prior to the Transaction related to the initial formation of FNBPC and
subsequent acquisition of the Dodge City, Kansas facility and represented
the excess of the cost over the fair value of the net assets acquired.
Goodwill had been amortized on a straight-line basis over twenty-five
years.

Prior to
the adoption of SFAS No. 142, the Predecessor reviewed its long-lived
assets, including goodwill, whenever events or changes in circumstances
indicated that the carrying amount of an asset may not be recoverable.
Recoverability of assets held and used was assessed based on estimated
undiscounted future cash flows. Impairment, if any, is recognized based on
fair value of the assets. Assets to be disposed of are reported at the
lower of cost or fair value less costs to sell.

The
following table reflects the impact of goodwill amortization on net income
for fiscal year 2002:

Predecessor EntityFiscal Year Ended
			August 31, 2002(in thousands)Reported net income
			
			$
			77,524Add goodwill amortization
			
			
			777Adjusted net income
			
			$
			78,301


F-13




In
connection with the Transaction, intangible assets were identified and
valued by an independent third party. As a result of this valuation, to the
extent of the approximately 71.2% change of ownership, Trademarks were
recorded at $20.4 million and Customer Relationships were recorded at $11.3
million. Trademarks are not scheduled for amortization due to their
expected indefinite useful life. NBP will amortize the recorded fair value
of the Customer Relationships over 7 years on a straight-line basis. For
the fiscal year ended August 28, 2004 and for the 24 days ended August 30,
2003, NBP recognized $1.5 million and $0.2 million, respectively, of
amortization expense. The following table reflects the anticipated
amortization expense relative to intangible assets recognized in NBP's
balance sheet as of August 28, 2004, for each of the next five years and
thereafter:

(Dollars in thousands)Estimated amortization
			expense for fiscal years ended:2005
			
			$
			1,6132006
			
			$
			1,6132007
			
			$
			1,6132008(1)
			
			$
			1,6442009
			
			$
			1,613Thereafter
			
			$
			1,505


_____________

|(1) | FYE 2008 consists of 53 weeks.
|--- | ------------------------------

Overdraft Balances

The
majority of NBP's bank accounts are zero balance accounts where cash needs
are funded as checks are presented for payment by the holder. Checks issued
pending clearance that result in overdraft balances for accounting purposes
are included in the trade accounts payable and cattle purchases payable
balances, and the change in the related balances are reflected in financing
activities on our statement of cash flows. Overdraft balances of $56.3
million and $55.8 million were included in trade accounts and cattle
purchases payables at August 28, 2004 and August 30, 2003.

Self-insurance

NBP is
self-insured for certain losses relating to worker's compensation, auto
liability, general liability and employee medical and dental benefits. NBP
has purchased stop-loss coverage in order to limit its exposure to any
significant levels of claims. Self-insured losses are accrued based upon
NBP's estimates of the aggregate uninsured claims incurred using actuarial
assumptions accepted in the insurance industry and NBP's historical
experience rates.

Environmental Expenditures and Remediation Liabilities

Environmental expenditures that relate to current or future operations and
which improve operational capabilities are capitalized at time of
expenditure. Expenditures that relate to an existing or prior condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the
costs can be reasonably estimated.

Foreign Currency Translation

NBP has
representative offices located in Tokyo, Japan and Seoul, South Korea. The
primary activity of these offices is to assist customers with product and
order related issues. For foreign operations, the local currency is the
functional currency. Translation into U.S. dollars is performed for assets
and liabilities at the exchange rates as of the balance sheet date. Income
and expense accounts are translated at average exchange rates for the
period. Adjustments resulting from the translation are reflected as a
separate component of other comprehensive income.

F-14




Income Taxes

The
provision for income taxes is computed on a separate legal entity basis.
Accordingly, NBP does not provide for income taxes as the results of
operations are included in the taxable income of the individual members.
However, to the extent that subsidiary entities provide for income taxes,
deferred tax assets and liabilities are recognized based on the differences
between the financial statement and tax bases of assets and liabilities at
each balance sheet date using enacted tax rates expected to be in effect in
the year the differences are expected to reverse.

Fair
Value of Financial Instruments

The
carrying amounts of NBP's financial instruments, including cash and cash
equivalents, short-term trade receivables and payables, approximate their
fair values due to the short-term nature of the instruments. At August 28,
2004 the Senior Notes had a carrying value of $160.0 million and a fair
value of $162 million, based on a calculation using a weekly High Yield
Market report prepared by Deutsche Bank.  The carrying value of other debt
also approximates its fair value at August 28, 2004, as substantially all
such debt has a variable interest rate.

Revenue Recognition

NBP
recognizes revenue from the sale of products at the time of shipment, when
NBP determines the risk of loss has transferred, collection of the relevant
receivable is probable, persuasive evidence of an arrangement exists, and
the price is fixed or determinable. National Carriers, Inc. recognizes
revenue when shipments are complete.

Shipping Costs

Pass-through finished goods delivery costs reimbursed by customers are
reported in sales, while an offsetting expense is included in cost of
sales.

Research and Development and Advertising and Promotion Expenses

Research
and development and advertising and promotion expenses are charged to
operations in the period incurred. Research and development costs were
$0.01 million in 2004, $0.0 million in the 24 day period ended August 30,
2003, $0.07 million in the 340 day period ended August 6, 2003, and $0.4
million in 2002. Advertising and promotion expenses were $1.7 million in
2004, $0.09 million in the 24 day period ended August 30, 2003, $1.3
million in the 340 day period ended August 6, 2003 and $1.8 in 2002.

Comprehensive Income

Comprehensive income consists of net income and foreign currency
translation adjustments. NBP deems its foreign investments to be permanent
in nature and does not provide for taxes on currency translation
adjustments arising from converting the investment in a foreign currency to
U.S. dollars.

Derivatives and Hedging Activities

NBP uses
futures contracts in order to reduce exposure associated with entering into
firm commitments to purchase live cattle at a price determined prior to the
delivery of the cattle as well as to sell certain beef at a sales price
determined prior to shipment. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, NBP accounts for these futures contracts and their related firm
commitments at fair value. Most firm commitments are treated as "normal
purchases and sales" and are not marked to market.  SFAS No. 133 imposes
extensive record-keeping requirements in order to designate a derivative
financial instrument as a hedge. Derivatives qualify for treatment as
hedges when there is a high correlation between the change in fair value of
the instrument and the related change in value of the underlying
commitment. For derivatives that qualify as effective hedges, the change in
fair value has no net impact on net income until the hedged transaction
affects net income. For derivatives that are not designated as hedging
instruments, or for the ineffective portion of a hedging instrument, the
change in fair value does affect current period net income. While
management believes each of these instruments manages various market risks,
they are not designated and accounted for as hedges under SFAS No. 133 as a
result of the extensive record-keeping requirements of this statement.
Accordingly, the offsetting gains and losses associated with changes in the
market value of certain of the firm commitments related to the futures
contracts are recorded to income and expense in cost of sales in the period
of change.

F-15




The
fair value of derivative assets is recognized within other current assets,
while the fair value of derivative liabilities is recognized within accrued
liabilities. The net fair value of derivatives recognized within other
current assets and other accrued liabilities at August 28, 2004 and August
30, 2003 is not significant.

NOTE 3.  PURCHASE ACCOUNTING

The
Transaction described in Note 1 has been accounted for using the purchase
method of accounting as of August 6, 2003. The allocation of the purchase
price to the net assets acquired has been performed in accordance with SFAS
141, giving consideration to EITF 88-16 and resulted in goodwill of
approximately $78.9 million. Previously unamortized goodwill of $12.2
million was eliminated in the Transaction. The beginning equity of NBP
reflects the predecessor basis of U.S. Premium Beef's interest in FNBPC
plus the cash contributed by U.S. Premium Beef and the new members, and the
contribution of earned deferred compensation by certain members of
management. The calculation of the allocated purchase price for the
Transaction, as presented below, reflects the net book value of the
business as of August 6, 2003. In addition, the allocation of the purchase
price reflects the fair value of the individual assets acquired and
liabilities assumed to the extent of the approximate 71.2% change in
ownership.

The
purchase of the controlling interest was consummated by U.S. Premium Beef
following the bankruptcy of Farmland in order to maintain its relationship
with NBP.

The
following details the adjustment to historical net book values based on the
fair values of acquired assets and liabilities included in the Transaction.
The adjustment to historical net book values of acquired assets and
liabilities of the Acquired Interest is calculated as follows:

(in thousands)Total purchase price and other consideration for
			Acquired Interest
			
			$
			232,000Fees and expenses
			
			
			4,821$
			236,821Net book value of Acquired
			Interest on August 6, 2003
			
			
			(114,635Excess purchase price to be
			allocated
			
			$
			122,186Amount allocated to:Property, plant & equipment
			
			
			51,738Trademarks
			
			
			20,438Customer relationships
			
			
			11,323Goodwill
			
			
			38,687Excess purchase price
			allocated
			
			$
			122,186U.S. Premium Beef Basis in
			FNBPC
			
			
			91,447Net book value of U.S.
			Premium Beef interest on August 6, 2003
			
			
			(51,276Excess of U.S. Premium Beef
			Basis over net book value at  
			     August 6, 2003 attributable to goodwill
			
			
			40,171Goodwill reconciliation:Allocated to goodwill from
			Acquired Interest
			
			
			38,687Excess USPB basis
			attributable to goodwill
			
			
			40,171Total goodwill
			
			$
			78,858


Prior to
the Transaction, U.S. Premium Beef held an approximate 28.8% ownership
interest in FNBPC that was acquired in two transactions with Farmland, the
former parent of NBP. In connection with the acquisition of this interest,
U.S. Premium Beef paid an amount in excess of the proportionate underlying
book value of the net assets acquired that amounted to $40,171. Because
U.S. Premium Beef held a minority interest in FNBC, this excess investment,
which was attributed to goodwill, was not recorded in the FNBPC financial
statements. As a result, U.S. Premium Beef's predecessor basis in FNBPC was
$40,171 higher than its proportionate 28.8% of the underlying net book
value of FNBPC.

F-16




As a
result of the Transaction and in accordance with EITF 88-16, U.S. Premium
Beef carried over its predecessor basis, resulting in the recognition of
the $40,171 of goodwill in the Successor Entity's financial statements.

Pro forma
revenue would be unchanged for the periods presented. Pro forma net income
(unaudited) as if the Transaction occurred on the first day of the periods
presented below is as follows:

(in thousands)340 day period ended August 6, 2003
			
			$
			51,442Year ended August 31, 2002
			
			$
			48,639




NOTE 4.  LONG-TERM DEBT AND LOAN
AGREEMENTS

NBP
entered into various debt agreements in order to finance the Transaction
described in Note 1 and provide liquidity to operate the business on a
going forward basis. As of August 28, 2004 and August 30, 2003, debt
consisted of the following:

August 28, 2004
			
			August 30, 2003(in thousands)Short-term debt:Revolving credit
			facility(a)
			
			$
			-
			$
			-Current portion of
			long-term debt (term loan)(a)
			
			
			9,375
			
			6,250Current portion of
			capital lease obligations(d)
			
			
			78
			
			3589,453
			
			6,608Long-term debt:Term loan facility,
			net of current portion(a)
			
			
			109,375
			
			118,750Senior notes(b)
			
			
			160,000
			
			160,000Industrial Development
			Revenue Bonds(c)
			
			
			13,850
			
			13,850Revolving credit
			facility(a)
			
			
			42,059
			
			12,309Long-term capital
			lease obligations & other(d)
			
			
			350
			
			571325,634
			
			305,480Total debt
			
			$
			335,087
			$
			312,088


________

(a)  Senior Credit Facilities-On August 6, 2003, NBP amended and
restated its credit agreement in order to provide senior credit facilities
which allow borrowings from time to time up to $265.0 million, consisting
of a term loan of $125.0 million and a revolving credit facility of up to
$140.0 million, both of which terminate on August 6, 2008. Up to $60.0
million of the revolving credit facility is available for the issuance of
letters of credit. With respect to both revolving loan borrowings and term
loan borrowings, the interest rate is adjusted quarterly based on our
financial performance level.  At August 28, 2004, (a) LIBOR rate loans had
rates of 2.50% per annum plus the applicable LIBOR rate, and (b) base rate
loans had rates of 1.00% per annum plus the greater of (i) the prime rate
announced by US Bank or (ii) the federal funds rate plus one half of one
percent (0.5%). The Transaction was financed, in part, with approximately
$141.0 million of advances under NBP's senior credit facilities, consisting
of $125.0 million drawn under the term loan facility and $16.0 million
drawn under the revolving credit facility. The senior credit facilities are
secured by a first priority lien on substantially all of NPB's assets. A
fee of 0.5% per annum is payable quarterly on the daily average unused
amount of the revolving credit facility.

F-17




Availability. Availability under the revolving credit facility is
subject to a borrowing base. The borrowing base is based on NBP's and
certain of its domestic wholly owned subsidiaries' assets. The borrowing
base consists of percentages of NBP's eligible accounts receivable,
inventory and supplies less certain eligibility and availability reserves.
NBP is required to report the borrowing base on a monthly basis and, as a
result, the availability under the senior credit facilities is subject to
change. At August 28, 2004, $10.7 million, based on the most restrictive
financial covenant ratio calculation, was available under the revolving
credit facility.

Repayment
and Prepayment. Loans outstanding under the term loan require 20
quarterly principal repayments beginning on the last business day of the
fiscal quarter ending November 2003 as follows: (i) $1,562,500 for quarters
1-4, (ii) $2,343,750 for quarters 5-8, (iii) $3,125,000 for quarters 9-12,
(iv) $3,906,250 for quarters 13-16 (v) $4,687,500 for quarters 17-19 and
(vi) $67,187,500 on August 6, 2008.

The
revolving credit facility terminates and all amounts outstanding thereunder
must be repaid in full on the fifth anniversary of the closing date.

Mandatory
and Optional Prepayments. NBP is required to prepay borrowings under
the term loan in specified circumstances and amounts, as follows:


			100% of the net cash
			proceeds, including insurance and condemnation proceeds, of any
			sale or other disposition by NBP of any assets, other than
			inventory sold in the ordinary course of business, subject to
			exceptions if the aggregate amount of such net proceeds does
			not exceed a certain amount or if such proceeds are used to
			replace the assets;



			100% of the net cash
			proceeds of any issuance of debt or equity interests or
			securities, including capital contributions in respect of
			equity interests or securities previously issued, subject to
			certain limited exceptions; and



			50% of excess cash flow,
			as defined in the amended credit facility, for any fiscal year,
			until NBP's total funded debt to EBITDA ratio has been reduced
			to not greater than 2.00 to 1.00.


Prepayments
will be applied to principal installments of the term loan in inverse order
of maturity. Subject to certain conditions, NBP is permitted to make
optional prepayments of the term loan without premium or penalty.

Affirmative Covenants. NBP's senior credit facilities contain customary
affirmative covenants, including providing financial statements, insurance,
conduct of business, maintenance of properties, etc.

Financial
Covenants. NBP's senior credit facilities contain covenants that limit
its ability to incur additional indebtedness, sell or dispose of assets,
pay certain dividends and prepay or amend certain indebtedness among other
matters. In addition, these facilities, which have been amended for fiscal
year 2005 as noted below, also contained financial covenants as of August
28, 2004 requiring NBP to:

| |  | Not exceed a maximum funded debt to EBITDA
		ratio of 4.25x;
| | - | ------------------------------------------------------------

| |  | Not exceed a maximum senior secured funded
		debt to EBITDA ratio of 2.40x;
| | - | ---------------------------------------------------------------------------

| |  | Maintain a minimum four quarter rolling EBITDA
		of $92 million; and
| | - | --------------------------------------------------------------------

| |  | Not fall below a minimum fixed charge coverage
		ratio of 1.15x.
| | - | ----------------------------------------------------------------

As defined
in NBP's senior credit facilities, EBITDA contains specified adjustments.
NBP was in compliance with all financial covenants under its senior credit
facilities on August 28, 2004, with the exception of the four-quarter
rolling measure of EBITDA, as defined in the Third Amended and Restated
Credit Agreement dated as of August 6, 2003 (the "Credit Agreement"). 
Effective October 6, 2004, the lenders under the Credit Agreement waived
this event of default. The calculation of this ratio is not allowed to
include an add back for the charge of $18.8 million incurred after the
discovery of a single Holstein dairy cow in December 2003 in the state of
Washington that tested positive for Bovine Spongiform Encephalopathy
("BSE").

F-18




Effective November 19, 2004, NBP amended its credit facility further to
reflect changes in financial covenants.  Available borrowings would have
been $54.9 million as of August 28, 2004, had these covenant changes been
in place.  The amended credit facility, as amended, contains the following
financial covenants, effective throughout fiscal year 2005:

| |  | Maximum funded debt to EBITDA ratio of 7.25x;
| | - | ---------------------------------------------

| |  | Maximum senior secured funded debt to EBITDA
		ratio of 4.50x;
| | - | --------------------------------------------------------------

| |  | Minimum four quarter rolling EBITDA of $50
		million;
| | - | -----------------------------------------------------

| |  | Minimum working capital of $92.25 million;
| | - | ------------------------------------------

| |  | Maximum annual capital expenditures of $30
		million.
| | - | -----------------------------------------------------

Beginning
with fiscal year 2006, the financial covenants (except for the limitation
on maximum annual capital expenditures) will revert to, and be adjusted in
accordance with, those contained in the amended credit facility as in
effect immediately prior to the November 19, 2004 amendment.  The financial
covenants which will be in place in fiscal year 2006 under the amended
credit facility as of August 6, 2003, will be more restrictive than those
covenants in place in fiscal year 2005 under the November 19, 2004
amendment and more restrictive than those covenants in place in fiscal year
2004.

(b)Senior Notes-In connection with the Transaction, on August 6,
2003, NBP issued $160.0 million of its 101/2% Senior Notes due
2011. The Senior Notes will mature on August 1, 2011. Interest on the
Senior Notes is payable semi-annually in arrears on August 1 and February 1
of each year, and commenced on February 1, 2004. The Senior Notes are
senior unsecured obligations, ranking equal in right of payment with all
other senior unsecured obligations of NBP. With limited exceptions, the
Senior Notes are not redeemable before August 1, 2007. During the 12 month
period commencing August 1, 2007 and August 1, 2008, the Senior Notes may
be redeemed at 105.250% and 102.625%, respectively, of the principal
amount. Thereafter, the Senior Notes may be redeemed at 100% of face value.
The Indenture governing the Senior Notes contains certain covenants that
restrict NBP's ability to:

| |  | incur additional indebtedness;
| | - | ------------------------------

| |  | make restricted payments;
| | - | -------------------------

| |  | sell assets;
| | - | ------------

| |  | direct NBP's restricted subsidiaries to pay
		dividends or make other payments;
| | - | -------------------------------------------------------------------------------

| |  | create liens;
| | - | -------------

| |  | merge or consolidate with another entity; and
| | - | ---------------------------------------------

| |  | enter into transactions with affiliates.
| | - | ----------------------------------------

As of August
28, 2004, NBP was in compliance with all covenants associated with the
Senior Notes.

NB Finance
Corp., a wholly-owned finance subsidiary of NBP, is a co-issuer on a joint
and several basis with NBP of the Senior Notes. NB Finance Corp. has
nominal assets and conducts no business or operations. There are no
significant restrictions on the ability of subsidiaries to transfer funds
to NBP.

F-19




(c) Industrial Development Revenue Bonds-The cities of Liberal and
Dodge City, Kansas issued an aggregate of $13.8 million of industrial
development revenue bonds on the Predecessor's behalf to fund the purchase
of equipment and construction improvements at NBP's facilities in those
cities. These bonds were issued in 1999 and 2000 in four series of $1.0
million, $1.0 million, $6.0 million and $5.8 million and are due on
February 1, 2029, March 1, 2027, March 1, 2015 and October 1, 2009. These
bonds were assumed by NBP in connection with the Transaction. Pursuant to a
lease agreement, NBP leases the facilities, equipment and improvements from
the respective cities and make lease payments in the amount of principal
and interest due on the bonds. After giving effect to the Transaction, each
series of bonds are backed by a letter of credit under NBP's senior credit
facilities.

The bonds
are variable rate demand obligations that bear interest at a rate that is
adjusted weekly, which rate will not exceed 10% per annum. The per annum
interest rate for each series of bonds was 1.3% in 2004, 1.5% in 2003 and
1.8% in 2002. NBP has the option to redeem a series of bonds at any time
for an amount equal to the principal plus accrued interest to the date of
such redemption. The holders of the bonds have the option to tender the
bonds upon seven days' notice for an amount equal to par plus accrued
interest. To the extent that the remarketing agent for the bonds is unable
to resell any of the bonds that are tendered, the remarketing agent will
use the letter of credit to fund such tender.

An event of
default would occur under the lease agreements if NBP fails to make any
lease payment or other required payment, if a petition of bankruptcy is
filed by or against NBP, if a receiver is appointed on NBP's behalf, or if
NBP fails to observe and perform any covenant, condition, obligation or
agreement under the lease agreements.

(d) Capital and Operating Leases-NBP leases a variety of buildings
and equipment, as well as tractors and trailers subsequent to the
acquisition of National Carriers in March 2003, under operating lease
agreements that expire in various years. Future minimum lease payments
required at August 28, 2004, under capital and non-cancelable operating
leases with terms exceeding one year, are as follows:

| |                                               |  |                |                                     |   |  |   |                                               
| | --------------------------------------------- |  | -------------- | ----------------------------------- | - |  | - | ----------------------------------------------
| |                                               |  |                | Capitalized
			Lease
			Obligations |   |  |   | Non-cancelable
		Operating Lease
		Obligations
| |                                               |  |               
| |                                               |  | (in thousands)
| | For the fiscal years ended
		August           |  |                |                                     |   |  |   |                                               
| | 2005                                          |  | $              | 81                                  |   |  | $ | 7,904                                         
| | 2006                                          |  |                | -                                   |   |  |   | 4,755                                         
| | 2007                                          |  |                | -                                   |   |  |   | 3,298                                         
| | 2008                                          |  |                | -                                   |   |  |   | 2,314                                         
| | 2009                                          |  |                | -                                   |   |  |   | 1,729                                         
| | Thereafter                                    |  |                | -                                   |   |  |   | 2,336                                         
| |                                               |  |                |                                     |   |  |   |                                               
| | Net minimum lease payments                    |  |                | 81                                  |   |  | $ | 22,336                                        
| | Less: Amount representing
		interest          |  |                | (3                                  | ) |  |   |                                               
| | Present value of net minimum
		lease payments |  | $              | 78                                  |   |  |   |                                               
| |                                               |  |                |                                     |   |  |   |                                               
| |                                               |  |                |                                     |   |  |   |                                               

Rent expense associated with operating leases was $8.5 million, $0.4
million, $5.0 million, and $3.7 million for fiscal year 2004, the 24 days
ended August 30, 2003, the 340 days ended August 6, 2003, and for fiscal
year 2002, respectively. NBP expects that it will renew lease agreements or
enter into new leases as the existing leases expire.

Not included in the table above are the anticipated obligations under a
tentative agreement for a utilities commitment at the Dodge City, Kansas,
facility.  In order to meet the continuing growth needs for water and
wastewater services of the Dodge City facility, over a period of time from
May 20, 2002 to April 24, 2003, NBP signed a memorandum of understanding
with subsequent clarifying supplements with the City of Dodge City, Kansas
whereby NBP expressed its intention of entering into a services agreement
for the city to provide NBP water and wastewater services at a price and
term sufficient to permit the city to recoup up to one-half of the capital
cost of providing fresh water service from a parcel of land owned by NBP 11
miles south of the City, and of providing upgraded city wastewater
facilities to help service the needs of the Dodge City facility.  The total
cost of these improvements was approximately $22.1 million.  The city sold
twenty year municipal bonds to pay for these improvements and NBP is in the
process of finalizing the water services agreement.  It is anticipated this
agreement will be finalized in the near future and that NBP's payments to
the city will be approximately $0.8 million annually.

F-20




Additionally, we make a verbal commitment to cattle producers to purchase
cattle about one week in advance of delivery of the live animals to our
plants, with the actual price paid for the cattle determined after the
cattle are delivered and inspected at our facilities.   NBP's estimated
cattle commitments as of August 28, 2004 were $42.4 million.

The aggregate minimum principal maturities of the long-term debt for each
of the five fiscal years and thereafter following August 28, 2004, are as
follows:

Minimum Principal
			Maturities(in thousands)Fiscal Year ending August:2005
			
			$
			9,4532006
			
			
			12,5002007
			
			
			15,6252008
			
			
			123,3092009
			
			
			-Thereafter
			
			
			174,200Total minimum principal maturities
			
			$
			335,087


As of August 28, 2004, NBP had approximately $174.7 million of secured debt
outstanding, approximately $43.0 million of outstanding letters of credit
and approximately $10.7 million of availability, based on the most
restrictive financial covenant ratio calculation, under its revolving
credit facility.

NOTE 5.  RETIREMENT PLANS

NBP, and prior to the
Transaction, the Predecessor, maintain a tax-qualified employee savings and
retirement plan (together, the "401(k) Plan") covering NBP's non-union
employees. Pursuant to the 401(k) Plan, eligible employees may elect to
reduce their current compensation by up to the lesser of 75% of their
annual compensation or the statutorily prescribed annual limit and have the
amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan
provides for additional matching contributions by NBP, based on specific
terms contained in the 401(k) Plan. The trustee of the 401(k) Plan, at the
direction of each participant, invests the assets of the 401(k) Plan in
designated investment options. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code. Expenses related to the 401(k)
Plan totaled approximately $0.5 million for fiscal year ended August 28,
2004, $0.0 million for the 24 days ended August 30, 2003, $0.5 million for
the 340 days ended August 6, 2003 and $0.6 million for the fiscal year
ended August 31, 2002.

NBP has
agreed to make contributions to the United Food & Commercial Workers
International Union-Industry Pension Fund (the "UFCW Plan") for employees
covered by a collective bargaining agreement as provided for in that
agreement.  Expenses related to the UFCW Plan totaled approximately $0.6
million for fiscal year ended August 28, 2004, $0.0 million for the 24 days
ended August 30, 2003, $0.5 million for the 340 days ended August 6, 2003
and $0.5 million for the fiscal year ended August 31, 2002.

Postretirement Benefits-
Certain former employees are covered by an unfunded postretirement benefit
plan that provides medical and dental benefits.  Costs associated with this
plan, which relate primarily to insurance premiums, benefit payments and
changes in the accumulated benefit obligation were $1.9 million, $0.0
million, $0.2 million, and $0.2 million for fiscal year 2004, the 24 days
ended August 30, 2003, the 340 days ended August 6, 2003 and the fiscal
year ended August 31, 2002, respectively, and are included in cost of
sales.

F-21




The
health care trend rate used to value the accumulated benefit obligation at
August 28, 2004 is an initial rate of 10% per year, declining by 1% per
year to an ultimate rate of 5% in 2009 and thereafter.  The discount rate
used to value the accumulated benefit obligation is 6.25%.  The unfunded
accumulated benefit obligation was $3.7 million and $1.8 million at August
28, 2004 and August 30, 2003, respectively, and has been recorded as a
liability in the financial statements.

NOTE 6.  DEPOSITS

Previously, NBP elected
to place funds in a trust to satisfy requirements of the Packers and
Stockyards Act of 1921 ("PSA"). The deposits held in trust totaled $0.4
million at August 28, 2004 and $20.0 million at August 30, 2003.  As of
August 28, 2004 NBP has secured a bond of $22.5 million to satisfy these
requirements.  The bond is supported by a $10.0 million letter of credit. 
The remaining deposit in trust was returned to NBP during fiscal year 2005,
after a period of time designated under the PSA for continuity of coverage.

NOTE 7.  OTHER INCOME

Investments-Other income includes income and expense related to NBP's
investment in aLF Ventures, LLC. aLF Ventures, LLC was formed on August 2,
2001 and since that date FNBPC and NBP have accounted for this investment
using the equity method. Losses for the fiscal year 2004 were $0.8 million
and $0.0 million for the 24 days ended August 30, 2003. Losses of $1.3
million and $0.9 million were recorded for the 340 days ended August 6,
2003 and the fiscal year ended August 31, 2002, respectively.

Prior to
August 2, 2001, the Predecessor expensed research and development costs
associated with this investment as incurred, which amounted to
approximately $1.0 million in 2001. Fiscal year ended August 31, 2002
includes income of approximately $3.0 million as a result of reimbursements
from its venture partner for previously expensed research and development
costs related to the achievement of a certain development milestone.

Miscellaneous- Other income for the fiscal year ended August 28, 2004
includes approximately $1.1 million NBP received through the
demutualization of a company which held annuities for NBP employees.  Other
income for the 24 days ended August 30, 2003 includes fees associated with
a bridge loan commitment obtained in connection with the Transaction of
approximately $1.7 million.  Other income includes approximately $2.3
million for the 340 days ended August 6, 2003, which represents the
proceeds from the settlement of a class action lawsuit against the
manufacturers of certain vitamins.

NOTE 8.  INCOME TAXES

Income tax
expense/(benefit) includes the following current and deferred provisions:

Successor Entity
			
			Successor Entity
			
			Predecessor Entity
			
			Predecessor EntityNational Beef Packing Company, LLC and
			Subsidiaries
			
			National Beef Packing Company, LLC and
			Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries52 weeks ended
			
			24 days ended
			
			340 days ended
			
			53 weeks endedAugust 28, 2004
			
			August 30, 2003
			
			August 6, 2003
			
			August 31, 2002(in thousands)Current ProvisionFederal
			$             480
			
			$               (70)
			
			$                501
			
			$                 -State
			75
			
			(12)
			
			89
			
			-Foreign
			20
			
			(3)
			
			4
			
			(1,053)Total current tax expense
			575
			
			(85)
			
			594
			
			(1,053)Deferred ProvisionFederal
			131
			
			9
			
			(252)
			
			-State
			23
			
			2
			
			(45)
			
			-Foreign
			-
			
			-
			
			-
			
			-Total deferred tax expense
			154
			
			11
			
			(297)
			
			-Total income tax expense/(benefit)
			$           729
			
			$               (74)
			
			$              297
			
			$     (1,053)


F-22




Income tax
expense differed from the "expected" income tax (computed by applying the
federal income tax rate of 35% to earnings before income taxes) as follows:

Successor Entity
			
			Successor Entity
			
			Predecessor Entity
			
			Predecessor EntityNational Beef Packing Company, LLC and
			Subsidiaries
			
			National Beef Packing Company, LLC and
			Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries52 weeks ended
			
			24 days ended
			
			340 days ended
			
			53 weeks endedAugust 28, 2004
			
			August 30, 2003
			
			August 6, 2003
			
			August 31, 2002(in thousands)Computed "expected" income tax
			     expense
			$           15,659
			
			$             3,674
			
			$        27,565
			
			$          26,765Passthrough income
			(14,999)
			
			(3,772)
			
			(27,265)
			
			(26,715)State taxes, net of federal
			64
			
			(7)
			
			29
			
			-Foreign tax rate differential
			
			
			(3)
			
			4
			
			(1,053)Other
			5
			
			34
			
			(36)
			
			(50)Total income tax expense (benefit)
			$               729
			
			$                (74)
			
			$            297
			
			$         (1,053)


F-23




The tax
effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at August 28, 2004 and
August 30, 2003 are presented below:

August 28, 2004
			
			August 30,2003(in thousands)Deferred tax assetsAccounts receivable, due to allowance for doubtful
			accounts
			
			$             165
			
			$                  147Self-insurance and workers compensation accruals
			
			2,270
			
			2,519Total gross deferred tax assets
			
			2,435
			
			2,666Deferred tax liabilitiesPlant and equipment, principally due to differences in
			depreciation
			
			1,167
			
			1,244Total gross deferred tax liabilities
			
			1,167
			
			1,244Net deferred tax assets
			
			$           1,268
			
			$               1,422


Net deferred tax assets and
liabilities at August 28, 2004 and August 30, 2003 are included in the
consolidated balance sheet as follows:

August 28, 2004
			
			August 30,2003(in thousands)Other current assets
			
			$              2,435
			
			$              2,666Other liabilities
			
			1,167
			
			1,244$              1,268
			
			$              1,422


Deferred
tax assets and liabilities relate to the operations of National Carriers,
Inc.

There was
no valuation allowance provided for at August 28, 2004 and August 30, 2003.
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax assets.

NOTE 9.  RELATED PARTY TRANSACTIONS

The
Predecessor had transactions in the normal course of business with Farmland
or affiliated companies. Sales transactions were based upon prevailing
market prices, and purchases were on terms no less favorable to the
Predecessor than would be obtained from an unaffiliated party.

NBP
entered into various transactions with a company affiliated with NBPCo
Holdings in the ordinary course of business. Sales transactions were based
upon prevailing market prices, and purchases were on terms no less
favorable to NBP than would be obtained from an unaffiliated party.

During the
52 weeks ended August 28, 2004, the 24 days ended August 30, 2003, the 340
days ended August 6, 2003, and the 53 weeks ended August 31, 2002, NBP had
sales and purchases with the following related parties:

F-24




Successor Entity
			
			Successor Entity
			
			Predecessor Entity
			
			Predecessor EntityNational Beef Packing Company, LLC and
			Subsidiaries
			
			National Beef Packing Company, LLC and
			Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries
			
			Farmland National Beef Packing Company, L.P.
			and Subsidiaries52 weeks ended
			
			24 days ended
			
			340 days ended
			
			53 weeks endedAugust 28, 2004
			
			August 30, 2003
			
			August 6, 2003
			
			August 31, 2002(in thousands)Sales to:Beef Products, Inc.(1)
			$          52,701
			
			$             1,865
			
			$                  -
			
			$                  -Farmland Foods, Inc.(2)
			-
			
			-
			
			47,689
			
			28,706Farmland Industries, Inc.(2)
			-
			
			-
			
			-
			
			291National Carriers, Inc.(3)
			-
			
			-
			
			341
			
			388Total sales to affiliates
			$          52,701
			
			$              1,865
			
			$          48,030
			
			$          29,385Purchases from:Beef Products, Inc.(1)
			$          16,746
			
			$             1,145
			
			$                  -
			
			$                  -Farmland Foods, Inc.(2)
			-
			
			-
			
			37,431
			
			31,482Farmland Insurance Agency, Inc.(2)
			-
			
			-
			
			-
			
			1,719Farmland Transportation, Inc.(2)
			-
			
			-
			
			1
			
			26National Carriers, Inc.(3)
			-
			
			-
			
			25,255
			
			32,194Total purchases from affiliates
			$          16,746
			
			$             1,145
			
			$         62,687
			
			$         65,421


___________

|(1) | Beef Products, Inc. is an
		affiliate of NBPCo Holdings, LLC.                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Farmland Foods,
		Inc., Farmland Industries, Inc., Farmland Transportation, Inc., and
		Farmland Insurance Agency, Inc. are no longer considered related
		parties as of August 7, 2003 due to the Transaction. Only those
		sales and purchases prior to August 7, 2003 are included.

|(3) | National
		Carriers, Inc. was acquired by the Predecessor on March 28, 2003.
		Only those sales and purchases through that date are included.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

Farmland
Foods, Inc., Farmland Transportation, Inc., and Farmland Insurance Agency,
Inc. were affiliated companies which were wholly owned by Farmland. Prior
to its acquisition of National Carriers, the Predecessor contracted a
significant portion of its freight services from National Carriers, a
consolidated subsidiary as of March 28, 2003. Farmland Industries Inc. and
four of its subsidiaries, including Farmland Foods, Inc. and Farmland
Transportation, Inc., filed voluntary petitions to reorganize under Chapter
11 of the United States Bankruptcy Code on May 31, 2002.

NBP
subleased office space from Farmland. The Predecessor paid Farmland
approximately $0.4 million and $0.4 million for the 340 days ended August
6, 2003 and the fiscal year ended August 31, 2002, respectively, for this
office space.

NBP rents
office space and a shop area to National Carriers for which it received
rental payments from National Carriers in the amount of approximately $0.2
million and $0.2 million for the 340 days ended August 6, 2003 and the
fiscal year ended August 31, 2002, respectively.

At August
28, 2004 and August 30, 2003, the amounts due from Beef Products, Inc. were
approximately $2.9 million and $0.7 million, respectively.  At August 28,
2004 and August 30, 2003, the amounts due to Beef Products, Inc. were
approximately $0.4 million and $0.4 million, respectively.

At August
28, 2004 and August 30, 2003, amounts representing checks drawn on U.S.
Premium Beef bank accounts included in cattle commitments payable were
$12.0 million and $6.9 million, respectively.

F-25




In
December 1997, FNBPC entered into a contract with U.S. Premium Beef to
purchase a portion of its annual cattle requirements.  In connection with
the cooperative's purchase of its interest in Farmland National Beef, U.S.
Premium Beef obtained the right, and became subject to the obligation, to
deliver cattle annually to National Beef relative to: (i) U.S. Premium
Beef's ownership in National Beef and (ii) the number of cattle processed
annually by National Beef.  During the fiscal year ended August 28, 2004,
the 24 days ended August 30, 2003, the 340 days ended August 6, 2003, and
the fiscal year ended August 31, 2002, NBP obtained approximately 18%, 17%,
22%, and 27%, respectively, of NBP's cattle requirements from U.S. Premium
Beef. During the fiscal year ended August 28, 2004, the 24 days ended
August 30, 2003, the 340 days ended August 6, 2003, and the fiscal year
ended August 31, 2002, NBP made purchases from U.S. Premium Beef of $614.3
million, $36.3 million $589.0 million, and $697.4 million, respectively,
for cattle requirements. The purchase price for the cattle is determined by
NBP's pricing grid, which, under the terms of the agreement with U.S.
Premium Beef, must be competitive with the pricing grids of NBP's
competitors and may not be less favorable than pricing grids offered to
other suppliers.

In
December 1998, the Predecessor entered into an aircraft lease agreement
under which it leases a business jet aircraft from John R. Miller
Enterprises, L.L.C., a Utah limited liability company of which John R.
Miller, NBP's Chief Executive Officer, is the majority member. The term of
the lease is for five years and may be terminated by either John. R. Miller
Enterprises, L.L.C. or NBP on 90 days' prior written notice. During the
fiscal year ended August 28, 2004, the 24 days ended August 30, 2003, the
340 days ended August 6, 2003, and the fiscal year ended August 31, 2002,
NBP paid $ 0.2 million, $0.02 million, $0.2 million, and $0.2 million,
respectively, to lease the aircraft and $ 0.07 million, $0.0 million, $0.06
million, and $0.04 million, respectively, into an engine replacement
reserve account. The funds in the reserve account are to be used to finance
new engines installed on the aircraft.   The lease expired on December 15,
2003.  NBP still uses this aircraft on an as needed basis, with the payment
terms, including the payments into the engine replacement reserve account,
essentially identical to the lease agreement, except the monthly usage
payment is calculated on the actual hours used, not to exceed the monthly
lease payment we paid while the lease was active.  There is no lease
agreement in effect for this aircraft.

In March
2001, the Predecessor entered into a second aircraft lease agreement under
which it leased an additional business jet aircraft from John R. Miller
Enterprises, L.L.C. The term of the lease automatically renews every 11
months unless either John R. Miller Enterprises, L.L.C. or NBP requests
termination within 90 days of the end of the lease term. During the fiscal
year ended August 28, 2004, the 24 days ended August 30, 2003, the 340 days
ended August 6, 2003, and the fiscal year ended August 31, 2002, NBP paid $
0.4 million, $0.04 million, $0.5 million, and $0.5 million, respectively,
to lease the aircraft and $0.05 million, $0.01 million, $0.07 million, and
$0.08 million, respectively, into an engine replacement reserve account.
The funds in the reserve account are to be used to finance new engines
installed on the aircraft.

In October
2003, NBP entered into an additional aircraft lease agreement under which
NBP leased a third business jet aircraft from John R. Miller Enterprises
III, L.L.C., a Utah limited liability company of which John R. Miller,
NBP's Chief Executive Officer, is the beneficial owner. The term of the
lease is 81 months. This aircraft replaced the aircraft leased in December
1998. The monthly lease payments will range from $25,400 in the first year
of the lease to $45,380 in the fourth year of the lease and thereafter, and
are adjusted quarterly based on the change in the three month LIBOR
interest rate.  During the fiscal year ended August 28, 2004, NBP paid $0.3
million to lease the aircraft and $0.08 million into an engine replacement
reserve account.  The funds in the reserve account are to be used to
finance new engines installed on the aircraft.

NOTE 10.  CAPITAL SUBJECT TO REDEMPTION

At any
time after certain dates, the earliest being July 31, 2008, the latest
being July 31, 2011, certain members of management and/or NBPCo Holdings
have the right to request that NBP repurchase their interests, the value of
which to be determined by a mutually agreed appraisal process. If NBP is
unable to effect the repurchase within a specified time, the requesting
member(s) have the right to cause a sale process to commence. NBP accounts
for changes in the redemption value of these interests by accreting the
change over the period from the date of issuance to the earliest redemption
date of the interest using the interest method. At August 28, 2004, the
"Capital subject to redemption" was revalued by an independent appraisal
process, and the value was determined to be $62.3 million.  Under the
interest method, the carrying value of the "Capital subject to redemption"
has been reduced by approximately $0.2 million to $62.5 million, as
reflected in the accompanying Consolidated Balance Sheet as of August 28,
2004.



F-26






NOTE 11.  LEGAL PROCEEDINGS

On July 1, 2002, a lawsuit
was filed against the Predecessor, ConAgra Beef Company, Tyson Foods, Inc.
and Excel Corporation in the United States District Court for the District
of South Dakota seeking certification of a class of all persons who sold
cattle to the defendants for cash, or on a basis affected by the cash price
for cattle, during the period from April 2, 2001 through May 11, 2001 and
for some period up to two weeks thereafter. The case was filed by three
named plaintiffs on behalf of a putative nationwide class that plaintiffs
estimate is comprised of hundreds or thousands of members. The complaint
alleges that the defendants, in violation of the Packers and Stockyards Act
of 1921, knowingly used, without correction or disclosure, incorrect and
misleading boxed beef price information generated by the USDA to purchase
cattle offered for sale by the plaintiffs at a price substantially lower
than was justified by the actual and correct price of boxed beef during
this period. Plaintiffs also seek recovery against all defendants under a
theory of unjust enrichment.  The plaintiffs seek damages in excess of
$50.0 million from all defendants as a group on behalf of the class.  FNBPC
answered the complaint and joined with the three other defendants in moving
to dismiss this action. An amended complaint was filed and FNBPC joined in
the other defendants' motion to dismiss. The joint motion to dismiss was
denied, and the judge ruled that the plaintiffs adequately alleged a
violation of the Packers and Stockyards Act of 1921. The case was certified
as a class-action matter in June 2004.  Accordingly, the lawsuit will
proceed to trial. Management believes that FNBPC acted properly and
lawfully in dealings with cattle producers. Management is currently unable
to predict the outcome of this matter or to estimate the amount of
potential loss, if any. In accordance with SFAS No. 5, Accounting for
Contingencies, NBP has not established a loss accrual associated with this
claim.

NBP is also
a party to a number of other lawsuits and claims arising out of the
operation of our business. Management believes the ultimate resolution of
such matters should not have a material adverse effect on our financial
condition, results of operations or liquidity.

NOTE 12.  BUSINESS SEGMENTS

In
connection with the Transaction, NBP executed a management reporting
reorganization wherein it created the single role of Chief Executive
Officer, who serves as the Chief Operating Decision Maker ("CODM"). The
CODM measures segment profit as operating income for Core Beef and Other,
NBP's two reporting segments, based on the definitions provided in SFAS No.
131, Disclosures about Segments of an Enterprise and Related
Information.   In the fourth quarter of fiscal year 2004, the Company
revised its method of transfer pricing between its two segments related to
the price charged for transportation services.  The effect of this change
was to increase operating income of the Core Beef segment and decrease
operating income of the Other segment by approximately $4.5 million for the
fiscal year 2004.

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

Other-the
Other segment of NPB consists of the operations of National Carriers, Inc.,
a refrigerated and livestock contract carrier company, and Kansas City
Steak Company, LLC, a portion control steak cutting operation.

F-27




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

Successor Entity
			
			Successor Entity
			
			Predecessor Entity
			
			Predecessor EntityNational Beef Packing Company, LLC and
			Subsidiaries
			
			National Beef Packing Company, LLC and
			Subsidiaries
			
			Farmland National Beef Packing Company,
			L.P.  and Subsidiaries
			
			Farmland National Beef Packing Company,
			L.P.  and Subsidiaries52 weeks ended August 28, 2004
			
			24 days ended August 30, 2003
			
			340 days ended August 6, 2003
			
			53 weeks ended August 31, 2002(in thousands)Net salesCore Beef
			$         4,151,809
			
			$              285,541
			
			$            3,463,935
			
			$          3,338,321Other
			163,866
			
			15,534
			
			76,463
			
			25,868Eliminations
			(226,164)
			
			(18,243)
			
			(161,775)
			
			(117,358)Total
			$         4,089,511
			
			$             282,832
			
			$            3,378,623
			
			$          3,246,831Depreciation and
			amortizationCore Beef
			19,134
			
			1,845
			
			16,916
			
			17,315Other
			2,036
			
			210
			
			1,452
			
			709Total
			21,170
			
			2,055
			
			18,368
			
			18,024Operating incomeCore Beef
			64,471
			
			14,048
			
			82,615
			
			78,177Other
			3,532
			
			(216)
			
			1,785
			
			1,310Total
			68,003
			
			13,832
			
			84,400
			
			79,487Interest income
			549
			
			41
			
			511
			
			271Interest expense
			(24,853)
			
			(1,619)
			
			(5,021)
			
			(6,842)Other income (expense)
			1,355
			
			(1,755)
			
			(1,011)
			
			3,766Minority interest
			(313)
			
			(2)
			
			(121)
			
			(211)Total income before taxes
			$              44,741
			
			$               10,497
			
			$              78,758
			
			$               76,471Capital ExpendituresCore Beef
			31,003
			
			1,674
			
			28,506
			
			21,132Other
			1,468
			
			24
			
			8,515
			
			168Total
			32,471
			
			1,698
			
			37,021
			
			21,300August 28, 2004
			
			August 30, 2003Total AssetsCore Beef
			$            620,679
			
			$             610,965Other
			26,426
			
			22,952Eliminations
			(584)
			
			(4,096)Total
			$            646,521
			
			$             629,821


F-28




Acquisition of National Carriers, Inc.

On March
28, 2003, the FNBPC acquired National Carriers, Inc., a contract carrier
service with terminals in Liberal, Kansas, Dallas, Texas, and Denison,
Iowa, for approximately $13.4 million, including the assumption of $8.4
million of indebtedness. The purchase price has been allocated to the
assets acquired and liabilities assumed and the operating results of
National Carriers are reflected in FNBPC's and NBP's consolidated financial
statements subsequent to the date of acquisition. The effect of the
acquisition of National Carriers was immaterial to the consolidated
financial statements.

Customer Concentration

In the
fiscal year ended August 28, 2004, one customer with its consolidated
subsidiaries represented 9.1% of total sales, with no other customer
representing more than 3.3% of total sales. In the fiscal year ended August
30, 2003, one customer with its consolidated subsidiaries represented
approximately 10.3% of total sales with no other single customer
representing more than 2.9% of total sales. In the fiscal year ended August
31, 2002, the largest customer represented approximately 10.2% of total
sales with no other customer larger than 3.8% of total sales.

Sales to Foreign Countries

NBP had
sales outside the United States of America in the fiscal year ended 2004,
the 24 days ended August 30, 2003, the 340 days ended August 6, 2003, and
the fiscal year ended 2002 of approximately $395.5 million, $48.9 million,
$580.1 million and $510.5 million, respectively. No single country
accounted for more than 10% of total sales. The amount of assets maintained
outside the United States of America is not material.

NOTE 13.  UNITED STATES BSE OUTBREAK

On
December 23, 2003, it was announced by the United States Department of
Agriculture (USDA) that a single Holstein dairy cow was discovered in the
state of Washington to have tested positive for bovine spongiform
encephalopathy (BSE).  The origin of the animal was subsequently traced to
a farm in Canada.  Shortly after the announcement, several countries
representing a substantial share of NBP's export business closed their
borders to the importation of edible beef products from the United States. 
Responding to the loss of export markets, live cattle prices in the United
States declined by approximately 18% within 3 days.  In the FYE 2003, NBP's
total export sales were approximately 17% of total sales, including sales
of non-food beef products such as hides.  In FYE 2004, NBP's total export
sales were approximately 10% of total net sales.

During the
second quarter of FYE 2004, NBP recorded charges to earnings totaling
approximately $18.8 million due to the market impacts of the closure of
international borders as a result of the BSE discovery in late December. 
These charges, recorded in sales and cost of sales in the Company's
Consolidated Statement of Operations, reflect:  (1) volatility in the U.S.
markets for finished goods and live cattle, with an impact noted in
immediate margin erosion resulting from a rapid fall in cutout or sales
values; (2)  some product already destined for foreign markets re-routed
for resale in the U.S., generally at prices lower than their original
export value; and (3) lower value for certain inventory items which had
been in the production pipeline and had not yet left the U.S. as they had
no comparable domestic market.  Certain by-products have been classified as
Specified Risk Materials ("SRMs"), and have been banned from use in
feedstocks and the human food chain. Some of these products previously
enjoyed a market in foreign countries.  The impacts of BSE were positively
offset, in part, by strong domestic demand for beef products.

In addition, the USDA
and the Food Safety Inspection Service (FSIS) published new regulations in
response to the discovery of BSE in the state of Washington.  These new
regulations, among other things, govern the removal of SRMs during
slaughter, cover the ban on the slaughtering of non-ambulatory animals for
human food use, set forth the prohibition on the production of mechanically
separated meat and ban certain techniques used in the slaughter process. 
The USDA also issued a notice announcing that FSIS inspectors will not mark
ambulatory cattle that have been targeted for BSE surveillance testing as
"inspected and passed" until negative test results are obtained.  NBP does
not anticipate that these new regulations, individually or in the
aggregate, will have a material adverse effect on its business.

F-29




While
exports of some beef products have commenced once again to Mexico, NBP
cannot anticipate the duration of other continuing beef import bans or
whether additional countries may impose similar restrictions.  Thus far,
the effect of resumed export of beef products to Mexico has been marginal
on the United States beef industry.  Fed cattle slaughter levels in the
United States for the FYE 2004 fell approximately 8.9% below year-ago
levels, reflecting constrained cattle supplies and reduced demand for
export products.

The closure
of U.S. borders to the importation of Canadian feeder and fattened (ready
for slaughter) animals which occurred in May 2003 following the discovery
of BSE in Alberta that same month tightened the U.S. cattle supply; and,
although the U.S. border opened to Canadian produced boxed beef in
September 2003, the entire U.S. Beef industry continued at a price
disadvantage while the ban on importation of Canadian livestock was
maintained.   This continued closure of the U.S. border to Canadian
livestock has resulted in higher overall feeder and fed cattle prices in
the U.S., negatively impacting raw material prices.

The
USDA has published a proposed rule revising its policy to keep the U.S.
border closed to live animals for processing in the U.S.  The comment
period for this proposed rule closed on April 7, 2004 and publication of a
final rule was anticipated within a reasonable time following closure of
the comment period.  In the interim, Ranchers Cattlemen Action Legal Fund
United Stockgrowers of America ("R-CALF" -  a northern states cattle
producer's organization) was successful in obtaining an injunction against
the USDA allowing importation of certain beef products produced in Canada
pursuant to this rule, because the USDA did not follow the "Administrative
Procedures Act" prior to issuing its order allowing such action.  The final
rule is drafted and is being reviewed within the USDA.  It is expected to
be sent to the federal government Office of Management and Budget ("OMB")
after the U. S. presidential election.  The OMB could take up to 90 days to
return it to the USDA, but many expect the final rule to be published
before the end of the year with the markets opening in the first quarter of
calendar 2005, although NBP can provide no assurance that this will occur.

A United
States/Japanese Commission was formed to look at the optimal "science
based" approach to resolving the issues between the U.S. and Japan.  The
commission held its last meeting in July 2004.  Following this meeting,
trade representatives from the United States and Japan continued their
discussions on reopening of the Japanese market to imported beef products
from the United States.

On October
23, 2004, the USDA announced that Japan and the U.S. had reached an
agreement on opening the border for export to Japan.  Over the coming
months, many details will have to be worked out by both governments.  Part
of the agreement involves the tracking of animals of known age from the
ranch so that only meat from animals less than 21 months of age can be
shipped to Japan.  It may require considerable effort and resources for NBP
to develop and implement such a system over the coming months.  It is
expected that the markets will begin to open for some products in the first
quarter of calendar 2005, although no assurance can be given that this will
occur.

On November
18, 2004, the USDA announced that inconclusive, preliminary test results
may have identified a second case of BSE in the U.S., but meat from the
suspected animal has not entered the food chain.  It could be up to
approximately seven days before conclusive test results may be available. 
The preliminary tests are in an early stage of screening, which is designed
to be extremely sensitive in order to detect the disease.  No quarantines
have been established, and the USDA spokesperson stated that, "USDA remains
confident in the safety of the U.S. beef supply."  Announcements of these
inconclusive, preliminary results can be expected from time to time as a
result of the sensitivity of the new screening regime.  The impact on the
market created by such uncertainty is not possible to predict.

NBP cannot
presently assess the full economic impact of the consequences of BSE on the
U.S. beef industry or on its operations.  The Company's revenues and net
income may be materially adversely affected in the event existing import
restrictions continue indefinitely, additional countries announce similar
restrictions, additional regulatory restrictions are put into effect or
domestic consumer demand for beef declines substantially.

F-30