**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C.20549****Form 10-K**

**(Mark one)**

| þ |   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                              |
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|   |   |                                                                                                                                                                   |
|   |   | **For the fiscal year ended August 25, 2007**                                                                                                                          |
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|   |   | **or**                                                                                                                                                                 |
|   |   |                                                                                                                                                                   |
| o |   | **TRANSITION REPORT PURSUANT TO SECTION	13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                           |
|   |   |                                                                                                                                                                   |
|   |   | **For the transition period from                  to           .** |

**Commissionfile number 333-115164**

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

| **DELAWARE**                                                        |   | **20-1576986**                            |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| **(State  or other jurisdiction ofincorporation  or organization)** |   | **(I.R.S.  employerIdentification  No.)** |

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

**Registrant’s telephone number,including area code: (866) 877-2525**

**Securitiesregistered pursuant to Section 12(b) of the Act:  NoneSecuritiesregistered pursuant to Section 12(g) of the Act:  None**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.    Yes  o No þ

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes þ No o

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes þ  Noo

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of “accelerated filer and large acceleratedfiler” in Rule 12b-2 of the Exchange Act. 

Large Accelerated Filer o               AcceleratedFiler o                                Non-Accelerated Filerþ

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o    Noþ

The registrant’s equity is not traded on any exchangeor other public market; however, there have been private transactions.  As of October27, 2007, there were 735,385 Class A units and 735,385 Class B unitsoutstanding.   

**DOCUMENTS INCORPORATED BY REFERENCE**

None

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| ** **  | **TABLE OF  CONTENTS**                                                                                               | ** **   |
|-------------|----------------------------------------------------------------------------------------------------------------------|--------------|
| ** **  | **PART I.**                                                                                                          | ** **   |
|        |                                                                                                                 | **Page No.** |
| Item 1.     | Business.                                                                                                            | 4            |
| Item 1A.    | Risk Factors                                                                                                         | 14           |
| Item 1B.    | Unresolved Staff Comments                                                                                            | 22           |
| Item 2.     | Properties.                                                                                                          | 22           |
| Item 3.     | Legal Proceedings.                                                                                                   | 23           |
| Item 4.     | Submission of Matters to a Vote of Security Holders.                                                                 | 23           |
| ** **  | ** **                                                                                                           | ** **   |
| ** **  | **PART II.**                                                                                                         | ** **   |
| Item 5.     | Market for Registrant’s Common  Equity, Related Stockholder Matters And Issuer Purchases of Equity  Securities. | 24           |
| Item 6.     | Selected Financial Data.                                                                                             | 24           |
| Item 7.     | Management’s Discussion and  Analysis of Financial Condition and Results of Operation.                          | 27           |
| Item 7A.    | Quantitative and Qualitative Disclosures About Market  Risk.                                                         | 39           |
| Item 8.     | Financial Statements and Supplementary Data.                                                                         | 40           |
| Item 9.     | Changes in and Disagreements  with Accountants on Accounting and Financial Disclosure.                               | 40           |
| Item 9A(T). | Controls and Procedures.                                                                                             | 41           |
| Item 9B.    | Other Information.                                                                                                   | 41           |
|        |                                                                                                                 |         |
| ** **  | **PART III.**                                                                                                        | ** **   |
| Item 10.    | Directors, Executive Officers and Corporate Governance.                                                              | 42           |
| Item 11.    | Executive Compensation.                                                                                              | 45           |
| Item 12.    | Security Ownership of Certain  Beneficial Owners and Management and Related Unitholder Matters.                      | 52           |
| Item 13.    | Certain Relationships and Related Transactions, and  Director Independence.                                          | 53           |
| Item 14.    | Principal Accounting Fees and Services.                                                                              | 55           |
|        |                                                                                                                 |         |
| ** **  | **PART IV.**                                                                                                         | ** **   |
| Item 15.    | Exhibits, Financial Statement Schedules.                                                                             | 56           |
|        | Signatures                                                                                                           | 67           |

 

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** MARKET AND INDUSTRY DATA AND FORECASTS**

Market data and certain industry forecasts usedthroughout this report were obtained from internal surveys, market research,consultant surveys, publicly available information and industry publicationsand surveys. Industry surveys, publications, consultant surveys and forecastsgenerally state that the information contained therein has been obtained fromsources believed to be reliable, but that the accuracy and completeness of suchinformation is not guaranteed. We have not independently verified any of thedata from third-party sources nor have we ascertained the underlying economicassumptions relied upon therein. Similarly, internal surveys, industryforecasts and market research, which we believe to be reliable, based upon ourmanagement’s knowledge of the industry, have not been independently verified.Forecasts are particularly likely to be inaccurate, especially over longperiods of time. In addition, we do not know what assumptions regarding generaleconomic 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 anduncertainties, many of which are beyond our control. Forward-looking statementsare typically identified by the words “believe,” “expect,” “anticipate,”“intend,” “estimate” and similar expressions. Actual results could differmaterially from those contemplated by these forward-looking statements as aresult of many factors, including economic conditions generally and in ourprincipal markets, the availability and prices of live cattle and commodities,food safety, livestock disease, including the identification of cattle withBSE, competitive practices and consolidation in the cattle production andprocessing industries, actions of domestic or foreign governments, hedgingrisk, changes in interest rates and foreign currency exchange rates, consumerdemand and preferences, the cost of compliance with environmental and healthlaws, loss of key customers or suppliers, loss of key employees, laborrelations and consolidation among our customers and the potential inability toreceive the anticipated benefits from the acquisition of the processingfacility in Brawley, CA.

In light of these risks anduncertainties, there can be no assurance that the results and eventscontemplated by the forward-looking information contained in this report willin fact transpire. Readers are cautioned not to place undue reliance on theseforward-looking statements. We do not undertake any obligation to update orrevise any forward-looking statements. All subsequent written or oralforward-looking statements attributable to us or persons acting on our behalfare expressly qualified in their entirety by these factors.  Please review Item1A. *Risk Factors* in this report, for other important factors that couldcause actual results to differ materially from those in any suchforward-looking statements.

Unless the context indicates orotherwise requires, the terms “the Company”, “we”, “our” and “us” refer to U.S.Premium Beef, LLC (formerly known as U.S. Premium Beef, Ltd.) and itsconsolidated subsidiaries. As used in this report, the term “NBP” refers toNational Beef Packing Company, LLC (formerly known as Farmland National BeefPacking Company, LP (FNB)), a Delaware limited liability company and “USPB”refers to U.S. Premium Beef, LLC (formerly known U.S. Premium Beef, Ltd.) priorto consolidation.  As used in this report, the term “fiscal year ended” referto our fiscal year, which ends on the last Saturday in August.

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**PART I**

**ITEM 1.                  BUSINESS  **

**BUSINESS OF U.S. PREMIUM BEEF, LLC**

**Overview**

U.S. Premium Beef (USPB) wasorganized in July 1996 as a Kansas cooperative by a steering committee ofcattle producers. USPB’s goal is to provide market access and improve themarketing and processing of beef products requiring higher quality cattle forwholesale and retail customers and consumers while providing higher returns tocattle producers. USPB operates an integrated cattle processing and beefmarketing enterprise where consumer and processor demands and requirements areimplemented through changes in genetics, feeding and management. U.S. PremiumBeef’s unitholders benefit from its supplier alliance with National BeefPacking Co., LLC (NBP) through (i) premiums received in excess of cash marketprices for higher quality cattle, (ii) allocations of profits and potential distributions,(iii) potential unit price appreciation, and (iv) information that permitsunitholders to make informed production decisions.  

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

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

On June 1,2006, U.S. Premium Beef’s majority owned subsidiary, NBP, completed theacquisition of substantially all of the assets of Brawley Beef, LLC (BrawleyBeef).  Brawley Beef was an alliance of cattle producers in Arizona andCalifornia who supplied its beef processing facility in Brawley, California. 

U.S. Premium Beef, NBPCo Holdings and NBP managementeach hold Class A and Class B interests in NBP. In addition, members of NBPmanagement will be issued a fixed number of additional Class A and Class Cinterests in NBP in lieu of cash payments owed under existing employmentarrangements. USPB holds approximately 54.8% of the Class B interests, as wellas Class A interests with an aggregate face amount of approximately $94.7million, NBPCo Holdings owns approximately 19.5% of the Class B interests, aswell as Class A interests with an aggregate face amount of approximately $31.5 million,and members of NBP management own approximately 25.7% of the Class B interests,as well as Class A interests with an aggregate face amount of approximately $1.5million. After the earlier of the occurrence of specified major liquiditytransaction, change of control or in August 2008, certain members of NBPmanagement will be issued a fixed number of additional Class A interests withan aggregate face amount of approximately $9.1 million and Class C interestswith an aggregate face amount of approximately $0.9 million in lieu of cashpayments owed under prior or existing employment arrangements pursuant todeferred compensation agreements entered into in connection with ownershipchanges that occurred on August 6, 2003.

**Products and Production**

USPB provides an integrated cattle production,processing and marketing system for the benefit of its unitholders andassociates. As the basis of that system, USPB’s unitholders have a guaranteedright plus**an obligation (on a one head per Class A unit per year basis)to deliver cattle to USPB, pursuant to the Uniform Cattle Delivery and MarketingAgreement (see *Cattle Delivery Arrangements*). Cattle delivered to USPBare then delivered to NBP for processing and subsequent product distributionand marketing. Shortly after the cattle are processed, cattle suppliersreceive, at no extra charge, individual animal carcass data previouslyconsidered proprietary by many processors. This carcass data assists producersin refining production methodologies, thereby improving the product quality andsubsequently enhancing the return to the producer. 

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We believe the primary advantage of USPB’sownership in NBP centers around USPB’s ability to provide NBP with a consistentsupply of quality beef from a verified source, allowing NBP to target highermargin value-added markets. Consumers have historically demonstrated theirwillingness and desire to buy branded products that offer better value in otherconsumer product markets, with the Certified Angus Beef® productline being an example in the beef industry. 

**Cattle Producers’ Uniform Cattle Delivery and Marketing Agreements**

USPB facilitates the delivery ofcattle from its unitholders and associates to NBP. Under the cooperativestructure, each share of common stock held by a shareholder entitled andobligated that shareholder to deliver one head of cattle per year to thecooperative. Each shareholder was required to enter into a Uniform Delivery andMarketing Agreement with the cooperative whereby the shareholder was committedto supply a designated number of cattle on an annual basis to be deliveredduring the delivery periods set forth in the delivery agreement. In the LLCstructure, each Class A unit held by a unitholder entitles and obligates thatunitholder to deliver one head of cattle per year to USPB.  The initialdelivery agreement was for a term of 10 years, with the term of thecooperative’s agreements continuing following the Conversion. Subsequent renewalsof the delivery agreement are for a term of 5 years with an evergreen renewalprovision. These arrangements are described in greater detail in *CattleDelivery Arrangements*. 

**Company Background**

USPB was originally organized asa tax exempt cooperative within the meaning of Section 521(b)(l) of theInternal Revenue Code. The cooperative began operations on December 1,1997, when the cooperative acquired its initial interest in Farmland NationalBeef, now known as National Beef Packing Company, LLC. In connection with thecooperative’s purchase of its interest in Farmland National Beef, thecooperative owned the right and was subject to the obligation to deliver cattleannually to NBP relative to: (i) USPB’s ownership in NBP and (ii) the number ofcattle processed annually by NBP.  That arrangement continues following the Conversion. Under that arrangement, USPB has delivered nearly 6.2 million head of cattleto NBP for processing since it commenced deliveries.   

On August 6, 2003, USPB becamethe majority owner in NBP.

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

On June 1, 2006, U.S. Premium Beef’s majority ownedsubsidiary, NBP, completed the acquisition of substantially all of the assetsof Brawley Beef.  As a result of the acquisition, USPB issued 44,160 new ClassA units and 44,160 new Class B units to Brawley Beef in exchange for 44,160limited partnership units in National Beef California (NBC), a subsidiary of NBP. USPB then exchanged the limited partnership units with NBP for a higher ownershippercentage in NBP.  After the acquisition, Brawley Beef, LLC changed its nameto Desert Beef, LLC.

Holders of USPB Class A units areentitled to a pro rata share of 33% of the profits and losses; to receivedistributions 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 orliquidates after payment of the Patronage Notices, and to vote on matterssubmitted to a vote of USPB’s unitholders.  Holders of USPB Class A units arecommitted under Uniform Cattle Delivery and Marketing Agreements to deliver onehead of cattle to USPB annually for each unit held.  

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Holders of USPB Class B units areentitled to a pro rata share of 67% of the profits and losses; to receivedistributions 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 orliquidates after the payment of the Patronage Notices, and to vote on matterssubmitted to a vote of USPB’s unitholders.  Holders of USPB Class B units haveno cattle delivery commitment.

Patronage Notices do notconstitute units or membership interests in USPB, and holders will not beunitholders or associates of USPB by virtue of holding Patronage Notices.  Aswas the case in the cooperative, Patronage Notices will be paid by USPB at suchtime and in such amounts as may be determined by the board of directors in itssole and absolute discretion.  Upon liquidation, holders of Patronage Noticeswill be paid before holders of Class A and Class B units.  Patronage Noticescarry no other or additional rights.

**Employees**

USPB has nine employees. USPB’s governance andstrategic oversight responsibilities with NBP and the complexity of USPB’sobligations under its various contracts with NBP require USPB to retain theservices of key senior management personnel with the experience, skill andexpertise necessary to manage an enterprise competitive with othersophisticated participants in the beef and meat industries. Each employee iscompensated through the payment of a base salary with management being eligiblefor incentive and discretionary bonuses. In addition, each employee is eligibleto participate in benefits programs maintained by USPB. These programs includegroup medical insurance, accidental death and dismemberment insurance andsimilar programs. 

USPB’s employees are notunionized and USPB believes that its relationship with its employees is good.

**Governmental Regulation and Environmental Matters**

The Company is subject to federal and stateregulations relating to grading of animals, quality control, labeling, sanitarycontrol and waste disposal. However, as many of the Company’s operationalactivities are conducted through its majority-owned subsidiary, NBP, and asUSPB does not directly operate any processing facilities itself, thesignificant efforts with respect to governmental and environmental regulationare 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-ownedsubsidiary, NBP. The ultimate customers of and the market for the productsresulting from the processing of cattle supplied by USPB’s unitholders and associatesare described in *Business of National Beef Packing Company, LLC – General*. 

**Beef Industry, Markets and Competition**

As indicated above, USPB’s business activitiesare focused on facilitating the delivery of cattle produced by its unitholders andassociates to USPB’s majority-owned subsidiary, NBP. Information regarding thebeef industry, the market for beef and beef products and competition within thebeef industry are described in *Business of National Beef Packing Company,LLC - Industry Overview*. 

**Intellectual Property**

USPB owns little intellectual property becauseUSPB’s sales are transacted through NBP. However, USPB maintains a trademark ona U.S. Premium Beef logo that it uses periodically on certain, selectedproducts. 

**Research and Development**

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

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**CATTLEDELIVERY ARRANGEMENTS**

**Cattle Producers’ Uniform Cattle Delivery and Marketing Agreements andPayments to Unitholders and Associates for Cattle**

USPB facilitates the delivery of cattlefrom its unitholders and associates to NBP. Under the cooperative structure,each share of common stock held by a shareholder entitled and obligated thatshareholder to deliver one head of cattle per year to the cooperative. Eachshareholder was required to enter into a Uniform Delivery and Marketing Agreementwith the cooperative whereby the shareholder was committed to supply adesignated number of cattle on an annual basis to be delivered during thedelivery periods set forth in the delivery agreement.  In the LLC structure, followingthe conversion from a cooperative, each Class A unit held by a unitholderentitles and obligates that unitholder to deliver one head of cattle per yearto USPB.  The initial delivery agreement was for a term of 10 years, withthe term of the cooperative’s agreements continuing following the Conversion.Subsequent renewals of the delivery agreement are for a term of 5 years with anevergreen renewal provision.

Cattle delivered to USPB by its unitholdersand associates are delivered by USPB to NBP for processing (with the effectthat NBP is USPB’s sole customer). The resulting beef and beef products aremarketed by NBP. Each unitholder or associate is paid for the cattle deliveredto USPB based on a market-based purchase price that is subject to the agreementsbetween USPB and NBP. 

Pursuant to the Uniform Cattle Deliveryand Marketing Agreement, payment for cattle is based on the individual carcassquality of cattle delivered to the Company. In addition to the paymentsdescribed in this section, the cooperative paid patronage dividends from itstaxable income, in accordance with its bylaws. Such patronage dividends werebased on the cooperative’s taxable income and were distributed to thecooperative’s shareholders and associate members in proportion to the number ofcattle delivered to the cooperative by its shareholders and associate members.As a result, the patronage dividends received by the cooperative’s shareholdersand associate members reflected the benefits and profits, if any, obtained fromvalue-added marketing of the beef and beef products created from the cattledelivered to the cooperative for processing. As a limited liability company,allocations of profits and losses and potential distributions are not tied tocattle delivery, but rather to the number of units held and the respectiverights of the Class A and Class B units.

**BUSINESS OF NATIONAL BEEF PACKING COMPANY, LLC**

**General**

NBP is the fourth largest beef processing companyin the United States, accounting for 14.3% of the United States fed cattleprocessed in its fiscal year 2007. NBP processes, packages and delivers freshbeef for sale to customers in the United States and international markets. NBP’sproducts include boxed beef and beef by-products, such as hides and offal. Inaddition, NBP sells value-added beef products including branded boxed beef,case-ready beef chilled and frozen export beef and portion control beef. NBPmarkets products to retailers, distributors, food service providers and theUnited States military. NBP has the ability to process approximately 14,000head per day in its beef processing facilities and generated approximately $5.6billion in total net sales during fiscal year 2007.  NBP’s relationship withU.S. Premium Beef facilitates a vertically integrated business model andprovides NBP with a portion of the high-quality cattle used in its boxed beefand value-added products. 

Steven D. Hunt, one of NBP’sthree managers and the Chief Executive Officer of U.S. Premium Beef, has over 26years of experience in the beef industry. Mr. Hunt has been an integral memberof NBP’s team and has helped to provide a supply of high-quality cattle.

 OnJune 12, 2003, U.S. Premium Beef entered into an agreement with FarmlandIndustries, Inc. (Farmland) to acquire all of the partnership interests in FNB heldby Farmland.  U.S. Premium Beef formed NB Acquisition, LLC (NBAcquisition) to consummate the acquisition. To finance the acquisition, U.S.Premium Beef, NBPCo Holdings, LLC (NBPCo Holdings) and certain members of NBP managementteam purchased equity in NB Acquisition for $46.0 million in cash.  FNB issued$160.0 million of Senior Notes (Senior Notes), amended its credit facility andtransferred a portion of the proceeds of the offering of the Senior Notes andborrowings under its amended credit facility to NB Acquisition.  

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Subsequently, NB Acquisition merged into FNB, andFNB then converted into a limited liability company under Delaware law andbecame known as National Beef Packing Company, LLC.  These transactionsclosed on August 6, 2003.  NBP continues to hold all of the same assets it heldbefore the consummation of the transactions, including equity in itssubsidiaries. 

**Industry Overview**

Beef products represent the largest segment ofthe U.S. meat industry based on retail sales and the U.S. is the largestproducer of beef in the world, producing approximately 25.8 billion pounds ofbeef in the calendar year 2006.  Beef production, from the birth of the animalto the delivery of meat products to the end distributor, is comprised of twoprimary segments: production and processing. The production segment raisescattle for slaughter and the processing segment slaughters cattle and packagesbeef for delivery to customers.  A typical 1,200 pound animal yields about 580 poundsof saleable meat, in addition to by-products.  Cattle supply in the beefindustry typically follows a ten to twelve year cycle, consisting of about sixto seven years of expansion followed by one to two years of consolidation andthree to four years of contraction. This cycle is unique to cattle as otheranimals can either generate multiple offspring or have shorter incubationperiods.

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

The domestic beef industry is characterized byprices that change daily based on seasonal consumption patterns and overallsupply and demand for beef and other proteins in the United States and abroad.In general, domestic and worldwide consumer demand for beef products determinesbeef processors’ long-term demand for cattle, which is filled by feedlotoperators. In order to operate profitably, beef processors seek to acquirecattle at the lowest possible costs and to minimize processing costs bymaximizing plant operating rates. Cattle prices vary seasonally and areaffected by inventory levels, the production cycle, weather, feed prices andother factors.

During fiscal year 2007, approximately 27.3million fed cattle were processed in the United States.  In recent periods,demand for beef products in the United States has been relatively stable, withpopulation growth the primary factor in determining increased aggregatedemand.  

**BSE and Related Export Bans**

On December23, 2003, it was announced by the United States Department of Agriculture(USDA) that a single Holstein dairy cow was discovered in the state ofWashington to have tested positive for BSE.  The origin of the animal was subsequentlytraced to a farm in Canada.  Shortly after the announcement, several countries,including Japan, representing a substantial share of NBP’s export business,closed their borders to the importation of edible beef products from the UnitedStates.  Certain by-products have been classified as Specified Risk Materials(SRMs), and have been banned from use in feedstocks and the human food chain.Some of these products previously enjoyed a market in foreign countries.  Theclosure of most foreign markets to U.S. beef following the discovery of thiscow in Washington state, and lack of alternative U.S. markets for many productswhich previously were exported, negatively impacted the revenue per headrealized by the U.S. processing industry.

The reopening of U.S. exportmarkets was further hampered by discovery in 2005 of a second case of BSE inthe U.S. as well as additional precautions required by some other importingcountries.  In December 2005, Japan opened their border to U.S. beef butsubsequently closed a short time later as a result of a U.S. packer erroneouslyshipping a product not approved for export to Japan.  On July 26, 2006,Japan agreed to reopen its market to U.S. beef aged 20 months and younger afteran inspection of U.S. beef processing plants.  Shipments of U.S. beef toJapan commenced in August 2006.  In September 2006, South Korea announceda provisional opening of their border to U.S. beef, but restrictions imposedwith the reopening have created uncertainty regarding amounts of beef that mayqualify.  South Korea has closed its borders to U.S. beef from time-to-time asa result of alleged findings of products shipped to South Korea by U.S. exportbusinesses that are not allowed by South Korea.

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Thesechallenges resulted in tremendous volatility in U.S. livestock market pricessince fiscal year 2004.  Where pre-BSE export sales were approximately 17% oftotal net sales in fiscal year 2003, NBP’s total export sales wereapproximately 10%, 7%, 7%, and 10% of total net sales in fiscal years 2004,2005, 2006, and 2007, respectively.  With the age restrictions placed on cattlethat qualify for export to Japan, it is anticipated that between 5% and 20% ofU.S. fed cattle will be able to meet the criteria.

NBP cannotpresently assess the full economic impact of the consequences of BSE on theU.S. beef processing industry or on its operations.  The Company’s revenues andnet income may be materially adversely affected in the event existing export restrictionscontinue indefinitely, additional countries announce similar restrictions, and additionalregulatory restrictions are put into effect or domestic consumer demand forbeef declines substantially.

**Business Strategy**

*Increase Supplier Alliances.*    NBP intends to continue to increase the number ofhigh-quality cattle that it purchases from supplier alliances to increaserevenue and improve profitability. The cattle NBP purchases through supplieralliances, such as its relationship with U.S. Premium Beef, are purchased oneither a value-based formula, which sets the price for carcasses according toboth quality and yield, or a secondary-market basis, whereby NBP purchasescattle from suppliers outside of its primary supply territory. The percent ofcattle NBP purchases pursuant to each of these methods fluctuates from periodto period; the number of cattle NBP purchased on either a value-based formulaor a secondary market basis was approximately 58% of its total cattle purchasedin fiscal year 2007.  

Based on NBP’s experience and on actual results,NBP believes that these purchasing methods allow it to increase the percentageof high-quality cattle that it processes relative to its total cattleprocessed.  NBP has focused on building relationships with and educating itssuppliers on the mutual benefits of these purchasing methods and believes thatit will be able to increase its high-quality cattle purchases utilizing thesemethods in the future. 

*Continue to Improve Operating Efficiencies.*    NBP plans to continue to focus on increasing its profitmargins by improving operating efficiencies and increasing processing yields.  Sincefiscal year 2001, NBP has invested approximately $253 million and successfullyexpanded its processing facilities, creating an efficient and high volumebusiness. 

*Pursue Strategic Acquisitions.*    NBP’s management team has a history of successfullyexecuting and integrating acquisitions in core or complementary businesses. NBPintends to continue to evaluate and selectively pursue acquisitions,particularly of underperforming processing facilities, which it believes arestrategically important based on their potential to: (i) meet NBP’scustomers’ 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 thecovenants contained in its debt agreements.  As an example, USPB’s majorityowned subsidiary, NBP, acquired substantially all of the assets of Brawley Beefeffective May 30, 2006, which resulted in NBP’s ownership of its beefprocessing facility in Brawley, California, and entered into a long-term supplyagreement for approximately 275,000 head of cattle per year to this facility.  Additionally,NBP acquired Vintage Foods, L.P., including the VintageTM Natural Beef brand,during fiscal year 2006.  The Vintage brand is marketed as natural beef that isantibiotic- and hormone-free, from cattle that are 20 months of age andyounger.  

**Competitive Strengths**

*            Vertically Integrated BusinessModel.    *USPB owns the right and is subject to theobligation, if requested, to deliver cattle annually to NBP relative to: (i) USPB’sownership in NBP and (ii) the number of cattle processed annually by NBP.  USPB’sownership of and contractual supply relationship with NBP enhances NBP’sability to deliver a consistent, high-quality, value-added product to itscustomers. USPB is a limited liability company and its unitholders andassociates consist of cattle ranchers and feedlot owners and operators. Duringfiscal year 2007, USPB and its unitholders and associates provided NBP withapproximately 17% of its total cattle requirements through the pricing gridprocess as more fully described in Item 13. *Certain Relationships andRelated Transactions*. NBP believes this supply relationship with USPBprovides NBP with significant competitive advantages; including: (i)consistently supplying high-quality cattle, and (ii) an ability to consistentlyprovide NBP’s customers with higher margin, value-added products.

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*Modern and Efficient Facilities.*    NBPhas invested more than $252 million since fiscal year 2001 to modernize itsfacilities, expand capacity and increase the rate at which cattle areprocessed. These facility upgrades and expansions have enabled NBP to significantlyincrease the number of cattle NBP processes. NBP management believes that itsbeef processing facilities in Liberal, Kansas and Dodge City, Kansas are amongthe largest, most modern and efficient processing facilities in the UnitedStates. With the acquisition of the Brawley, California plant in June 2006,these three facilities combined are capable of processing about 14,000 cattleper day.  NBP believes that the efficiency improvements at these facilitieshave allowed NBP to achieve higher capacity utilization rates, lower operatingcosts and higher operating margins than those of major competitors.Furthermore, these efficiencies have helped NBP increase its market share ofthe United States supply of fed cattle processed from approximately 7.5% in fiscalyear 1997 to approximately 14.3% in fiscal year 2007. NBP’s two case-readyfacilities in Hummels Wharf, Pennsylvania and Moultrie, Georgia, which beganoperating in 2001, are outfitted with state-of-the-art processing and packagingequipment that allows NBP to serve customers, such as Wal-Mart, in this growingniche market. In addition, its facilities are strategically located to enable NBPto source cattle and beef products efficiently and to effectively servecustomers.

*Significant Value-Added Product Portfolio.*    NBP’svalue-added product portfolio consists of branded boxed beef, case-ready beef,chilled and frozen export beef and portion control beef. NBP’s totalvalue-added sales were approximately $1,424 million in fiscal year 2007,comprising approximately 25.5% of its total net sales. NBP’s value-addedproducts contribute significantly more, in terms of gross margin, than its traditionalboxed beef products and are an important component of NBP’s profitability. Prior to the discovery of a single dairy cow in Washington state infected withBSE on December 23, 2003, NBP’s chilled and frozen export beef products,which primarily consist of premium cuts, had been its primary export to theinternational beef market, particularly to Japan. 

*Focus on Food Safety.*    NBPhas continually focused on food safety. Its processing facilities utilize NBP’sproprietary BioLogic® Food Safety System to facilitate the production of clean,fresh, safe and high-quality beef products. Each of its processing facilitiesis divided into five zones that separate different stages of the productionprocess and minimize the risk of contamination. NBP continually tests itsproducts and facilities to track and trend the process effectiveness.

*Supplier, Customer and ChannelDiversification.    *Two of NBP’s beef processingfacilities are located in southwest Kansas, and its primary market area for thepurchase of cattle for those facilities includes Kansas, Texas and Oklahoma. According to information from the USDA, cattle on feed in the Kansas, Texas andOklahoma area represented approximately 50% of the fed cattle marketed in theU.S. during 2007.  NBP’s third beef processing facility is located in Brawley,California.  Our source of cattle for this facility is an alliance of cattleproducers in Arizona and California with whom we have long-term cattle supplyagreements.

The close proximity of NBP’s facilities to largesupplies of cattle gives NBP’s buyers the ability to visit feedlots on aregular basis, which enables NBP to develop strong working relationships withits suppliers.  Additionally, the close proximity of NBP’s facilities to largesupplies of cattle encourages its suppliers to tailor their productiondecisions to efficiently meet the demands of NBP’s customers, reduces NBP’sreliance on any one cattle supplier and lowers transportation costs.  During fiscalyear 2007, excluding NBP’s supply arrangement with USPB, NBP’s largest supplieraccounted for 6.1% of total purchases and NBP’s top 25 suppliers accounted for 42.0%of its total purchases.

NBP also has a diversified sales mix acrossdistribution channels and customers. This approach provides multiple avenues ofpotential growth and reduces its dependence on any one market or customer. NBPsells products to retailers, distributors, food service providers, furtherprocessors, the United States military and through other channels. Duringfiscal year 2007, approximately 57% of NBP’s total net sales were to retailersand 25.7% to food service providers. Across these channels, NBP serves over 900customers, which represent most major retailers and food service providers inthe U.S.  In fiscal year 2007, no one customer represented more than 4.0% oftotal net sales, other than Wal-Mart and its affiliate Sam’s Club, whichtogether represented 6.8% of NBP’s total net sales. NBP’s top 10 customersrepresented 29.1% of total net sales in fiscal year 2007.

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*ExperiencedManagement.    *NBP is led by an experienced managementteam with, on average, over 22 years of experience in the beef processingindustry. John R. Miller, Chief Executive Officer, has over 26 years ofexperience in the beef processing industry. Mr. Miller has been recognized byForbes magazine for his achievements and leadership within the U.S. beefprocessing industry. He has assembled a team of professionals, including NBPPresident, Timothy M. Klein, who have worked together over the past 16 years indeveloping NBP into a profitable and premium supplier of beef products.

**Food Safety**

NBP’s food safety efforts incorporate acomprehensive network of leading technology that minimizes the risks involvedin beef processing. NBP’s proprietary BioLogic® Food Safety System promotes theproduction of clean, fresh, safe, high-quality beef products. The BioLogic®Food Safety System is an integrated company philosophy that helps to establishnew principles in food safety. The BioLogic® Food Safety System divides NBP’sproduction facilities into five zones based on the potential for microbialcontamination during the processing procedures that take place in each zone.Within each of the five zones, BioLogic® employs its “Test, Track and Treat”approach, which provides on-going testing in each of the zones, effectivetracking of the results of such tests and continuous treatments throughout thefacilities. The Test, Track and Treat approach includes preventative measuressuch as equipment sterilization, hygiene, temperature control and ongoingtesting to greatly reduce contamination risks.

**Intellectual Property**

NBP holds a number of trademarks and domain namesthat it believes are material to its business and which are registered with theUnited States Patent and Trademark Office, including National Beef®, BioLogic®Food Safety System, Black Canyon® Angus Beef, Black Canyon® Premium Reserve,Certified Premium BeefTM, Naturewell® Natural Beef, NatureSourceTM Natural AngusBeef, VintageTM Natural Beef and Leading the Way in Quality BeefTM.  NBP has alsoregistered the National Beef® tradename and trademark in most of the foreign countries to which it sells itsproducts. Currently, NBP has a number of trademark registrations pending in theUnited States and in foreign countries. In addition to trademark protection,NBP attempts to protect its unregistered marks and other proprietaryinformation under trade secret laws, employee and third-party non-disclosureagreements and other laws and methods of protection. All other trademarks ortrade names referred to in this report are the property of their respectiveowners.

**Competition**

The beef processing industry is highlycompetitive. Competition exists both in the purchase of live cattle, as well asin the sale of beef products. NBP’s products compete with a large number ofother protein sources, including pork and poultry, but NBP’s principalcompetition comes from other beef processors, including Tyson Foods, Inc.,Cargill Incorporated, JBS - Swift & Company and Smithfield Foods, Inc. NBPmanagement believes that the principal competitive factors in the beefprocessing industry are price, quality, food safety, customer service, productdistribution, technological innovations and brand loyalty. Some of NBP’scompetitors have greater financial and other resources and enjoy widerrecognition for their consumer branded products.

**Employees**

As of August 25, 2007, NBP had approximately 8,800employees. Approximately 2,700 of NBP’s employees at the Liberal, Kansasfacility are represented by the United Food and Commercial WorkersInternational Union under a collective bargaining agreement scheduled to expireon December 16, 2007. Approximately 1,000 of NBP’s employees at its Brawley,California facility are jointly represented by the United Food and CommercialWorkers International Union and the Teamsters International Union under acollective bargaining agreement scheduled to expire on May 31, 2008.  NBPconsiders its relations with its employees and the United Food and CommercialWorkers International Union and Teamsters International Union to be good. 

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**Government Regulation and Environmental Matters**

NBP’s operations are subject to extensiveregulation by the USDA, the Grain Inspection Packers and StockyardsAdministration (GIPSA), the FDA, the EPA and other state, local and foreignauthorities regarding the processing, packaging, storage, distribution,advertising and labeling of NBP’s products, including food safety standards.Recently, the food safety practices and procedures in the beef processingindustry have been subject to more intense scrutiny and oversight by the USDA.For example, on January 12, 2004, FSIS published an interim final rule onSpecified Risk Materials (SRMs) and requirements for non-ambulatory disabledcattle due to the finding of BSE in routine testing. NBP immediatelyimplemented the appropriate programs/policies to ensure compliance with FSISrules. The rule dealt with three Interim Regulations that prohibit theslaughter of non-ambulatory disabled cattle, require the description and removalof SRMs that are considered to be inedible, and restrict the use of captivebolt stunners that deliberately inject compressed air into the cranium of ananimal.  NBP has historically and will continue to work closely with the USDAand any regulatory agencies to ensure that its operations comply with allapplicable food safety laws and regulations.

Air emissions andwastewater and storm water discharges from NBP’s operations are subject toextensive regulation by the EPA and state and local authorities. NBP’s DodgeCity, Kansas and Liberal, Kansas facilities are subject to Title V permittingpursuant to the federal Clean Air Act and the Kansas Air Quality Act andimplementing regulations.  These permits were renewed on January 11, 2005, andwill expire on January 25, 2010.  NBP’s Brawley, California facility is subjectto air permitting and holds a Conditions for Authority to Construct and Permitto Operate, issued December 12, 2006, which is automatically renewed annually withpayment of a permit fee unless revoked for cause.  NBP’s Dodge City, Kansas,Liberal, Kansas, Hummels Wharf, Pennsylvania, Moultrie, Georgia, and Brawley,California facilities are also subject to risk management planning pursuant tothe federal Clean Air Act.  

NBP has anEnvironmental Compliance Management System (ECMS) in place for the Dodge Cityand Liberal plants that requires periodic and systematic self-auditing ofcompliance with all environmental requirements applicable to its operations.  NBPworks closely with the Kansas Department of Health and Environment (KDHE) toassure environmental compliance.  Within this process, KDHE has made inquiriesregarding the permitting of equipment that is the source of air emissions andwhich existed at the Liberal plant when NBP acquired the plant in 1993. Specifically at issue is whether the equipment present prior to NBP’sacquisition of the plant was such that the plant should have been classified asa major source for prevention of significant deterioration under the federaland Kansas air laws.  NBP is unable to predict the outcome of these inquiriesat this time.  NBP has a Compliance Calendar System in place at its HummelsWharf, Pennsylvania and Moultrie, Georgia facilities and is developing aCompliance Calendar System for its Brawley, California facility. 

All of NBP’sfacilities are indirect dischargers of wastewater to publicly-owned treatmentworks and are subject to requirements under the federal Clean Water Act andcorresponding state laws and agreements or permits with municipal or countyauthorities.  An agreement is in effect for NBP’s Dodge City, Kansas plant thatwill continue unless amended or revoked pursuant to its terms.  NBP has anagreement with the City of Liberal for wastewater and storm water treatment andare working with the City regarding expansion of the City’s treatmentfacilities and the terms of the renewal of the City’s discharge permit.  NBPexpects significant expenditures associated with the expansion of the City’streatment facilities.  NBP has an agreement with the City of Moultrie and TheJoint Development Authority of Brooks, Colquitt, Grady, Mitchell and ThomasCounties for treatment of wastewater from the Moultrie plant and it has apretreatment permit from the City of Moultrie for treatment of wastewater fromthe Moultrie plant.  NBP is in the process of revising the terms under whichits wastewater is treated and in making changes to address phosphorus in itswastewater.  NBP does not expect to incur material costs in association withthe treatment improvements for its Moultrie facility although it cannot becertain that this will be the case.  NBP is in the process of upgrading thetreatment facilities at the Brawley plant to provide treatment thatconsistently meets the requirements of the Brawley City Ordinance and iscooperating with the City as it responds to EPA Region 10 requirements forupgrades to the City’s publicly-owned treatment works needed in order for theCity to comply with its direct discharge permit including requirements forammonia and nutrient controls.  NBP does not expect to incur material costs inassociation with treatment of the Brawley plant wastewater although it cannotbe certain that this will be the case.  NBP holds a permit for its HummelsWharf, Pennsylvania facility from the Eastern Snyder County Regional Authoritythat automatically renews each year unless suspended or revoked pursuant to itsterms.  

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Storm waterdischarges from NBP’s plants are regulated pursuant to general permits issuedby the respective states.  In the states in which NBP has operations, it is invarious stages of renewing its coverage under the respective general permits.

NBP’s Dodge City,Kansas, Liberal, Kansas and Hummels Wharf, Pennsylvania facilities are suppliedby water from its wells.  NBP holds public water supply permits allowing it tosupply potable water to its employees at the Dodge City, Kansas and Liberal,Kansas facilities.  The public water supply permits do not have expirationdates.

NBP also is subject to laws that provide forstrict, and in certain circumstances joint and several, liability for remediationof hazardous substances at contaminated sites that could include current orformer facilities or other sites where wastes it generated have been disposed. NBP’s Dodge City, Kansas, Liberal, Kansas, Hummels Wharf, Pennsylvania,Moultrie, Georgia and Brawley, California facilities are small quantity orconditionally exempt generators of hazardous waste and are subject torecordkeeping, but not permit requirements.  Solid waste generated at its DodgeCity, Kansas and Liberal, Kansas facilities is disposed of or composted.  Aspecial waste permit is maintained by NBP’s Dodge City, Kansas facility for thedisposal of certain animal parts for which no market currently exists.  Thesolid waste generated at NBP’s Hummels Wharf, Pennsylvania and Moultrie, Georgiafacilities is disposed of in a municipal landfill if it is general plant trashand is taken to renderers if it is usable waste.  Solid waste from the Brawley,California plant is composted except that general plant trash is landfilled andusable waste is taken to renderers.  NBP is not aware that it has any actual orpotential liability under the Comprehensive Environmental Response,Compensation and Liability Act (Superfund).  NBP’s plants are subject tocommunity right to know reporting requirements under the Superfund Amendmentsand Reauthorization Act of 1986, which requires yearly filings as to thesubstances used on the plant premises.

In fiscal year 2007, NBP incurred expenses ofapproximately $4.4 million primarily related to the maintenance and improvementof wastewater treatment facilities and air pollution control.  NBP alsoincurred $2.1 million in capital expenditures related to its wastewatertreatment facilities and air pollution control in fiscal year 2007 andanticipate capital expenditures of approximately $3.1 million in fiscal year 2008for environmental projects related to the wastewater treatment facilities andair pollution control.

NBP’s domestic operations are subject to thePackers and Stockyards Act of 1921 (PSA). This statute generally prohibits meatpackers in the livestock industry from engaging in certain anti-competitivepractices. In addition, this statute requires NBP to make payment for itslivestock purchases before the close of the next business day following thepurchase and transfer of possession of the livestock it purchases, unlessotherwise agreed to by its livestock suppliers. Any delay or attempt to delaypayment will be deemed an unfair practice in violation of the statute. Underthe PSA, NBP must hold its cash livestock purchases in trust for its livestocksuppliers until they have received full payment of the cash purchase price. Asof August 25, 2007, NBP has secured a bond of $30.0 million to satisfy theserequirements.  The bond is supported by a $15.5 million letter of credit.

From time to time NBP receives notices fromregulatory authorities and others asserting that it is not in compliance withsome laws and regulations. In some instances, litigation ensues.  NBP iscurrently in receipt of one such notice, from the Bureau of Immigration andCustoms Enforcement (BICE) that it does not believe will result in materialliability, if any.  In May 2003, NBP received a request for information fromBICE regarding the immigration status of its employees, and NBP has providedBICE with all requested information.  No fines or penalties have been suggestedor discussed.  

NBP believes that it currently is in substantialcompliance with all governmental laws and regulations and maintains allmaterial permits and licenses relating to its operations.  Other than as discussedabove, NBP is not aware of any violations of environmental or other laws andregulations that are likely to result in material penalties or pending changesin such laws or regulations that are likely to result in material costincreases.

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**ITEM 1A.               RISK FACTORS**

As described throughout this document, USPB’sbusiness involves the operation of an integrated cattle processing and beefmarketing enterprise in which USPB’s owners and associates supply cattle thatare processed at the facilities owned and operated by USPB’s majority-ownedsubsidiary, National Beef Packing Co, LLC.  NBP markets and distributes thebeef and beef products produced from both cattle supplied by USPB’s owners andassociates and other cattle purchased by NBP from other sources.  The financialresults of NBP’s operations therefore are the single largest influence onUSPB’s financial performance.  Consequently, those factors and risks thatimpact the performance of NBP’s business have a direct and immediate influenceon USPB’s performance.  However, there are also some risks that are unique toUSPB.  This *Risk Factors* section is divided into two parts, with onesubsection focusing on the risk factors that influence the performance of NBPand another subsection discussing certain risk factors that are directlyapplicable to USPB. ** **

USPB’s business operations and the implementationof our business strategy are subject to significant risks inherent in ourbusiness, including, without limitation, the risks and uncertainties describedbelow.  The occurrence of any one or more of the risks or uncertaintiesdescribed below could have a material adverse effect on our financialcondition, results of operations and cash flows.  While we believe we haveidentified and discussed below the key risk factors affecting our business,there may be additional risks and uncertainties that are not presently known orthat are not currently believed to be significant that may adversely affect ourbusiness, operations, industry, financial position and financial performance inthe future.

**Risk Factors Associated With Operations of NBP**

**Outbreaks of disease affecting livestock canadversely affect NBP’s business.**

An outbreak of disease affecting livestock, suchas BSE or foot-and-mouth disease, could result in restrictions on sales ofproducts to NBP’s customers or purchases of livestock from its suppliers. Also,outbreaks of these diseases or concerns of such disease, whether or notresulting in regulatory action, can lead to cancellation of orders by NBP’scustomers and create adverse publicity that may have a material adverse effecton consumer demand and, as a result, on its results of operations. Furthermore,an outbreak of disease could lead to widespread destruction of cattle, whichcould have a negative impact on NBP. 

**If NBP’s products become contaminated, it maybe subject to product liability claims and product recalls that would adverselyaffect its business.**

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

**If the products of NBP’s competitors becomecontaminated, the beef industry may be subject to adverse publicity, whichcould negatively affect its business.**

If the products of NBP’s competitors, in theUnited States or elsewhere, become contaminated, the beef industry may faceadverse publicity. Any such adverse publicity could result in consumerslowering their demand for NBP’s beef products, which may negatively affect itsbusiness, financial condition, results of operations and cash flows.

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**NBP’s substantial debt could adversely affect its business.**

NBP has a significant amount of debt.  As ofAugust 25, 2007, NBP had $438.8 million of long-term debt, $3.4 million ofwhich was classified as a current liability.  As of August 25, 2007, NBP’s amendedand restated credit facility consists of a $202.6 million term loan, all ofwhich was outstanding, and a $200.0 million revolving line of credit loan,which had outstanding borrowings of $38.4 million, outstanding letters ofcredit of $52.4 million and available borrowings of $109.2 million, based onthe most restrictive financial covenant calculations.  In addition tooutstanding borrowings on its amended and restated credit facility, NBP hadoutstanding borrowings under industrial revenue bonds of $20.7 million, Senior Notesof $160.0 million and capital leases and other obligations of $17.1 million asof August 25, 2007.  See Item 7. *Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.*

NBP’ssubstantial debt could:

-  make it difficult for NBP to satisfy its obligations, includingmaking interest payments on its debt obligations;
-  limit NBP’s ability to obtain additional financing to operate itsbusiness;
-  require NBP to dedicate a substantial portion of its cash flow topayments on its debt, reducing its ability to use its cash flow to fund workingcapital, capital expenditures and other general operational requirements; 
-  limit NBP’s flexibility to plan for and react to changes in itsbusiness and the beef processing industry;
-  place NBP at a competitive disadvantage relative to some of itscompetitors that have less debt; and
-  increase NBP’s vulnerability to general adverse economic andindustry conditions, including changes in interest rates, changes in cattleprices or a downturn in NBP’s business or the economy.

The occurrence of any one of these events couldhave a material adverse effect on NBP’s business, financial condition andresults of operations.

**Despite NBP’s current levels of debt, it maystill incur significantly more debt, which could intensify the risks describedabove.**

NBP may incur significant additional debt in thefuture. The terms of the indenture governing NBP’s Senior Notes permit it toincur additional debt in the future and its sixth amended and restated creditfacility permits additional borrowings under certain circumstances. As ofAugust 25, 2007, NBP had approximately $109.2 million of availability under themost restrictive financial covenant calculations in its amended and restatedcredit facility. NBP may borrow to fund its capital expenditures and workingcapital needs. NBP also may incur additional debt to finance futureacquisitions. 

**Restrictive covenants under NBP’s amended andrestated credit facility and the indenture may limit NBP’s ability to operate itsbusiness.**

NBP’s amended and restated credit facility andthe indenture governing its Senior Notes, contain, among other things,restrictive covenants that will limit NBP’s and its subsidiaries’ ability tofinance future operations or capital needs or to engage in other businessactivities. The indenture and NBP’s amended and restated credit facilityrestrict, among other things, NBP’s ability and the ability of its subsidiariesto:

-  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 restrictedsubsidiaries to pay dividends or make other distributions to NBP;
-  issue or distribute capital stock of NBP’s 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’sassets.

 

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In addition, NBP’s amended and restated creditfacility requires it to meet specified financial ratios and tests under certaincircumstances. These ratios and tests could have an adverse effect on NBP’sbusiness by limiting its ability to take advantage of financing, merger andacquisition or other corporate opportunities and to fund its operations. Eventsbeyond NBP’s control, including changes in general business and economicconditions, may affect its ability to meet those financial ratios and tests.Any future debt could also contain financial and other covenants morerestrictive than those imposed under the indenture governing NBP’s Senior Notesor NBP’s amended and restated credit facility. 

NBP may not meet those ratios and tests and itslenders may not waive any failure to meet those ratios and tests. A breach ofany of those covenants or failure to maintain such ratios would result in adefault under NBP’s amended and restated credit facility and any resultingacceleration under the amended and restated credit facility may result in adefault under the indenture governing NBP’s Senior Notes. If an event ofdefault under NBP’s amended and restated credit facility occurs, the lenderscould elect to declare all amounts outstanding thereunder, together withaccrued interest, to be immediately due and payable which would result in anevent of default under NBP’s Senior Notes. NBP’s assets or cash flow may not besufficient to repay in full its outstanding debt, including the Senior Notes.

**NBP may be unable to generate sufficient cashflow to service its debt, which could adversely affect its financial conditionand results of operations.**

To service its debt, NBP will require asignificant amount of cash. If NBP’s cash flow and capital resources areinsufficient to fund its debt service obligations, it may be forced to reduceor delay capital expenditures, sell material assets or operations, obtainadditional capital or restructure debt.  NBP’s ability to generate cash, makescheduled payments or to refinance its obligations depends on its successfulfinancial and operating performance. NBP’s financial and operating performance,cash flow and capital resources depend upon prevailing economic conditions andcertain financial, business and other factors, many of which are beyond its control.These factors include among others:

-  economic, industry and competitive conditions; 
-  operating difficulties, increased operating costs or pricingpressures NBP may experience; and
-  delays in implementing any strategic projects. 

**NBP’s margins may be negatively impacted byfluctuating raw material costs and selling prices and other factors that areoutside of NBP’s control.**

NBP’s margins are dependent on the price at whichits beef products can be sold and the price it pays for raw materials, amongother factors. These prices can vary significantly over a relatively shortperiod of time as a result of a number of factors, including the relativesupply and demand for live cattle and beef products, as well as the market forcompeting or complimentary products, such as pork and poultry. In addition,closure of international markets to U.S. beef product exports as a result ofthe December 23, 2003 BSE discovery negatively affected U.S. beef productmargins, as certain by-products, classified as SRMs, have been banned from usein feedstocks and the human food chain.  Some of these products previouslyenjoyed a market in foreign countries.

The supply and market price of the livestock thatconstitute NBP’s principal raw material and represent the substantial majorityof its cost of goods sold are dependent upon a variety of factors over which NBPhas little or no control, including fluctuations in the size of herdsmaintained by producers, the relative cost of feed, weather and livestockdiseases.  Additionally, the closure of the U.S. border to Canadian livestockfrom May 2003 until July 2005 constrained the supply of cattle in the U.S.which resulted in higher overall fed cattle prices in the U.S. compared to Canada,and the closure prompted Canada to increase its processing capabilities, whichmay also have an adverse impact on NBP’s future margins.

Severe price swings in raw materials, and theresulting 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 financialcondition, results of operations and cash flows. If NBP experiences increasedcosts, it may not be able to pass them along to its customers. 

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**NBP generally does not have long-termcontracts with its customers, and, as a result, the prices at which it sellsbeef products are subject to market forces.**

Other than NBP’s existing arrangements with APC,Inc. and the United States military, NBP generally does not have long-term salesarrangements with its customers and, as a result, the prices at which it sellsproducts to them are determined in large part by market forces. NBP’scustomers, including those with which it has long-term contracts, place ordersfor products on an as-needed basis and, as a result, their order levels havevaried from period to period in the past and may vary significantly in thefuture. The loss of one or more of NBP’s key customers, a significant declinein the number of orders from one or more of its key customers or a significantdecrease in beef product prices for a sustained period of time could have amaterial adverse effect on NBP’s business, financial condition or results ofoperations.

**Wal-Mart’s failure to continue purchasing fromNBP could have a material adverse effect on NBP’s sales.**

Sales to Wal-Mart Stores, Inc., or Wal-Mart, whichdoes not cover NBP’s sales to Wal-Mart’s affiliate, Sam’s Club, representedapproximately 4.1% of NBP’s total net sales in fiscal year 2007. NBP’sagreement with Wal-Mart expired on January 31, 2004, and it has not enteredinto a new agreement. If Wal-Mart does not continue to purchase from NBP, itcould have a material adverse effect on its sales, financial position, resultsof operations and cash flows.

**NBP is subject to extensive governmentalregulation and NBP’s noncompliance with or changes in applicable requirementscould adversely affect its business, financial condition, results of operationsand cash flows.**

NBP’s operations are subject to extensiveregulation and oversight by the USDA, the GIPSA, the FDA, and other state,local and foreign authorities regarding the processing, packaging, storage,distribution, advertising and labeling of NBP’s products, including food safetystandards. Recently, the food safety practices and procedures in the meatprocessing industry have been subject to more intense scrutiny and oversight bythe USDA. NBP is also subject to a variety of environmental laws andregulations, including those relating to wastewater and storm water discharges,air emissions, waste handling and disposal, and remediation of soil andgroundwater contamination that are administered by the EPA, state, local andother authorities. NBP’s failure to comply with applicable laws and regulationscould subject it to administrative penalties and injunctive relief, civilremedies, including fines, injunctions, recalls of NBP’s products or seizuresof NBP’s properties, as well as potential criminal sanctions or personal injuryor other damage claims. These remedies, changes in the applicable laws andregulations or discovery of currently unknown conditions could increase NBP’scosts and limit its business operations. 

**Compliance with environmental regulations mayresult in significant costs and failure to comply with environmentalregulations may result in civil as well as criminal penalties, liability fordamages and negative publicity.**

NBP’s operations are subject to extensive andincreasingly stringent regulations pertaining to the discharge of materialsinto the environment and the handling and disposition of wastes. Failure tocomply with these regulations can have serious consequences for NBP, includingcriminal as well as civil and administrative penalties and negative publicity. NBPhas incurred and will continue to incur significant capital and operatingexpenditures to avoid violations of these laws and regulations. Additionalenvironmental requirements imposed in the future could require currentlyunanticipated investigations, assessments or expenditures, and may require NBPto incur significant additional costs. Because the nature of these potentialfuture charges is unknown, NBP management is not able to estimate the magnitudeof any future costs and NBP has not accrued any reserve for any potentialfuture costs.

Some of NBP’s facilities have been in operationfor many years. During that time, NBP and previous owners of these facilitieshave generated and disposed of wastes that are or may be considered hazardousor may have polluted the soil or groundwater at NBP’s facilities, includingadjacent properties. The discovery of previously unknown contamination ofproperty underlying or in the vicinity of NBP’s present or former properties ormanufacturing facilities and/or waste disposal sites could require NBP to incurmaterial unforeseen expenses. Occurrences of any of these events may have amaterial adverse effect on NBP’s business, financial condition, results ofoperations and cash flows. 

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**NBP’s international operations expose NBP topolitical and economic risks in foreign countries, as well as to risks relatedto currency fluctuations.**

In fiscal year 2007, exports, primarily to China,Mexico, Japan, South Korea, Canada, Hong Kong, Egypt, and Taiwan, accounted forapproximately 9.8% of NBP’s total net sales. NBP’s international activitiesexpose it to risks not faced by companies that limit themselves to the domesticmarket. One significant risk is that the international operations may beaffected by tariffs, other trade protection or food safety measures and importor export licensing requirements.  

An example of a risk relatedto our international operations is BSE, as discussed above in Item 1,*Business*.  

Other risks associated with NBP’sinternational activities include:

-  changes in foreign currency exchange rates and hyperinflation ordeflation in the foreign countries in which NBP operates;
-  exchange controls; 
-  changes in a specific country’s or region’s political or economicconditions, particularly in emerging markets;
-  potentially negative consequences from changes in regulatoryrequirements; and
-  international conflict, including terrorist acts, which couldsignificantly impact NBP’s financial condition and results of operations. 

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

**Failure to successfully implement NBP’sbusiness strategy may impede its plans to increase revenues, margins and cashflow.**

NBP’s revenues, margins and cash flows will notincrease as planned if it fails to implement the key elements of its strategy,and NBP’s ability to successfully implement this strategy is dependent at leastin part on factors beyond its control. For example, the willingness ofconsumers to purchase value-added products depends in part on economicconditions. In periods of economic uncertainty, consumers tend to purchase moreprivate label or less-expensive products. Thus, if NBP encounters periods ofeconomic uncertainty, the sales volume for its value-added products couldsuffer. Also, NBP may not be successful in identifying favorable internationalexpansion opportunities. 

**Changes in consumer preferences couldadversely affect NBP’s business.**

The food industry in general is subject tochanging consumer trends, demands and preferences. NBP’s products compete withother protein sources, such as pork and poultry, and other foods. Trends withinthe food industry change often and NBP’s failure to anticipate, identify orreact to changes in these trends could lead to, among other things, reduceddemand and price reductions for NBP’s products, and could have a materialadverse effect on NBP’s business, financial condition, results of operationsand cash flows. In addition, NBP does not have any other material lines ofbusiness or other sources of revenue to rely upon if it is unable toefficiently 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 tochanging market conditions or withstand any significant decline in the beefindustry.

**The beef processing industry is highlycompetitive and NBP’s customers may not continue to purchase NBP’s products.**

The beef processing industry is highlycompetitive. Competition exists both in the purchase of live cattle and in thesale of beef products. In addition, NBP’s products compete with a number ofother protein sources, including pork and poultry.

NBP’s principal competition arises from otherbeef processors, including Tyson Foods, Inc., Cargill Meat Solutions, JBS - Swift& Company and Smithfield Foods, Inc. The principal competitive factors inthe beef processing industry are price, quality, food safety, productdistribution, technological innovations and brand loyalty. NBP’s ability to bean effective competitor will depend on its ability to compete on the basis ofthese characteristics. Some of NBP’s competitors have greater financial andother resources and enjoy wider recognition for their consumer brandedproducts. NBP cannot provide certainty that it will be able to competeeffectively with these companies and its ability to compete could be adverselyaffected by its significant debt levels.

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**The sales of NBP’s beef products are subjectto seasonal variations and, as a result, NBP’s quarterly operating results mayfluctuate.**

The beef industry is characterized by prices thatchange based on seasonal consumption patterns. The highest period of demand forNBP’s products is usually the summer barbecue season. As a result of theseseasonal fluctuations, NBP’s operating results may vary substantially betweenfiscal quarters.

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

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

**NBP’s performance depends on favorable laborrelations with its employees. Any deterioration of those relations or increasein labor costs could adversely affect NBP’s business.**

NBP has approximately 8,800 employees worldwide.Approximately 2,700 employees at NBP’s Liberal, Kansas facility are representedby the United Food and Commercial Workers International Union under acollective bargaining agreement that expires on December 16, 2007.Approximately 1,000 employees at NBP’s Brawley, California facility are jointlyrepresented by the United Food and Commercial Workers International Union andTeamsters International Union under a collective bargaining agreement thatexpires on May 31, 2008.  A labor-related work stoppage by these unionizedemployees could limit NBP’s ability to process and ship its products orincrease its costs, which could adversely affect NBP’s results of operationsand financial condition. In addition, it is possible that any labor unionefforts to organize employees at NBP’s non-unionized facilities might besuccessful and that any labor-related work stoppages at these non-unionizedfacilities in the future could adversely affect its results of operations andfinancial condition. In general, any significant increase in labor costs,deterioration of employee relations, slowdowns or work stoppages at any of NBP’slocations, 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. 

**The consolidation of NBP’s retail andfoodservice customers may put pressure on its operating margins.**

In recent years, the trend among NBP’s retail andfoodservice customers, such as supermarkets, warehouse clubs and foodservicedistributors, has been towards consolidation. These consolidations, along withthe entry of mass merchants into the grocery industry, have resulted incustomers with increasing negotiating strength who tend to exert pressure on NBPwith respect to pricing terms, product quality and new products. As the customerbase continues to consolidate, competition for the business of fewer customersis expected to intensify. If NBP does not negotiate favorable terms of salewith its customers and implement appropriate pricing to respond to thesetrends, or if NBP loses its existing large customers, its profitability coulddecrease.

**NBP may not be able to successfully integrateexisting and future acquisitions, which could result in it not achieving theexpected benefits of the acquisition, the disruption of NBP’s business and anincrease in NBP’s costs.**

            NBP continually exploresopportunities to acquire related businesses, some of which could be material toit. NBP’s ability to continue to grow may depend upon identifying andsuccessfully acquiring attractive companies, effectively integrating thesecompanies, achieving cost efficiencies and managing these businesses as part ofNBP.  For example, effective May 30, 2006, NBP, along with its majority owner,U.S. Premium Beef, acquired substantially all the assets of Brawley Beef, LLC(Brawley Beef).  Brawley Beef operated a beef processing facility in Brawley,California, producing upscale custom cuts for sale to retail customers.  Additionally,NBP acquired Vintage Foods, L.P., including the VintageTM Natural Beef brand,during fiscal year 2006.  The Vintage brand is marketed as natural beef that isantibiotic- and hormone-free, from cattle that are 20 months of age andyounger.  

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NBP may not be able to effectively integrateacquired companies and successfully implement appropriate operational,financial and management systems and controls to achieve the benefits expectedto result from these acquisitions. NBP’s efforts to integrate these businessescould be affected by a number of factors beyond its control, such as regulatorydevelopments, general economic conditions and increased competition. Inaddition, the process of integrating these businesses could cause theinterruption of, or loss of momentum in, the activities of NBP’s existingbusiness. The diversion of management’s attention and any delays ordifficulties encountered in connection with the integration of these businessescould negatively impact NBP’s business and results of operations. Further, thebenefits that NBP anticipates from acquisitions may not develop.

**Risk Factors Associated with USPB**

**USPB delivers all of the cattle provided by its unitholdersand associates to National Beef Packing Company, LLC and does not have arrangementsfor alternative markets for its unitholders and associates cattle.**

USPB’s sole customer for thecattle provided by USPB’s unitholders and associates is National Beef PackingCompany, LLC.   Given USPB’s ownership of a majority interest in NBP, USPB hasnot developed alternative customers for the cattle provided by USPB’s unitholdersand associates.  If events were to occur which would prevent NBP frompurchasing and processing the cattle supplied by USPB’s unitholders andassociates, USPB would need to exercise provisions in its agreements with bothNBP and USPB’s unitholders that would permit USPB to reduce the number ofcattle acquired from unitholders and sold to NBP.  While such provisions wouldmitigate harm to USPB, it is likely that the value of the Class A and Class Blinked units and the associated delivery rights held by USPB’s unitholders wouldbe impaired.

**The other members of National Beef Packing Company, LLCdo not deliver cattle to NBP for processing, creating the possibility that theinterests of those other members of NBP could conflict with the interests of USPBand its unitholders. **

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

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

Therestructuring of the cooperative to become an LLC was a taxable event for boththe cooperative and its shareholders. The tax consequences to the cooperativedepended on the value of its assets and apportionment of the value among specificassets, both of which involved risks described in the following risk factors.

Theshareholders recognized gain or loss depending on when and how their shares inthe cooperative were acquired. The amount depended on the value of thecooperative's assets, net of liabilities, and customary discounts allowed, bothof which involved valuation risks described in the following risk factors. Thetaxable gain or loss that was recognized depended on whether the value of theClass A and Class B linked units received in the restructuring for those shareswas 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, theyhad a gain on this portion of the restructuring. Values were subject to closingdate adjustments and the possibility of future challenges by the Internal RevenueService. 

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The intendedtax treatment of the restructuring is subject to the possibility of futurechallenges by the Internal Revenue Service that could have adverse consequencesfor the Company, as the successor to the cooperative's obligations, and to the unitholders.

**The board of directors andsenior management relied on an appraisal that is not binding on the InternalRevenue Service.**

In evaluatingthe tax consequences of the restructuring, USPB has relied, in part, on theappraisal prepared by American Appraisal Associates. Their appraisal is notbinding on the Internal Revenue Service. There is a risk that the InternalRevenue Service might determine that the Company or the cooperative’sshareholders at the point of restructuring must recognize additional taxableincome or gain for federal income tax purposes. 

**The Internal Revenue Servicecould also challenge other aspects of the restructuring that could materially adverselyaffect the LLC and its unitholders.**

In additionto challenging the overall valuation of the cooperative and the LLC unitsreceived in the restructuring, the Internal Revenue Service might alsochallenge: 

-  the cooperative's apportionment of values to specific assets andthe treatment of the resulting gains or losses as capital gain or loss orordinary income or loss; 
-  the treatment of the restructuring as a constructive distributionof specific assets rather than as a distribution of interests in the LLC. Thereare anti-netting rules that may become operative if these challenges aremounted by the IRS. Specifically, the cooperative's capital losses cannot be offsetagainst any income other than capital gains and, likewise, patronage lossescannot be offset against  nonpatronage income or gain; and 
-  the tax treatment of the cooperative's patronage notices that becameobligations of the LLC is uncertain and the IRS could challenge the intendedtreatment of the patronage notices in calculating the shareholders' gain orloss on the restructuring. 

If theInternal Revenue Service challenges the transaction on any of these grounds, itcould materially adversely affect the LLC and subject the unitholders and theLLC, as successor to the cooperative's obligations, to additional taxliability.

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

USPB believesthat the LLC will be treated as a partnership for federal income tax purposes. Thismeans that the LLC will pay no federal or state income tax and unitholders willpay tax on their share of the LLC's net income. However, the LLC would becometaxable as a corporation if it elects corporate tax status or if it is treatedas a publicly traded partnership because of the manner in which Class A andClass B units are transferred. The LLC's taxable income each year will dependin part on the depreciation, amortization and other cost recovery of the taxbasis of its assets. The LLC's initial aggregate basis was based on the fair marketvalue of assets deemed to be received by the unitholders 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 asto increase the allocation to longer lived assets or assets that cannot be depreciatedor amortized. This generally would defer the timing of some of the LLC'sdepreciation, amortization or other cost recovery deductions. The patronagenotices for which the LLC became obligated in the restructuring are expected tohave a face value substantially in excess of their negative present value that wasused in valuing the liquidating distribution deemed to be received by theshareholders. It is expected that capital loss deduction will be available tothe LLC, and therefore to its unitholders, when cumulative payments made by theLLC to the holders of the patronage notices exceed their restructuring datenegative present value. Because of the lack of controlling legal authority onthis issue, the IRS could challenge the capital loss deduction. Also,limitations on the deductibility of capital losses could reduce or eliminatethe benefit of the deduction.

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**Failure to achieve and maintain effective internalcontrols could have a material adverse effect on USPB’s business, operatingresults and financial condition.**

The Company is in the process of documenting andtesting its internal control procedures in order to satisfy the requirements ofSection 404 of the Sarbanes-Oxley Act, which requires annual managementassessments of the effectiveness of its internal controls over financialreporting and a report by its independent auditors addressing theseassessments. This process is both costly and challenging.  During the course oftesting the Company may identify deficiencies which it may not be able toremediate in time to meet the deadline imposed by the Sarbanes-Oxley Act forcompliance with the requirements of Section 404. In addition, if the Companyfails to achieve and maintain the adequacy of its internal controls, as suchstandards are modified, supplemented or amended from time to time, it may notbe able to ensure that it can conclude on an ongoing basis that it haseffective internal controls over financial reporting in accordance with Section404 of the Sarbanes-Oxley Act. Moreover, effective internal controls arenecessary for the Company to produce reliable financial reports and areimportant to helping prevent financial fraud.  If the Company cannot providereliable financial reports or prevent fraud, its business and operating resultscould be harmed, investors could lose confidence in its reported financialinformation, and its business, results of operation and financial conditioncould be adversely affected.  

**The provisions of the 2007 Farm Bill could negatively impact USPB’sbusiness and its unitholders. **

The United States Senate and House ofRepresentatives are finalizing the 2007 Farm Bill.  If enacted, severalkey pieces of potential legislation could negatively impact USPB’s business andits unitholders.   Proposed Senate amendments, if approved, would potentially restrictvalue-added marketing arrangements and could bring USPB and its unitholdersunder expansive new federal regulation.

**USPB depends on the service of key senior management personnel, the lossof which could materially harm its business.**

USPB’s success will depend, in part, on theefforts of its key senior management personnel. The market for qualifiedpersonnel is competitive and USPB’s future success will depend on its abilityto attract and retain these personnel. USPB does not have long-term employmentagreements with most of its senior management. USPB may not be able tonegotiate either new contracts or renewals of any existing long-term employmentagreements on terms favorable to USPB or at all. The loss of the services ofany of USPB’s key senior management personnel or the failure to attract andretain highly skilled personnel in the future could have a material adverseeffect on our business, results of operations and financial condition.

 

**ITEM 1B.               UNRESOLVED STAFF COMMENTS**

Not applicable.

** **

**ITEM 2.                  PROPERTIES**

USPB’s corporate office is located at12200 Ambassador Drive, Suite 501, Kansas City, Missouri, inproximity to the corporate offices of NBP.  The Company leases its office spacefrom the Kansas City Aviation Department, with offices at 601 Brasilia Avenue,Kansas City, Missouri 64153.

 

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NBP owns its Dodge City, Kansas; Liberal, Kansas;Brawley, California; and Hummels Wharf, Pennsylvania facilities. It leases itsheadquarters facility in Kansas City, Missouri, its Kansas City Steak Companyprocessing facility in Kansas City, Kansas and its case-ready facility inMoultrie, Georgia. NBP also leases its offices in Chicago, Illinois; Salt LakeCity, Utah; Denison, Iowa; Dallas, Texas; Perkins, Oklahoma; Tokyo, Japan, Seoul,South Korea, and Beijing, China.  NBP’s amended and restated credit facility issecured by a first priority lien on substantially all of its assets.  Thefacility locations and approximate daily processing levels are shown in thetable below:

|                                |                                  |                      |                |
|-------------------------------------|---------------------------------------|---------------------------|---------------------|
| **Location**                        |                                  | **Daily Processing** |
| Processing Facilities:         |                                  |                      |
|                                | Liberal, Kansas                  |                      | 6,000 head     |
|                                | Dodge City, Kansas          |                      | 6,000 head     |
|                                | Brawley, California              |                      | 2,000 head     |
| Case Ready Facilities:    |                                  |                      |
|                                | Hummels Wharf, Pennsylvania |                      | 67,200 pounds  |
|                                | Moultrie, Georgia                |                      | 183,200 pounds |
| Portion Control Facility: |                                  |                      |
|                                | Kansas City, Kansas         |                      | 50,000 pounds  |
|                                |                                  |                      |                |

 

**ITEM 3.                  LEGAL PROCEEDINGS**

For information regardinglegal proceedings, see Note 13. *Legal Proceedings* to our consolidatedfinancial statements included in Item 8 of this report.****

**ITEM 4.                  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

No matters were submitted to a vote of the unitholdersduring the last quarter of the fiscal year covered by this report. 

 

 

 

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** **

**PART II**

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

There is no established publictrading market for any class of common equity of U.S. Premium Beef, LLC.  As ofOctober 27, 2007, there were 441 record holders of Class A and Class B units.  Thesales prices by quarter and since the end of the fiscal year were as follows:

|                                              |                        |                      |         |                            |         |         |   |         |         |   |         |         |
|---------------------------------------------------|-----------------------------|---------------------------|--------------|---------------------------------|--------------|--------------|--------|--------------|--------------|--------|--------------|--------------|
|                                              |                        | **Affiliated Sales** |         | **Third Party Sales** |
|                                              |                        | **Low**                   |         | **High**                        |         | **Low**      |   | **High**     |
| **Fiscal Year 2007**                    |                        |                      |         |                            |         |         |   |
| Quarter  ending:                        |                        |                      |         |                            |         |         |   |
|                                              | November 25, 2006 | $                         | 88.00   |                            | $            | 165.00  |   | $            | 120.00  |   | $            | 135.00  |
|                                              | February 24, 2007 | $                         | 60.00   |                            | $            | 122.00  |   | $            | 120.00  |   | $            | 130.00  |
|                                              | May 26, 2007      | $                         | 130.85  |                            | $            | 130.85  |   | $            | 130.00  |   | $            | 130.00  |
|                                              | August 25, 2007   | $                         | 120.00  |                            | $            | 120.00  |   | $            | 0.00    |   | $            | 0.00    |
| Subsequent to August 25, 2007 | $                           | 100.00               |         | $                               | 100.00  |         | $      | 110.00  |         | $      | 130.00  |
|                                              |                        |                      |         |                            |         |         |   |         |
| **Fiscal Year 2006**                    |                        |                      |         |                            |         |         |   |
| Quarter  ending:                        |                        |                      |         |                            |         |         |   |
|                                              | November 26, 2005 | $                         | 97.00   |                            | $            | 112.50  |   | $            | 160.00  |   | $            | 160.00  |
|                                              | February 25, 2006 | $                         | 55.00   |                            | $            | 112.50  |   | $            | 148.00  |   | $            | 148.00  |
|                                              | May 27, 2006      | $                         | 55.00   |                            | $            | 60.00   |   | $            | 130.00  |   | $            | 145.00  |
|                                              | August 26, 2006   | $                         | 44.44   |                            | $            | 165.00  |   | $            | 120.00  |   | $            | 135.00  |

 The affiliated sales representsales that were not at arms length and, therefore, the sales priceranges disclosed above are not necessarily indicative of the marketvalue of the Class A and Class B units during the periods in question. 

On February 20, 2007 and February 26, 2007, USPBmade cash distributions to each of its unitholders in the amount of $1.17 and$1.20, respectively, for the linked combination of each Class A unit and ClassB unit held by its unitholders.  

On September 23, 2005, USPB made a cashdistribution to each of its unitholders in the amount of $1.73 for the linkedcombination of each Class A unit and Class B unit held by its unitholders. 

The payment of cash distributions are made onlyfrom assets legally available for that purpose and depend on the Company’sfinancial condition, results of operations, and other factors then deemedrelevant by USPB’s board of directors.  Cash distributions are paid to the holdersof Class A and Class B units at the discretion of the board of directors and tothe extent permitted by USPB’s senior lenders.  See Item 13*. SecurityOwnership of Certain Beneficial Owners and Management and Related UnitholderMatters*.

 

**ITEM 6.                  SELECTED FINANCIAL DATA**

The following table sets forth selectedconsolidated financial and other data for, and as of the end of, each of theyears in the five-year period ended August 25, 2007.  The selected data shouldbe read in conjunction with the consolidated financial statements for the yearended August 25, 2007, the related notes and the independent auditors’ report.

As described in Item 1,*Business,* USPBacquired a controlling interest in NBP on August 6, 2003 and since that datehas consolidated the results of NBP in its consolidated financial statements. As a result of the acquisition of a controlling interest in NBP, the financialposition and operating results after the Acquisition are not comparable withthose before the Acquisition.

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Historical per share data has been omittedbecause, under the cooperative structure, earnings of the cooperative aredistributed as patronage dividends to members and associate members based onthe level of business conducted with the cooperative as opposed to commonstockholder’s proportionate share of underlying equity in the cooperative. Proforma per unit data has been included below because as an LLC, the restructuredentity will, beginning in September 2004, make distributions to its unitholdersbased on their proportionate share of the underlying equity in the Class Aand Class B linked units, 33% and 67%, respectively, as opposed to the level ofbusiness conducted with the LLC. The pro forma per unit data gives effect tothe exchange of one Class A unit and one Class B unit of the newlyformed LLC for each share of common stock of the cooperative, effective August29, 2004. Class A units and Class B units shall be issued, redeemed, andtransferred together on a one for one basis until the board of directors determinesthe extent and conditions under which Class A units and Class B linked unitsmay be issued, redeemed, and transferred separately.

 

 

 

 

 

 

 

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The following table should be read in conjunctionwith Item 7. *Management’s Discussion and Analysis of Financial Condition andResults of Operations* and Item 8. *Financial Statements and SupplementaryData* (including the accompanying notes) contained elsewhere in this report.

|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |        |          |        |        |        |
|----------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------------------------------------------------------------------------------------------------|-------------------------------------------|---------------------------|---------------------------|---------------------------|-------------|---------------|-------------|-------------|-------------|
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             | **Fiscal Years Ended (1)** |                      |
|                                                                 |                                                                                                                                                                                                                           |          | **August 25,		2007**                                                                        | **August 26,		2006**                 | **August 27,		2005** | **August 28,		2004** | **August 30,		2003** |
|                                                                 |                                                                                                                                                                                                                           |          | **(In millions, except unit, share, and per unit data)** |
| **Statement of Operations Data:**                     |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |
| Net sales                                                       |                                                                                                                                                                                                                           | $             | 5,578.5                                                                                     | $                                         | 4,636.0              | $                         | 4,338.9              | $           | 4,093.5  | $           | 871.8  |
| Costs and expenses:                                        |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |
|                                                                 | Cost of sales                                                                                                                                                                                                        |          | 5,444.0                                                                                     | 4,503.8                              | 4,229.9              | 3,973.7              | 853.6                |
|                                                                 | Selling, general & administrative                                                                                                                                                                           | 46.1     | 37.6                                                                                        | 34.0                                 | 34.8                 | 5.7                  |
|                                                                 | Depreciation and amortization                                                                                                                                                                                        | 32.4     | 28.7                                                                                        | 24.4                                 | 21.2                 | 2.1                  |
| Operating income                                           |                                                                                                                                                                                                                           | 56.0     | 65.9                                                                                        | 50.6                                 | 63.8                 | 10.4                 |
| Other income (expense):                                    |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |
|                                                                 | Minority owners' interest in net income of                                                                                                                                                       |          |                                                                                             |                                      |                      |                      |
|                                                                 |      National Beef Packing Co.                                                                                                                                                         | (7.8)         | (16.6)                                                                                           | (8.5)                                     | (19.4)                    | (4.9)                     |
|                                                                 | Equity in income from Farmland National                                                                                                                                                               |          |                                                                                             |                                      |                      |                      |
|                                                                 |      Beef Packing Co.                                                                                                                                                                       |          | -                                                                                           | -                                    | -                    | -                    | 22.6                 |
|                                                                 | Interest income                                                                                                                                                                                                           |          | 2.1                                                                                         | 1.3                                  | 0.7                  | 0.7                  | 0.2                  |
|                                                                 | Interest expense                                                                                                                                                                                                          |          | (39.8)                                                                                           | (32.4)                                    | (29.0)                    | (26.6)                    | (2.4)                     |
|                                                                 | Interest rate exchange agreement                                                                                                                                                                                | -        | -                                                                                           | 0.1                                  | 0.6                  | -                    |
|                                                                 | Other, net                                                                                                                                                                                                                |          | 1.0                                                                                         | 3.1                                  | (3.2)                     | 1.1                  | (1.8)                     |
| Total other (expense) income                          | (44.5)                                                                                                                                                                                                                         | (44.6)        | (39.9)                                                                                           | (43.6)                                    | 13.7                 |
|                                                                 | Income tax (expense) benefit                                                                                                                                                                                    | (1.9)         | (1.6)                                                                                            | (2.1)                                     | (1.1)                     | 0.1                  |
| Net income                                                      |                                                                                                                                                                                                                           | $             | 9.6                                                                                         | $                                         | 19.7                 | $                         | 8.6                  | $           | 19.1     | $           | 24.2   |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
| **Selected Balance Sheet Data:**                      |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |
|                                                                 | Cash and cash equivalents                                                                                                                                                                                       | $             | 62.9                                                                                        | $                                         | 54.4                 | $                         | 50.5                 | $           | 35.2     | $           | 33.9   |
|                                                                 | Total assets                                                                                                                                                                                                              |          | $                                                                                                | 848.6                                | $                         | 784.8                | $                         | 656.1  | $             | 663.8  | $           | 641.2  |
|                                                                 | Long-term debt, less current maturities                                                                                                                                                                    | $             | 438.5                                                                                       | $                                         | 380.5                | $                         | 314.0                | $           | 331.8    | $           | 312.7  |
|                                                                 | Minority interest                                                                                                                                                                                                         |          | $                                                                                                | 77.9                                 | $                         | 73.0                 | $                         | 65.0   | $             | 63.1   | $           | 54.0   |
|                                                                 | Capital shares and equities                                                                                                                                                                                     | $             | 153.2                                                                                       | $                                         | 148.8                | $                         | 124.0                | $           | 118.0    | $           | 98.4   |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
|                                                                 | Common shares outstanding                                                                                                                                                                                            | n/a      | n/a                                                                                         | n/a                                  | 691,845              | 691,845              |
|                                                                 | Class A and Class B linked units outstanding                                                                                                                                                | 735,385  | 735,505                                                                                     | 691,845                              | n/a                  | n/a                  |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
| **Per Linked Unit Data:**                             |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |
| Earnings Per Unit                                          |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |
|                                                                 | Basic                                                                                                                                                                                                                          |          | $                                                                                                | 13.11                                | $                         | 28.06                | $                         | 12.49  |          |        |
|                                                                 | Diluted                                                                                                                                                                                                                        |          | $                                                                                                | 12.91                                | $                         | 27.56                | $                         | 12.25  |          |        |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
| Outstanding weighted-average units                         |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |
|                                                                 | Basic                                                                                                                                                                                                                          |          | 735,455                                                                                     | 702,843                              | 691,845              |                      |                      |
|                                                                 | Diluted                                                                                                                                                                                                                        |          | 747,067                                                                                     | 715,385                              | 705,063              |                      |                      |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
| Proforma amounts assuming the conversion to |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |
|                                                                 | an LLC is applied retroactively:                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
| Earnings Per Unit                                          |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |
|                                                                 | Basic                                                                                                                                                                                                                          |          | $                                                                                                | 13.11                                | $                         | 28.06                | $                         | 12.49  | $             | 27.60  | $           | 35.02  |
|                                                                 | Diluted                                                                                                                                                                                                                        |          | $                                                                                                | 12.91                                | $                         | 27.56                | $                         | 12.25  | $             | 27.10  | $           | 34.43  |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
| Outstanding weighted-average units                         |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |
|                                                                 | Basic                                                                                                                                                                                                                          |          | 735,455                                                                                     | 702,843                              | 691,845              | 691,845              | 691,845              |
|                                                                 | Diluted                                                                                                                                                                                                                        |          | 747,067                                                                                     | 715,385                              | 705,063              | 704,748              | 703,761              |
|                                                                 |                                                                                                                                                                                                                           |          |                                                                                             |                                      |                      |                      |                      |
| (1)                                                                  | Our fiscal year ends on the last Saturday in August.  Fiscal years 2003 - 2007 each consisted of a 52 week year. |

 

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**ITEM 7.                  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussion should be read inconjunction with our consolidated financial statements and related notes andother financial information appearing elsewhere in this report.  In addition tohistorical information, the following discussion and other parts of this reportcontain forward-looking information that involves risks and uncertainties. Ouractual results could differ materially from those anticipated by suchforward-looking information due to the factors discussed under Item 1. *DisclosureRegarding Forward-Looking Statements*, Item 1A. *Risk Factors*, andelsewhere in this report.

**Overview**

USPB was formed as a closed marketing cooperativeon July 1, 1996. Its mission is to increase the quality of beef andlong-term profitability of cattle producers by creating a fully integratedproducer-owned beef processing system that is a global supplier of highquality, value-added beef products responsive to consumer desires. 

On December 1, 1997, the cooperative becameoperational by acquiring 25.4966% of FNB, a partnership owned by thecooperative and Farmland Industries, Inc. (Farmland). The cooperative acquiredan additional 3.29% partnership interest in February 1998, bringing itsownership to 28.7866% of FNB. Farmland then owned the remaining 71.2134%. 

On May 31, 2002, Farmland and four of itssubsidiaries filed voluntary petitions to reorganize under Chapter 11 ofthe United States Bankruptcy Code. FNB was not a party of these filings.Provisions of FNB’s operating agreement and its financing agreement restrictedpartners’ access to FNB’s assets. In the fourth quarter of fiscal year 2003, asa result of the acquisition of Farmland’s interest by the cooperative andothers, as more fully described below, the cooperative acquired a controllinginterest in the former FNB, now NBP, and the assets, liabilities and operatingresults 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 of accounting. 

In connection with the cooperative’s purchase ofits interest in FNB, the cooperative owns the right and is subject to theobligation to deliver cattle annually to NBP relative to: (i) USPB’s ownershipin NBP and (ii) the number of cattle processed annually by NBP.  Thatarrangement continues following the conversion of the cooperative into theLLC.   The price received for cattle is based upon a price grid determined by USPBand NBP, which reflects current market conditions. The cattle purchase agreementis effective as long as USPB is an owner in NBP. Cattle delivered by USPB areprocessed in NBP’s three processing plants. 

USPB acquires all its cattle requirements fromits unitholders and associates. Under Uniform Cattle Delivery and Marketing Agreements,unitholders are obligated to deliver a designated number of cattle to USPBduring specified delivery periods, as defined. The original agreements were fora term of ten years; the renewal agreements carry a term of five years and havean evergreen renewal provision.  Both agreements provide for minimum qualitystandards, delivery variances, and termination provisions, as defined. Cattleacquired pursuant to the agreements are delivered to NBP pursuant to the cattlepurchase agreement. Sales transactions are based upon prevailing cash marketprices, and purchases are on terms no less favorable to NBP than would beobtained from an unaffiliated party. 

On June 12, 2003, the cooperative enteredinto an agreement with Farmland to acquire all of the partnership interests inFNB held by Farmland, which approximated 71.2%. As a result of thisacquisition, the cooperative gained voting control of FNB and converted it to alimited liability company, National Beef Packing Company, LLC, under Delawarelaw. These transactions (the Acquisition) closed on August 6, 2003. NBPassumed both the Uniform Delivery and Marketing Agreements and the cattlepurchase agreement. NBP continues to hold all of the same assets itspredecessor held before the consummation of the transactions, including equityin subsidiaries, except that Farmland retained a 49% interest in a NBPsubsidiary National Beef aLF, LLC, which holds a 47.5% interest in aLFVentures, LLC. After the Acquisition, NBP holds a 24.2% interest in aLFVentures, LLC through its 51% interest retained in National Beef aLF,LLC.  

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On August 18, 2004, theshareholders of U.S. Premium Beef, Ltd. approved the merger of the cooperativeinto a wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delawarecorporation.  The merger was effective on August 29, 2004. The Delaware Corporationthen, in a statutory conversion authorized under Delaware law, converted into aDelaware limited liability company.  Following the effective date of themerger and the statutory conversion, the business of the cooperative wascontinued in the limited liability company form of business organization.  TheCompany was subsequently renamed U.S. Premium Beef, LLC.

Effective May 30, 2006, USPB’s majority owned subsidiary, NBP, completed the acquisition of substantially all of the assets of Brawley Beef, LLC (Brawley Beef), consisting of a state-of-the-art beef processing facility in Brawley, California pursuant to the Contribution Agreement with Brawley Beef and National Beef California, LP (NBC) (the Agreement). NBC is a limited partnership formed with National Carriers, Inc., a wholly-owned subsidiary of NBP, acting as its general partner. Brawley Beef was an alliance of cattle producers in Arizona and California who supplied the beef processing facility. The facility commenced operations in December 2001.

In calendar year 2006, NBP was the fourth largestbeef processing company in the United States. In fiscal year 2006, NBPaccounted for approximately 14.3% of the fed cattle processed in the United States.NBP processes, packages and delivers fresh beef for sale to customers in theUnited States and international markets. NBP’s products include boxed beef andbeef by-products, such as hides and offal. In addition, they sell value-addedbeef products including branded boxed beef, case-ready beef, chilled and frozenexport beef and portion control beef. NBP markets its products to retailers,distributors, food service providers and the United States military. Therelationship between USPB and NBP facilitates a vertically integrated business modeland provides NBP with a significant portion of the high-quality cattle used inits boxed beef and value-added products.  

The following table presents the historicalconsolidated statements of operations data for NBP for the periods indicated:   

|                                    |                                                 |          |                             |          |                      |          |                      |          |   |   |
|-----------------------------------------|------------------------------------------------------|---------------|----------------------------------|---------------|---------------------------|---------------|---------------------------|---------------|--------|--------|
|                                    |                                                 |          | **Fiscal Years Ended** |
|                                    |                                                 |          | **August 25,		2007**        |          | **August 26,		2006** |          | **August 27,		2005** |
|                                    |                                                 |          |                             |          | **(in millions)**    |          |                      |
| Net sales                          | $                                                    | 5,578.5  |                             | $             | 4,636.0              |          | $                         | 4,338.9  |
|                                    |                                                 |          |                             |          |                      |          |                      |
| Costs and expenses:           |                                                 |          |                             |          |                      |
|                                    | Cost of sales                              | 5,443.9  |                             | 4,503.8  |                      | 4,229.9  |
|                                    | Selling, general & administrative | 42.5     |                             | 34.0     |                      | 30.5     |
|                                    | Depreciation and amortization              | 32.4     |                             | 28.7     |                      | 24.4     |
|                                    |                                                 |          |                             |          |                      |          |                      |
|                                    | Operating income                                | 59.7     |                             | 69.5     |                      | 54.1     |
|                                    |                                                 |          |                             |          |                      |          |                      |
| Other income (expense):       |                                                 |          |                             |          |                      |
|                                    | Interest income                                 | 0.6      |                             | 0.4      |                      | 0.4      |
|                                    | Interest expense                                | (39.4)        |                             | (32.0)        |                      | (28.6)        |
|                                    | Other, net                                      | 1.0      |                             | 3.0      |                      | (3.3)         |
| Total other expense, net | (37.8)                                               |          | (28.6)                           |          | (31.5)                    |
|                                    | Income tax expense                         | (1.9)         |                             | (1.5)         |                      | (1.8)         |
| Net income                         | $                                                    | 20.0     |                             | $             | 39.4                 |          | $                         | 20.8     |
|                                    |                                                 |          |                             |          |                      |          |                      |

NBP’s net income for the fiscal year 2007 was $20.0 millioncompared to $39.4 million for the fiscal year 2006, a decrease of $19.4 millionor 49.2%.  This is attributed to decreased operating income due primarily to decreasedmargins, increased selling, general and administrative and higher interestexpense.  Sales were higher, principally due to an increase in the number ofcattle processed, the majority of which was the result of the acquisition ofBrawley Beef, LLC.  Cost of sales were higher, principally due to an increasein the number of cattle processed, the majority of which was the result of theacquisition of Brawley Beef, LLC, at higher average weights and live cattleprices.  Operating income decreased $9.8 million or 14.1% over the prioryear.  As a percent of sales, operating income was 1.1% and 1.5% for fiscalyears 2007 and 2006, respectively.  

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NBP’s net income for fiscal year 2006 was$39.4 million compared to $20.8 million for fiscal year 2005, anincrease of $18.6 million or 89.4%.  This is attributed to increasedoperating income due primarily to increased margins and a decrease in otherexpense, net.  Sales were higher, principally due to an increase in the numberof cattle processed as a result of the acquisition of Brawley Beef, LLC, athigher average weights.  Cost of sales were higher, principally due to thehigher number of cattle processed as a result of the acquisition of BrawleyBeef, LLC, at higher average weights, and a slight increase in average livecattle prices.  Operating income increased $15.4 million or 28.5% over theprior year.  As a percent of sales, operating income was 1.5% and 1.2% for fiscalyears 2006 and 2005, respectively.  

**Financial Statement Accounts**

*Net Sales.* NBP’s net sales are generatedfrom sales of boxed beef, case-ready beef, chilled and frozen export beef,portion control beef and beef by-products. They are affected by the volume ofanimals processed and the value that is extracted from each animal. The valuethat is extracted from cattle processed, the cut-out value, is affected by beefprices and product mix, as premium products and further processed productsgenerate higher prices and operating margins. NBP’s value-added productscontribute significantly more, in terms of gross margin, than its traditionalboxed beef products and are an important component of profitability. Wholesalebeef prices fluctuate seasonally because of higher demand during the summermonths. Wholesale beef prices also fluctuate because of changes in supply anddemand for competing proteins and other foods, as well as changes in cattlesupply, which have typically followed a ten to twelve year cycle, consisting ofabout six to seven years of expansion followed by one to two years ofconsolidation and three to four years of contraction.  The expansion phase thatbegan two years ago stalled and contracted over the past eighteen months. While we expect a return to expansion over the next couple of years, allindicators are pointing at no growth at the present time. In addition, beef andby-product sales are affected by the general economic environment and otherfactors.

*Cost of Sales.*    NBP’scost of sales is comprised of the cost of livestock and plant costs such aslabor, packaging, utilities, and other facility expenses.  Total livestockcosts are a function of the volume of animals processed and the price paid foreach 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 forlivestock. Historically, changes in cut-out values, a representation normallyexpressed on a per hundred weight basis, of the sales value of a beef carcass,for beef products and corresponding livestock costs have been positivelycorrelated. As a result, profitability is primarily affected by the differencebetween cut-out value and livestock cost, the volume of livestock processed andits processing yields, the amount of saleable product, typically expressed as apercentage of a total carcass weight. 

*Selling, General and Administrative Expenses.*    Sellingexpenses consist primarily of salaries, trade promotions, advertising, commissionsand other marketing costs. General and administrative costs consist primarilyof general management, insurance and professional expenses.

**Outlook**

The cattle herd in the UnitedStates (U.S.) remains in a no-growth phase.  Following the drought of 2006 inthe central U.S., an extreme dryness in the southeastern states has resulted incow herd liquidation in that region during 2007.  Retention of females toreplenish and grow the U.S. cattle herd remains slow, resulting in long-termcattle supplies that show no appreciable sign of growth in the next two tothree years.  Meanwhile, historically strong grain prices have caused delayedplacement of cattle into feed yards, resulting in smaller-sized yetheavier-weight cattle on feed inventories.  This lack of growth in overallsupplies, given an increase in available slaughter capacity, could negativelyimpact industry margins.

**BSE and Related Export Bans**

On December23, 2003, it was announced by the United States Department of Agriculture(USDA) that a single Holstein dairy cow was discovered in the state ofWashington to have tested positive for BSE.  The origin of the animal wassubsequently traced to a farm in Canada.  Shortly after the announcement,several countries, including Japan, representing a substantial share of NBP’sexport business, closed their borders to the importation of edible beefproducts from the United States.  Certain by-products have been classified asSpecified Risk Materials (SRM’s), and have been banned from use in feedstocks andthe human food chain. Some of these products previously enjoyed a market inforeign countries.  The closure of most foreign markets to U.S. beef followingthe discovery of this cow in Washington state, and lack of alternative U.S.markets for many products which previously were exported, negatively impactedthe revenue per head realized by the U.S. processing industry.

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The reopening of U.S. exportmarkets was further hampered by discovery in 2005 of a second case of BSE inthe U.S. as well as additional precautions required by some other importingcountries.  In December 2005, Japan opened their border to U.S. beef butsubsequently closed a short time later as a result of a U.S. packer erroneouslyshipping a product not approved for export to Japan.  On July 26, 2006,Japan agreed to reopen its market to U.S. beef aged 20 months and younger afteran inspection of U.S. beef processing plants.  Shipments of U.S. beef toJapan commenced in August 2006.  In September 2006, South Korea announceda provisional opening of their border to U.S. beef, but restrictions imposedwith the reopening have created uncertainty regarding amounts of beef that mayqualify.  South Korea has closed its borders to U.S. beef from time-to-time asa result of alleged findings of products shipped to South Korea by U.S. exportbusinesses that are not allowed by South Korea.

Thesechallenges resulted in tremendous volatility in U.S. livestock market pricessince fiscal year 2004.  Where pre-BSE export sales were approximately 17% oftotal net sales in fiscal year 2003, NBP’s total export sales wereapproximately 10%, 7%, 7%, and 10% of total net sales in fiscal years 2004,2005, 2006, and 2007, respectively.  With the age restrictions placed on cattlethat qualify for export to Japan, it is anticipated that between 5% and 20% ofU.S. fed cattle will be able to meet the criteria.

NBP cannotpresently assess the full economic impact of the consequences of BSE on theU.S. beef processing industry or on its operations.  The Company’s revenues andnet income may be materially adversely affected in the event existing exportrestrictions continue indefinitely, additional countries announce similarrestrictions, and additional regulatory restrictions are put into effect ordomestic consumer demand for beef declines substantially.

**Critical Accounting Policies and Estimates**

The following discussion and analysis offinancial condition and results of operations are based on our consolidatedfinancial statements, which have been prepared in accordance with U.S.generally accepted accounting principles generally accepted in the UnitedStates of America. The preparation of these financial statements requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosures ofcontingent assets and liabilities. On an ongoing basis, management evaluatesand revises its estimates based on historical experience and other assumptionsthat we believe are reasonable under the circumstances. Actual results maydiffer from those estimates. Changes in our estimates could materially affectour results of operations and financial condition for any particular period.Our fiscal year ends on the last Saturday in August. We believe that our mostcritical accounting policies are as follows: 

*Accounting for Investment in NBP.*  Inaccordance with accounting principles generally accepted in the United Statesof America, NBP’s financial position and results of operations are consolidatedinto our financial statements and all transactions between the two companiesare eliminated in the consolidation. A minority interest is presented whichrepresents the earnings of NBP attributable to those holding a minority interestin NBP. 

*Allowance for Returns and Doubtful Accounts.*The allowance for returns and doubtful accounts reflects reserves for customerreceivables to reduce receivables to amounts expected to be collected. Managementuses significant judgment in estimating uncollectible amounts. In estimatinguncollectible amounts, management considers factors such as current overalleconomic conditions, industry-specific economic conditions, historical customerperformance, and anticipated customer performance. Specific accounts are alsoreviewed for collectibility. While management believes these processeseffectively address our exposure to doubtful accounts, changes in the economy,industry or specific customer conditions may require adjustment to the recordedallowance for doubtful accounts. Management uses significant judgment inestimating amounts expected to be returned. Management considers factors suchas historical performance and customer conditions in estimating return amounts.As of August 25, 2007, the allowance for returns and doubtful accounts balanceof $4.6 million included a $1.9 million reserve, recorded during the fourthquarter of fiscal year 2007, related to damaged goods for which settlement hasnot yet been finalized.

 

| 30 |
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*Inventory Valuation.* Inventories of NBP’sbeef processing operations, except supplies inventories, are determined usingthe first-in, first-out cost method or market. The cost of all otherinventories is determined using the first-in, first-out method, specific oraverage cost methods. Management periodically reviews inventory balances andpurchase commitments to estimate if inventories will be sold at amounts (net ofestimated selling costs) less than their carrying amounts. If actual resultsdiffer from management estimates with respect to the selling of inventories at amountsless than their carrying amounts, NBP would adjust its inventory balancesaccordingly. 

*Goodwill and Other Intangible Assets*.  Werecognize excess cost over the fair value of the net tangible and identifiableintangible assets acquired in a reporting unit, and record this excess asgoodwill.  We calculate the fair value of the applicable reporting unit usingestimates of future cash flows.  In accordance with Statement of FinancialAccounting Standards (SFAS) 142, *Goodwill and Other Intangible Assets,*weassess goodwill and other indefinite life intangible assets annually forimpairment.  If there is impairment, the carrying amount of goodwill and otherintangible assets is written down to the implied fair value.  For goodwill,this test involves comparing the fair value of each reporting unit to theunit’s book value to determine if any impairment exists.  In connection withthe acquisition of Vintage Foods, L.P. during the fourth quarter of fiscal year2006 and subsequent adjustments, we recognized excess cost over the fair valueof the net tangible and identifiable intangible assets acquired, and recorded anexcess of $1.2 million as goodwill.  Goodwill and other indefinite lifeintangible assets were tested for impairment, and, as of August 25, 2007,management determined there was no impairment.

*Workers’ Compensation Accrual.* NBP incurscertain expenses associated with workers’ compensation. To measure the expenseassociated with these costs, management must make a variety of estimatesincluding employee accidents incurred but not yet reported. The estimates usedby management are based on our historical experience as well as current factsand circumstances. NBP uses third-party specialists to assist in appropriatelymeasuring the expense and obligations associated with these costs. 

*IncomeTaxes.* The Company will adopt Financial Accounting Standards Board (FASB)issued FASB Interpretation No. 48 (FIN 48), *Accounting for Uncertainty inIncome Taxes* in the first quarter of fiscal year 2008.  We have evaluatedthe impact it will have on our Consolidated Financial Statements and expectthat it will not be material.  As a result of the adoption, tax reserves in theamount of approximately $0.5 million are expected to be reversed (for furtherinformation, see Note 9*Income Taxes* to our consolidated financialstatements included in Item 8 of this report).

*Automobile Liability Accrual.*  Weincur certain expenses associated with automobile liability.  In order tomeasure the expense associated with these costs, management must make a varietyof estimates to determine the ultimate cost to us related to incurredaccidents.  The estimates used by management are based on our historicalexperience as well as current facts and circumstances. NBP may use third-partyspecialists to assist in appropriately measuring the expense and obligationsassociated with these costs.

 

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**Results of Operations**

Thefollowing table shows consolidated statements of operations data for theperiods indicated:

|                                    |                                                                                                                                             |   |                             |                   |                      |          |                      |   |          |   |
|-----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------------------|---------------------------|---------------|---------------------------|--------|---------------|--------|
|                                    |                                                                                                                                             |   | **Fiscal Years Ended** |
|                                    |                                                                                                                                             |   | **August 25,		2007**        |                   | **August 26,		2006** |          | **August 27,		2005** |
|                                    |                                                                                                                                             |   |                             | **(in millions)** |                      |
| Net sales                          |                                                                                                                                             | $      | 5,578.5                     |                   | $                         | 4,636.0  |                      | $      | 4,338.9  |
|                                    |                                                                                                                                             |   |                             |                   |                      |          |                      |
| Costs and expenses:           |                                                                                                                                             |   |                             |                   |                      |          |
|                                    | Cost of sales                                                                                                                          |   | 5,444.0                     |                   | 4,503.8              |          | 4,229.9              |
|                                    | Selling, general & administrative                                                                                             |   | 46.1                        |                   | 37.6                 |          | 34.0                 |
|                                    | Depreciation and amortization                                                                                                          |   | 32.4                        |                   | 28.7                 |          | 24.4                 |
|                                    |                                                                                                                                             |   |                             |                   |                      |          |                      |
|                                    | Operating income                                                                                                                            |   | 56.0                        |                   | 65.9                 |          | 50.6                 |
|                                    |                                                                                                                                             |   |                             |                   |                      |          |                      |
| Other income (expense):       |                                                                                                                                             |   |                             |                   |                      |          |
|                                    | Minority owners' interest in net income of		     National Beef Packing Co. |   | (7.8)                            |                   | (16.6)                    |          | (8.5)                     |
|                                    | Interest income                                                                                                                             |   | 2.1                         |                   | 1.3                  |          | 0.7                  |
|                                    | Interest expense                                                                                                                            |   | (39.8)                           |                   | (32.4)                    |          | (29.0)                    |
|                                    | Interest rate exchange agreement                                                                                                  |   | -                           |                   | -                    |          | 0.1                  |
|                                    | Other, net                                                                                                                                  |   | 1.0                         |                   | 3.1                  |          | (3.2)                     |
| Total other expense, net |                                                                                                                                             | (44.5) |                             | (44.6)                 |                      | (39.9)        |
|                                    | Income tax expense                                                                                                                     |   | (1.9)                            |                   | (1.6)                     |          | (2.1)                     |
| Net income                         |                                                                                                                                             | $      | 9.6                         |                   | $                         | 19.7     |                      | $      | 8.6      |

The results of operations of NBP for the fiscalyears ending August 25, 2007, August 26, 2006, and the August 27, 2005 areconsolidated in the respective periods and transactions between the USPB and NBPhave been eliminated. 

***Fiscal Year Ending August 25, 2007 compared to August26, 2006***

*Net Sales.*    Netsales were $5,578.5 million for fiscal year 2007, an increase of $942.5million, or 20.3%, compared to $4,636.0 million for fiscal year 2006. Theincrease resulted primarily from an increase of approximately 15.1% in thenumber of cattle processed, of which 11.3% came as a result of the acquisitionof Brawley Beef on May 30, 2006.  The increase also resulted from averagecattle weights about 0.7% higher than the prior year, which translates to anincrease in pounds of beef products sold in the period.  Also contributing tothe increase in sales was the resumption of shipments to Asian markets late inthe fourth quarter of fiscal year 2006.

*Cost of Sales.*    Costof sales was $5,444.0 million for fiscal year 2007, an increase of $940.2million, or 20.9%, from $4,503.8 million for fiscal year 2006. The majority ofthe increase came as a result of an increase of approximately 15.1% in thenumber of cattle processed, of which 11.3% came as a result of the Brawley Beefacquisition, at average weights about 0.7% higher than the prior year and ataverage live cattle prices of approximately 5.1% higher than last year.  Thetightened supply of market-ready cattle and increased corn prices raised livecattle costs during fiscal year 2007.  Cost of sales, as a percentage of netsales, was 97.6% and 97.1% for fiscal years 2007 and 2006, respectively. 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses were $46.1 million for fiscalyear 2007 compared to $37.6 million for fiscal year 2006, an increase of $8.5 millionor 22.6%. The increase resulted primarily from an approximate $2.9 millionincrease in bad debt expense, an increase in payroll and benefit expenses ofapproximately $2.5 million.  Also contributing to the increase in selling,general and administrative expenses was approximately $0.6 million more inrepairs and maintenance and $0.4 million more in advertising expense ascompared to the same period of last year.  The acquisition of Brawley Beef onMay 30, 2006 has contributed to the increased selling, general andadministrative expenses incurred during the current fifty-two week period ascompared to the same period of last year.  Selling, general and administrativeexpenses, as a percentage of net sales, were 0.8% and 0.8% for fiscal years 2007and 2006, respectively.

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*            Depreciation and Amortization Expense.*Depreciation and amortization expenses were $32.4 million for fiscal year2007 compared to $28.7 million for fiscal year 2006, an increase of $3.7 million,or 12.9%.  The increase was primarily due to a full year of depreciation expenseat our Brawley plant in fiscal year 2007 compared to thirteen weeks in fiscalyear 2006, as well as additional assets being placed into service, mostly atour two Kansas beef processing plants during fiscal years 2007 and 2006.

*Operating Income.* Operating income was $56.0 millionfor fiscal year 2007 compared to $65.9 million for fiscal year 2006, a decreaseof $9.9 million, or 15.0%. Operating income, as a percentage of net sales,was 1.0% for fiscal year 2007 and 1.4% for fiscal year 2006. The tightenedsupply of market-ready cattle and the related high live cattle prices putsignificant pressure on and negatively impacted our gross margin for fiscalyear 2007 as compared to fiscal year 2006, despite the resumption of shipmentsto Asian markets late in the fourth quarter of fiscal year 2006.

*Minority Owners’ Interest in NBP.* Minorityinterest in NBP in fiscal year 2007 was $7.8 million compared to $16.6 millionin fiscal year 2006, a decrease of $8.8 million, or 53.0%. The increase is due tolower net income earned by NBP. The minority interest in NBP represents theminority owners’ equity in NBP’s earnings. 

*Interest Expense.* Interest expense was $39.8million for fiscal year 2007 compared to $32.4 million for fiscal year 2006, anincrease of $7.4 million, or 22.8%. The increase was due primarily to anincrease in the weighted average amounts outstanding of variable rate debt of approximately$81.3 million, mostly as a result of the Brawley Beef acquisition, for fiscalyear 2007 as compared to fiscal year 2006.  Interest expense also increased dueto higher interest rates on our variable rate debt, an increase ofapproximately 67 basis points, during the fifty-two weeks of fiscal year 2007as compared to the same period of last year.

*Other, Net*. Other non-operating income,net was $1.0 million in fiscal year 2007 compared to other non-operating income,net of $3.1 million in fiscal year 2006, a variance of $2.1 million.  Fiscalyear 2006 included an approximate $1.4 million reduction in postretirementbenefit obligation necessitated by a significant reduction of participants andpremiums because of changes in Medicare, and an approximate $0.6 million inincome for a settlement of a lawsuit related to corrugated packagingmaterials.  Fiscal year 2007 includes an approximate $0.2 million gain on thesale of land.  Fiscal years 2007 and 2006 include $0.7 million and $0.6 million,respectively,  in expense for the write-off of unamortized loan costsassociated with amending and restating our credit facility.  

 *IncomeTax Expense*.  Income tax expense was $1.9 million for fiscal year 2007 ascompared to $1.6 million for fiscal year 2006, an increase of $0.3 million, or 18.8%. Income tax expense is recorded on income from National Carriers, Inc. (NCI),which is organized as a C Corporation.  The effective tax rate for NCI wasrelatively consistent for both fiscal years 2007 and 2006.

***Fiscal Year Ending August 26, 2006 compared toAugust 27, 2005***

*Net Sales.*    Netsales were $4,636.0 million for fiscal year 2006, an increase of $297.1million, or 6.8%, compared to $4,338.9 million for fiscal year 2005. Theincrease resulted primarily from an increase of approximately 5.3% in thenumber of cattle processed, with 3.6% of that increase due to the acquisitionof Brawley Beef, LLC, at average weights about 1.5% higher than the prior year,which translates to an increase in pounds of beef products sold in the period. Sales prices generally improved due to an improved product sales mix and a morefavorable market environment for fiscal year 2006 compared to fiscal year 2005,including the resumption of shipments to Asian markets late in the fourthquarter of fiscal year 2006.

*Cost of Sales.*    Costof sales was $4,503.8 million for fiscal year 2006, an increase of $273.9million, or 6.5%, from $4,229.9 million for fiscal year 2005. The majority ofthe increase came as a result of an increase of approximately 5.3% in thenumber of cattle processed, with 3.6% of that increase due to the acquisitionof Brawley Beef, LLC, at average weights about 1.5% higher than the prior year,and slight increase in average live cattle prices of approximately 0.2%.  Thefirst half of fiscal year 2006 was negatively impacted by the tightened supplyof market-ready cattle; increased supply of market-ready cattle in the secondhalf of fiscal year 2006 helped lower live cattle costs during that period.  Costof sales, as a percentage of net sales, was 97.1% and 97.5% for fiscal years2006 and 2005, respectively.

 

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*Selling, General and Administrative Expenses.*Selling, general and administrative expenses were $37.6 million for fiscalyear 2006 compared to $34.0 million for fiscal year 2005, an increase of$3.6 million or 10.6%. The increase resulted primarily from an approximate$2.1 million increase in payroll and related expenses, an increase ofapproximately $1.8 million in marketing and travel expense associated withsupporting two new marketing programs, increased travel associated in part fromthe Brawley Beef acquisition, and increased fuel costs; partially offset by areduction of $0.6 million in bad debt reserve.  Selling, general andadministrative expenses, as a percentage of net sales, were 0.8% and 0.8% for fiscalyears 2006 and 2005, respectively.

*Depreciation and Amortization Expense.*Depreciation and amortization expenses were $28.7 million for fiscal year2006 compared to $24.4 million for fiscal year 2005, an increase of$4.3 million, or 17.6%. This increase was due to additional assets beingplaced into service primarily at our two Kansas beef processing plants during fiscalyear 2006, as well as additional assets acquired through the purchase of BrawleyBeef, LLC in the fourth quarter of fiscal year 2006.

*Operating Income.* Operating income was$65.9 million for fiscal year 2006 compared to $50.6 million for fiscalyear 2005, an increase of $15.3 million, or 30.2%. Operating income, as apercentage of net sales, was 1.4% for fiscal year 2006 and 1.2% for fiscal year2005. The first half of fiscal year 2006 was negatively impacted by thetightened supply of market-ready cattle; increased supply of market-readycattle in the second half of fiscal year 2006 helped lower live cattle costsduring that period, which helped improve gross margin for fiscal year 2006. Gross margin improvements were primarily due to a more favorable marketenvironment in fiscal year 2006 compared to fiscal year 2005, including theresumption of shipments to Asian markets late in the fourth quarter of fiscalyear 2006.

*Minority Owners’ Interest in NBP.* Minorityinterest in NBP in fiscal year 2006 was $16.6 million compared to $8.5 millionin fiscal year 2005, an increase of $8.1 million, or 95.3%. The increase is dueto higher net income earned by NBP. The minority interest in NBP represents theminority owners’ equity in NBP’s earnings. 

*Interest Expense.* Interest expense was$32.4 million for fiscal year 2006 compared to $29.0 million for fiscal year2005, an increase of $3.4 million, or 11.7%. The increase was due primarily tohigher average interest rates in fiscal year 2006 compared to fiscal year 2005,as evidenced by an increase of approximately 160 basis points in the publishedLIBOR index interest rates as of August 26, 2006 compared to August 27, 2005,which is the basis for interest rates on most of our variable rate borrowings. Additionally, the weighted average of variable rate debt increased primarilyfrom the acquisition of Brawley Beef.

*Other, Net.* Other non-operating income, netwas $3.1 million in fiscal year 2006 compared to other non-operating expense,net of $3.2 million in fiscal year 2005, a variance of $6.3 million.  Fiscalyear 2006 includes an approximate $1.4 million reduction in postretirementbenefit obligation necessitated by a significant reduction of participants andpremiums because of changes in Medicare, and an approximate $0.6 million inincome for a settlement of a lawsuit related to corrugated packaging materials. Fiscal year 2006 includes $0.6 million in expense for the write-off ofunamortized loan costs associated with amending and restating our fifth amendedand restated credit facility.  Fiscal year 2005 includes $3.2 million inexpense for the write-off of unamortized loan costs associated with amendingand restating our fourth amended and restated credit facility.

 *IncomeTax Expense*.  Income tax expense was $1.6 million for fiscal year 2006 ascompared to $2.1 million for fiscal year 2005, a decrease of $0.5 million, or 23.8%. Income tax expense is recorded on income from NCI.  The effective tax rate forNCI was relatively consistent for both fiscal years 2006 and 2005.

**Liquidity and Capital Resources**

As of August 25, 2007 we had net working capitalof $280.5 million, which included $2.7 million in distributions payable, andcash and cash equivalents of $62.9 million.  August 26, 2006 we had net workingcapital of $222.6 million, which included $4.9 million in distributionspayable, and cash and cash equivalents of $54.4 million.  Our primary sourcesof liquidity are cash flow from operations and available borrowings under NBP’samended and restated credit facility. 

 

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As of August 25, 2007, we had $443.0 million oflong-term debt, of which $4.4 was classified as a current liability.  As of August25, 2007, NBP’s amended and restated credit facility consisted of a $202.6million term loan, all of which was outstanding, a term loan with CoBank ofwhich $4.1 million was outstanding and a $200.0 million revolving line ofcredit loan, which had outstanding borrowings of $38.4 million, outstandingletters of credit of $52.4 million and available borrowings of $109.2 million,based on the most restrictive financial covenant calculations.  Cash flows fromoperations and borrowings under NBP’s amended and restated credit facility havefunded acquisitions, working capital requirements, capital expenditures andother general corporate purposes.  We were in compliance with all financialcovenants as of August 25, 2007.

In addition to outstanding borrowings under its amendedand restated credit facility, NBP had outstanding borrowings under industrialrevenue bonds of $20.7 million, Senior Notes of $160.0 million and capitallease and other obligations of $17.2 million as of August 25, 2007.

Capital spending through the end of fiscal year 2008 is expected to approximate$50.0 million. These expenditures are primarily for plant expansion, equipmentrenewals and improvements including $3.1 million forenvironmental and air pollution control.

The Company believes that available borrowingsunder NBP’s amended and restated credit facility and cash provided by operatingactivities will be sufficient to support its working capital, capitalexpenditures and debt service requirements for the foreseeable future.  NBP’s abilityto generate sufficient cash, however, is subject to certain general economic,financial, industry, legislative, regulatory and other factors beyond their control.

*Operating Activities*

Net cash used in operating activities was $8.0million in fiscal year 2007 compared to net cash provided by operatingactivities of $44.5 million in fiscal year 2006. The $52.5 million decrease wasdue primarily to a net increase in working capital requirements in the currentperiod resulting from higher beef inventory volumes and higher accountsreceivable balances, which were driven by larger production volumes andgenerally higher prices.  Also contributing to the change in operatingactivities were lower accrued insurance and accrued compensation and benefitsbalances as well as a lower net income in fiscal year end 2007.

Net cash provided by operating activities was $44.5million in fiscal year 2006 and $59.8 million in fiscal year 2005. The $15.3million decrease was due primarily to a net increase in working capitalrequirements in the current period resulting from increased beef inventorylevels, partially offset by an increase in accounts receivable collections andby increased net income in fiscal year 2006. 

*Investing Activities*

Net cash used in investing activities was $41.5million in fiscal year 2007 compared to $32.9 million for fiscal year 2006, anincrease of $8.6 million. The increase was primarily attributable to more capitalspending during fiscal year 2007.

Net cash used in investingactivities was $32.9 million in fiscal year 2006 compared to $12.1 million for fiscalyear 2005, an increase of $20.8 million. The increase was due to an increase incapital spending in fiscal year 2006.  

*Financing Activities*

Net cash provided by financing activities was $58.0million in fiscal year 2007 compared to net cash used in financing activitiesof $7.7 million for fiscal year 2006. The $65.7 million change was primarilyattributable to an additional $40.0 million in borrowings under NBP’s term note,a $15.6 million increase revolving credit borrowings, and the acquisition of$10.5 million in indebtedness through a capital lease.

Net cash used in financing activities was $7.7million in fiscal year 2006 compared to net cash used in financing activitiesof $32.5 million for fiscal year 2005. The $24.8 million change was dueprimarily to an increase in borrowings on the term note payable of $46.4million and revolving credit lines of $31.0 million in fiscal year 2006 comparedto fiscal year 2005, partially offset by the repayment of $52.9 million ofBrawley Beef, LLC debt in fiscal year 2006.

 

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***CoBank Term Debt***

USPB’s CoBank term debt of approximately $4.1 millionis payable in quarterly installments with final payment due in July 2011,bearing interest at the 90 day LIBOR index plus 2.50%, adjusted quarterly (7.86%at August 25, 2007, 8.01% at August 26, 2006, and 6.01% at August 27, 2005). 

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

-  reporting requirements;  
-  a minimum working capital reserve;  
-  a minimum debt service coverage ratio (not required if workingcapital 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 Company was in compliance with all CoBankdebt covenants as of August 25, 2007. The debt is secured by USPB’s interest inNBP. 

USPB’s rate margin, which is adjusted annually,is determined pursuant to a table based on the NBP leverage ratio, as of theend of each fiscal year of NBP. Based on the table, the rate margin was 2.50%at fiscal year ending August 25, 2007, August 26, 2006, and August 27, 2005. 

***Amended and Restated Senior CreditFacilities***

Effective July25, 2007, NBP amended and restated its existing senior credit facility with aconsortium of banks.  The facility now consists of a $202.6 million term loanthat matures in May 2016 and a $200.0 million revolving line of credit loanthat matures in July 2012 that is subject to certain borrowing baselimitations.  This sixth amendment and restatement is within the scope of theEmerging Issues Task Force (EITF) 96-19, *Debtor’s Accounting for aModification or Exchange of Debt Instruments* as well as EITF 98-14, *Debtor’sAccounting for Changes in Line-of-Credit or Revolving-Debt Arrangements*.  Inaccordance with that guidance, a portion of the unamortized loan costs ofapproximately $0.7 million from the fifth amended and restated credit facilityas well as additional finance and legal charges associated with the sixthamended and restated credit facility of less than $0.1 million were expensed inOther, net in the Statement of Operations during the fiscal year ended August25, 2007.  

Borrowingsunder the facility bear interest at LIBOR or the Base Rate, plus the applicablemargin.  The applicable margin for the revolving line of credit will be basedon borrowing base availability with grids greater than $150.0 million, $50.0 to$150.0 million and less than $50.0 million.  As of August 25, 2007, theinterest rate for the revolving loan was equal to 6.95%.   The applicablemargin for the Company’s term loan was also revised to a grid basis withdifferent margins for Funded Debt to EBITDA Ratios greater than 3.50 to 1.00and less than 3.50 to 1.00.  As of August 25, 2007, the interest rate for theterm loan was equal to 7.3207%.

Therevolving line of credit and the term loan will have no financial covenantsunless the borrowing base availability is less than $50.0 million for fiveconsecutive business days or less than $35.0 million on any single business dayduring any fiscal quarter.  If the borrowing base availability falls belowthese amounts, a fixed charge ratio of 1:15 to 1:00 must be maintained at theend of each subsequent fiscal quarter until the borrowing base availability hasbeen greater than or equal to $50.0 million for 90 consecutive days.  Theadvance rates under the borrowing base have increased to 90% on eligibleaccounts and 70% on eligible inventory.

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

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Theamended and restated credit facility contains customary affirmative covenants,including, without limitation, conduct of business, the maintenance ofinsurance, compliance with laws, maintenance of properties, keeping of booksand records, and the furnishing of financial statements.  The facility also containscustomary negative covenants, including without limitation, restrictions on thefollowing:  distributions, mergers, sale of assets, investments andacquisitions, encumbrances, indebtedness, affiliate transactions, and ERISAmatters.

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

***Industrial Revenue Bonds***

In conjunction with the fourth amendment andrestatement of NBP’s credit facility, effective December 30, 2004, NBPentered into a transaction with the City of Dodge City, Kansas, in order toprovide NBP property tax savings.  Under the transaction, the City purchased theDodge City facility (the facility) by issuing $102.3 million in bonds due inDecember 2014, and leased the facility to NBP for an identical term under acapital lease.  The City’s bonds were purchased by NBP using proceeds of itsterm loan under the fourth amended and restated credit facility.  Because theCity has assigned the lease to the bond trustee for the benefit of NBP as thesole bondholder, NBP, in effect, controls enforcement of the lease against itself. As a result of the capital lease treatment, the facility will remain acomponent of property, plant and equipment in NBP’s consolidated balancesheet.  As a result of the legal right of offset, the capital lease obligationand the corresponding bond investments will be eliminated in consolidation. The transaction provides NBP with property tax exemptions for the leasedfacility, which, after netting payments to the City and local school districtunder payment in lieu of tax agreements, result in an annual property taxsavings of approximately 25%.  The facility remains subject to a prior mortgageand security interest in favor of the lenders under the senior creditfacility.  Additional revenue bonds may be issued to cover the costs of certainimprovements to this facility.  The total amount of revenue bonds authorizedfor issuance is $120.0 million.

The cities of Liberal and Dodge City, Kansasissued an aggregate of $13.8 million of industrial development revenue bonds onNBP’s behalf to fund the purchase of equipment and construction of improvementsat its facilities in those cities. These bonds were issued in 1999 and 2000 infour series of $1.0 million, $1.0 million, $6.0 million and $5.8 million andare due on demand or on February 1, 2029, March 1, 2027, March 1, 2015 andOctober 1, 2009. However, because each series of bonds is backed by a letter ofcredit under NBP’s existing amended and restated credit facility, these bondshave been presented as non-current obligations.  Pursuant to a lease agreement,NBP leases the facilities, equipment and improvements from the respectivecities and make lease payments in the amount of principal and interest due onthe bonds. 

The bonds issued in 1999 and 2000 are variablerate 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 ratefor each series of bonds was 3.7% in fiscal year 2007. NBP has the option toredeem a series of bonds at any time for an amount equal to the principal plusaccrued interest to the date of such redemption. The holders of the bonds havethe option to tender the bonds upon seven days’ notice for an amount equal topar plus accrued interest. To the extent that the remarketing agent for thebonds is unable to resell any of the bonds that are tendered, the remarketingagent will use the letter of credit to fund such tender. 

In connection with the BrawleyBeef acquisition, NBP assumed the obligation under a Trust Indenture securing$6.8 million in California Pollution Control Financing Authority Tax-Exemptvariable rate demand solid waste disposal revenue bonds dated as of October 1,2001.  The bonds bear a rate that is adjusted weekly, which rate will notexceed 12% per annum.  The average per annum interest rate for this series ofbonds for fiscal year 2007 was 3.7%.  These bonds have a maturity date ofOctober 1, 2016.  NBP has the option to redeem all or a portion of the bonds atany time for an amount equal to the principal plus accrued interest to the dateof such redemption.  The holders of the bonds have the option to tender thebonds upon seven days’ notice for an amount equal to par plus accruedinterest.  To the extent that the remarketing agent for the bonds is unable toresell any of the bonds that are tendered, the remarketing agent will use theletter of credit to fund such tender.

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***Utilities Commitment***

EffectiveDecember 30, 2004, NBP finalized an agreement with the City of Dodge City,Kansas, whereby in consideration of certain improvements made to the city waterand wastewater systems, it has committed to make a series of service chargepayments totaling $19.3 million over a 20 year period, of which $0.8 million, $1.2million and $1.4 million were paid in fiscal years 2005, 2006 and 2007,respectively.  Payments under the commitment will be $1.4 million in each ofthe fiscal years 2008 and 2009, $1.7 million in fiscal year 2010 and $0.8million in fiscal year 2011, with the balance of $10.6 million to be paid insubsequent years.

***10 1⁄2% Senior Notes***

The 10 1⁄2% Senior Notes will mature on August 1,2011.  Interest on the Senior Notes is payable semi-annually in arrears onAugust 1 and February 1 of each year, which commenced on February 1, 2004.  TheSenior Notes are senior unsecured obligations, ranking equal in right ofpayment with all of NBP’s other senior unsecured obligations.  With limitedexceptions, the Senior Notes were not redeemable before August 1, 2007.  Duringthe 12 month period commencing August 1, 2007 and August 1, 2008, the SeniorNotes may be redeemed at 105.250% and 102.625%, respectively, of the principalamount.  Thereafter, the Senior Notes may be redeemed at 100% of face value. The Indenture governing the Senior Notes contains certain covenants thatrestrict NBP’s ability to:

-  incur additional indebtedness; 
-  make restricted payments; 
-  make distributions on or redeem its equity interests; 
-  sell its assets; 
-  create liens; 
-  merge or consolidate with another entity; and 
-  enter into transactions with affiliates. 

***Cash Payment Obligations***

The followingtable describes our cash payment obligations as of August 25, 2007 (inthousands):

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |          | **Year 1** | **Year 2** | **Year 3** | **Year 4** | **Year 5** | **After**       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|-----------------|-----------------|-----------------|-----------------|-----------------|-----------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **Total**     | **FY 08**  | **FY 09**  | **FY 10**  | **FY 11**  | **FY 12**  | **Year 5** |
| Term loan facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $             | 206,735    | $               | 1,030      | $               | 1,030      | $               | 1,030  | $ | 1,029  | $ | -  | $ | 202,616  |
| Revolving credit facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 38,368   | -          | -          | -          | -          | 38,368     | -          |
| Senior Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 160,000  | -          | -          | -          | 160,000    | -          | -          |
| Industrial Revenue Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 20,665   | -          | -          | 5,850      | -          | -          | 14,815     |
| Capital Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 20,173   | 4,474      | 4,925      | 2,887      | 1,659      | 1,659      | 4,569      |
| City of Brawley loan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 200      | -          | 40         | 40         | 40         | 40         | 40         |
| Operating leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 36,464   | 13,424     | 10,736     | 7,821      | 3,273      | 1,150      | 60         |
| Purchase commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 10,674   | 10,674     | -          | -          | -          | -          | -          |
| Cattle commitments  (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 97,155   | 97,155     | -          | -          | -          | -          | -          |
| Utilities commitment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 15,903   | 1,399      | 1,379      | 1,734      | 818        | 820        | 9,753      |
| Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $             | 606,337    | $               | 128,156    | $               | 18,110     | $               | 19,362  | $ | 166,819  | $ | 42,037  | $ | 231,853  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |          |            |            |            |            |            |            |
| (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 our facilities.  This amount approximates its outstanding cattle commitments at August 25, 2007, which includes $63.0 million for cattle delivered on or before August 25, 2007 and $34.1 million for cattle to be delivered after August 25, 2007. |

 

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**Off-Balance Sheet Arrangements**

As of August 25, 2007 we did not have anysignificant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) ofSEC Regulation S-K.

**Inflation**

We believe that our results of operations are notmaterially affected by moderate changes in the inflation rate. Inflation andchanging prices did not have a material affect on our operations in fiscal year2007, 2006 and 2005. Severe increases in inflation, however, could affect theglobal 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 byseasonal factors in the beef industry. These factors affect the price that wepay 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 monthsas weather patterns permit more outdoor activities and there is an increaseddemand for higher value items that are grilled, such as steaks. Both livecattle prices and boxed beef prices tend to be at seasonal highs during thesummer and fall. Because of higher consumption, more favorable growingconditions and the housing of animals in feedlots for the winter months, thereare generally more cattle available in the summer and fall.

 

**ITEM 7A.               QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

**Market Risk Disclosures**

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

*Commodities.*We use various raw materials, many of which are commodities. Raw materialsare generally available from several different sources, and we presentlybelieve that we can obtain them as needed.  Commodities are subject to pricefluctuations that may create price risk. When appropriate, we may hedgecommodities in order to mitigate this price risk. While this may tend to limitour ability to participate in gains from commodity price fluctuations, it alsotends to reduce the risk of loss from changes in commodity prices. We reflectcommodity contract gains and losses as adjustments to the basis of underlyingcommodities purchased; gains or losses are recognized in the statement ofoperations as a component of costs of goods sold.

We purchasecattle for use in our processing businesses. When appropriate, we enter intoforward purchase contracts at prices determined prior to the delivery of thecattle. The commodity price risk associated with these activities can be hedgedby selling (or buying) the underlying commodity, or by using an appropriatecommodity derivative instrument. The particular hedging instrument we usedepends on a number of factors, including availability of appropriatederivative instruments.

We sellcommodity beef products in our business. Commodity beef products are subject toprice fluctuations that may create price risk. When appropriate, we enter intoforward sales contracts at prices determined prior to shipment. We may hedgethe commodity price risk associated with these activities in order to mitigatethis price risk.  While this may tend to limit our ability to participate ingains from commodity price fluctuations, it also tends to reduce the risk ofloss from changes in commodity beef prices. We reflect commodity contract gainsand losses as adjustments to the basis of underlying commodities sold; gains orlosses are recognized in the statement of operations as a component of netsales.

We may usefutures contracts in order to reduce exposure associated with entering intofirm commitments to purchase live cattle at prices determined prior to deliveryof the cattle as well as firm commitments to sell certain beef products atsales prices determined prior to shipment. In accordance with SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, as amended, we accountfor futures contracts and their related firm purchase commitments at fairvalue. Certain firm commitments for live cattle purchases and all firmcommitments for boxed beef sales are treated as “normal purchases and sales”and not marked to market.  SFAS No. 133 imposes extensive recordkeepingrequirements in order to treat a derivative instrument as a hedge foraccounting purposes. Derivatives qualify for treatment as hedges when there isa high correlation between the change in fair value of the instrument and therelated change in fair value of the underlying commitment. For derivatives thatqualify as effective hedges, the change in fair value has no net effect onearnings until the hedged transaction affects earnings. For derivatives thatare not designated as hedging instruments, or for the ineffective portion of ahedging instrument, the change in fair value does affect current period netearnings.

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

We use sensitivity analysis toevaluate the effect that changes in the market value of commodities will haveon these commodity derivative instruments.  We feel that sensitivity analysismore appropriately reflects the potential market value exposure associated withthe use of derivative instruments.  As of August 25, 2007, and August 26, 2006,the potential change in the fair value of applicable commodity prices, assuminga hypothetical 10% decrease in the underlying commodity price in each year, was$5.2 million and less than $1.4 million, respectively.

*Foreign Operations.*    Transactionsdenominated in a currency other than an entity’s functional currency may exposethat entity to currency risk. Although we operate in international marketsincluding Japan, South Korea and China, product sales are predominately made inUnited States dollars, and therefore, currency risks are limited.

*Interest Rates.*    Asa result of our normal borrowing and leasing activities, our operating resultsare exposed to fluctuations in interest rates, which we manage primarilythrough our regular financing activities. We generally maintain limitedinvestments in cash and cash equivalents.

We have long-term debt with variable interestrates. Our variable interest expense is sensitive to changes in the generallevel of interest rates.  As of August 25, 2007, most of our debt isborrowed at LIBOR plus a weighted average margin rate of 2.0%. As of August 25,2007, the weighted average interest rate on our $265.7 million of variableinterest debt was approximately 7.1%.

We had total interest expense of approximately $39.8million in fiscal year 2007 and approximately $32.4 million in fiscal year 2006.The estimated increase in interest expense from a hypothetical 200 basis pointincrease in applicable variable interest rates would have been approximately $5.0million in fiscal year 2007 and approximately $3.4 million in fiscal year 2006.

** **

**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 reportbeginning on page F-1.

** **

**ITEM 9.                  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE**

**           **None.

**  **

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**ITEM 9A(T).         CONTROLS AND PROCEDURES**

The Company maintains a system of controls andprocedures designed to provide reasonable assurance as to the reliability ofthe Consolidated Financial Statements and other disclosures included in thisreport, as well as to safeguard assets from unauthorized use or disposition. Weevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures as defined in the Securities Exchange Act of 1934Rules 13a-15(e) and 15d-15(e) under supervision and with the participationof management, including our Chief Executive Officer and Chief Reporting andCompliance Officer. Based upon that evaluation, as of the end of the periodcovered by this Annual Report on Form 10-K, our Chief Executive Officer andChief Reporting and Compliance Officer concluded that our disclosure controlsand procedures were effective in alerting them, in a timely manner, to materialinformation required to be included in our periodic Securities and ExchangeCommission filings.  There have been no changes in our internal control overfinancial reporting during the thirteen weeks ended August 25, 2007 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.  The design of any system ofcontrols and procedures is based in part upon certain assumptions about thelikelihood of future events. 

 

**ITEM 9B.               OTHER INFORMATION**

The Company may purchase aportion of its outstanding Class A and Class B units from time to time inaccordance with the limits imposed under the CoBank Credit Agreement.  

 

 

 

 

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**PART III**

**ITEM 10.               DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE**

**Board of Directors**

U.S. Premium Beef’s business and affairs aregoverned by its board of directors. The board of directors currently consistsof seven directors. The board of directors has full authority to act on behalfof USPB. The board of directors acts collectively through meetings, committeesand executive officers it appoints. In addition, USPB employs a staff of professionalsto manage the day-to-day business of USPB. The members of the board ofdirectors, nominees to the board of directors and the executive officers areidentified below.   There are no arrangements or understandings pursuant towhich any director, nominee to become a director or executive officer was electedor appointed.

|                                                                            |   |     |   |                                                       |   |                            |
|---------------------------------------------------------------------------------|--------|----------|--------|------------------------------------------------------------|--------|---------------------------------|
| **Directors, Director Nominee and Executive Officers** |   |     |
| Name                                                                            |   | Age      |   | Positions and Offices with Registrant  |   | Term Expires	After FY |
| Mark R. Gardiner                                                      |   | 46  |   | Chairman of the Board                       |   | 2007                            |
| John D. Fairleigh                                                     |   | 42  |   | Vice Chairman of the Board             |   | 2009                            |
| Jerry L. Bohn                                                         |   | 57  |   | Secretary of the Board                      |   | 2007                            |
| Douglas A. Laue                                                       |   | 56  |   | Director                                                   |   | 2007                            |
| Carol A. Keiser                                                       |   | 61  |   | Director                                                   |   | 2008                            |
| Rex W. McCloy                                                         |   | 52  |   | Director                                                   |   | 2008                            |
| Duane K. Ramsey                                                       |   | 70  |   | Director                                                   |   | 2009                            |
| Joe Morgan                                                                 |   | 56  |   | Nominated to Board of Directors        |   | —                          |
| Steven D. Hunt                                                        |   | 48  |   | Chief Executive Officer                          |   | —                          |
| Scott J. Miller                                                       |   | 43  |   | Chief Reporting and Compliance Officer |   | —                          |
| Stanley D. Linville                                                   |   | 48  |   | Chief Operating Officer                          |   | —                          |
| Danielle D. Imel                                                      |   | 32  |   | Treasurer                                                  |   | —                          |

 

*Mark R. Gardiner.* Mr. Gardiner isPresident of Gardiner Angus Ranch, Inc. (GAR), a family owned purebred andcommercial Angus operation headquartered at Ashland, Kansas, with 10seedstock satellite cowherds across the United States and Australia. GardinerAngus Ranch markets over 1,800 bulls and 700 females per year to bothcommercial and seedstock beef producers throughout the United States. GardinerAngus Ranch also runs an embryo transfer program that makes more than 2,500transfers per year, including more than 60% of GAR’s 1,500-plus head of registeredAngus calves born each year. A percentage of its calves are finished atcommercial feedlots to provide carcass data on all Gardiner sires. In additionto a native range program, Gardiner Angus Ranch operates a significant drylandfarming enterprise. Mr. Gardiner is a member of the National Cattlemen’sBeef Association, Kansas Livestock Association, American Angus Association,Kansas Angus Association and the Beef Improvement Federation. He also serves onthe Board of Irsik & Doll Company, a privately held company primarilyinvolved in cattle feeding, grain and feed merchandising. Mr. Gardiner hasserved as a member of the Company’s Board of Directors since 1996. He waselected Secretary/Treasurer of the Company’s Board in 2003, Vice Chairman ofthe Board in 2004 and Chairman of the Board in 2006. Mr. Gardiner holds aBachelor’s degree from Kansas State University in Animal Sciences and Industry.

  *John D. Fairleigh.* Mr. Fairleigh isPresident and CEO of Fairleigh Companies, a family-owned business in ScottCity, Kansas, consisting of a 44,000 head commercial feedyard, FairleighRanch, a 10,000 acre backgrounding and grazing operation, Fairleigh Farmsand L&M Western Tire and Oil Company. He is a member of the NationalCattlemen’s Beef Association and Kansas Livestock Association.Mr. Fairleigh has served as a member of the Company’s board since 1999 andwas elected Secretary of the Board in 2004 and Vice Chairman in 2006.Mr. Fairleigh holds a Bachelor’s degree in Business from Kansas StateUniversity.

*Jerry L.  Bohn.* Mr. Bohn has served as theGeneral Manager of Pratt Feeders since 1989. Pratt Feeders has a one-timecapacity of 115,000 head in four feedlots in Kansas and Oklahoma. In thiscapacity he oversees more than 100 employees.  Mr. Bohn also owns andmanages a 5,000 to 6,000 head cattle operation which includes grazing andfinishing cattle. Mr. Bohn previously was employed as Director of MarketAnalysis for Cattle-Fax, an industry market analysis firm. Mr. Bohn has servedas president of the Kansas Livestock Association. He has been a Board member ofthe Kansas Beef Council, the National Cattlemen’s Beef Association (NCBA) andFeeders Advantage, a private animal health product distribution company. Mr. Bohnhas also served on the NCBA’s Executive Committee and as chairman of NCBA’sLive Cattle Marketing.  Mr. Bohn has served as a member of the Company’sboard since 2004 and was elected Secretary of the Board in 2006.

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*Douglas A. Laue.* Mr. Laue owns andoperates Black Diamond Customer Feeders, Inc. near Herington, Kansas, and runsa grazing program in the Kansas Flint Hills. He is a member of the NationalCattlemen’s Beef Association and Kansas Livestock Association (KLA).Mr. Laue previously served as the chairman of the KLA Feeders Council. Mr. Lauehas been a member of the Company’s Board of Directors since 1996 and served asvice chairman of the Board of Directors from 1996 through 2002. Mr. Laueholds a Bachelor’s degree in Animal Sciences and Industry from Kansas StateUniversity. 

*Carol A. Keiser*. Ms.Keiser is president of C-BAR Cattle Company, Inc. where she manages operationsfor the feeding of 5,000 to 6,000 head of cattle in Kansas, Nebraska, andIllinois.  Prior to C-BAR Cattle Company she developed health andwell-being procedures for Loveless Feedlot, taught vocational agriculture andserved as an FFA advisor.  She is a Certified Livestock Manager, CertifiedLivestock Dealer and is a member of the National Cattlemen’s Beef Associationand the American Society of Animal Science and American Meat ScienceAssociation. Currently, Ms. Keiser serves on the National AgriculturalResearch, Extension, Education, and Economics Advisory Board, the Board ofTrustees of the Farm Foundation, Board of Directors of Agriculture Future ofAmerica and the Illinois Global Partnership Advisory.  She served on theSteering Committee of the Future of Animal Agriculture in North AmericaProject, the Board of Directors of the Council of Food and AgriculturalResearch, Illinois Beef Association Check-off Division, was past chair ofUIAA University of Illinois Alumni Association and Board of UIUC Agriculture,Consumer and Environmental Sciences Alumni Board.  Ms. Keiser is agraduate of the University of Illinois in Animal Science.  Ms. Keiser hasserved as a member of the Company’s board since 2005.

*Rex W. McCloy*. Mr. McCloyis manager and part-owner of McLeod Farms Inc., a family-owned businessheadquartered in Morse, TX. The operation includes a 6,500 head capacity feedyard, a 7,000 acre irrigated farm, a backgrounding operation and a 20,000 acreranch in Harding Co., NM. Mr. McCloy is a member of the National Cattlemen’sBeef Association, the Texas Cattle Feeder's Association (TCFA) and the TexasSouthwestern Cattle Raiser's Association. He is a past Board member andmarketing committee chairman of TCFA. In addition he is a former member of U.S.Premium Beef’s nominating committee. Mr. McCloy holds a Bachelors degreein Agricultural Economics from Texas Tech University.  Mr. McCloy hasserved as a member of the Company’s board since 2005.

*Duane K. Ramsey.*Mr.Ramsey is Chairman of Security Bancshares Inc., a $300 million multi-bankholding company. In addition, he has held an ownership interest in a commercialfeedlot in southwest Kansas and a cow calf operation.  He has spent 44years in banking in Scott County, KS, and was involved in the organization anddevelopment of USPB as a founding stockholder through his feedlot and infinancing numerous USPB stockholders.  Mr. Ramsey has served as a member of theCompany’s board since 2006.

*Joe Morgan (Nominee to the Board).*Mr. Morganhas been managing commercial feedyards since 1981.  He has been Manager of PokyFeeders since 1985 and part owner since 1987.  He also has farming interests inIowa and is a member of the National Cattlemen’s Beef Association and theKansas Livestock Association.  Mr. Morgan holds a Bachelors degree in AnimalScience from Iowa State University.

*Steven D. Hunt.* Mr. Hunt was namedChief Executive Officer in July 1996 and was instrumental in the developmentand establishment of U.S. Premium Beef. Prior to his employment with U.S.Premium Beef, Mr. Hunt owned and operated SDH Cattle Company at Winfield,Kansas, until 1996. As Vice President of Corporate Lending with CoBank, ACBfrom January 1987 to October 1988, Mr. Hunt also has experience in manyareas of commercial banking, including direct agricultural lending, commerciallending, finance, business analysis, training, marketing and personnel. Mr.Hunt has served on the Board of National Beef Packing Company, LLC, (NBP) since1997 and was elected chairman of NBP’s Board in 2003. Mr. Hunt holds aBachelor’s degree in Agricultural Economics from Kansas State University.

*Scott J. Miller*. Mr. Miller is theCompany’s Chief Reporting and Compliance Officer and joined the Company in2005.  He oversees financial reporting and ensures compliance with internalpolicies and regulatory requirements.  Before joining U.S. Premium Beef, heworked as the Manager, Capital Markets for Sprint Corporation from 2001 to 2005and, prior to that, in various finance and accounting positions with FarmlandIndustries.  Mr. Miller earned a Bachelors degree in Accounting fromBenedictine College and an MBA with an emphasis in Finance from the Universityof Missouri-Kansas City.  He has passed the Certified Public Accounting examand the Certified Cash Managers exam.

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*Stanley D. Linville.* Mr. Linville is theCompany’s Chief Operating Officer and joined the Company in 1997. He overseescattle scheduling and technical operations. Before joining U.S. Premium Beef,he operated a family farming operation near Holcomb, Kansas. He also worked inthe cattle division of Brookover Enterprises at Garden City, Kansas, and as agrain merchandiser for Bartlett Grain Co. in Kansas City. Mr. Linvilleholds a Bachelor’s degree in Agricultural Economics from Kansas StateUniversity. 

*Danielle D. Imel.* Ms. Imel is theCompany’s Treasurer and joined the Company in 1998. She oversees the Company’sfinance 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 inAccounting and a second Bachelor’s degree in Agricultural Economics from KansasState University. 

**Board of Directors**

Under USPB’s LLC operating agreement, the numberof directors is set by the board of directors but may not be less than sevendirectors.  Directors must be unitholders of USPB.  Seven directors will alwaysbe elected by unitholders holding Class A units.  The operating agreementstates that at least one director will represent Seedstock breeders and thebalance of the directors will be evenly divided between directors who areunitholders who have Even Slot delivery agreements and unitholders who have OddSlot delivery agreements.  Current representation is as follows:

-  Seedstock – Mr. Gardiner 
-  Even Slot – Messrs. Ramsey, Fairleigh, and Laue 
-  Odd Slot – Messrs. Bohn and McCloy, and Ms. Keiser 

The directors are elected at the annual meetingof the unitholders and hold office for a term of three years. The terms of thedirectors are staggered in such a manner that approximately one-third of thedirectors will be elected each year. All directors will hold office until theirsuccessors are elected and qualified. Any vacancy in the board, other than avacancy resulting from expiration of a term of office, will be filled by amajority vote of the remaining directors. In case a vacancy in the board ofdirectors extends beyond the next annual meeting, the vacancy will be filled bythe remaining directors until such meeting, at which meeting a director will bechosen by the unitholders for the unexpired term of such vacancy. 

In the discretion of the board of directors, thenumber of directors may be increased by up to an additional five directors.Those additional directors will represent the Class B unitholders and may beelected or appointed by either the board of directors or by the holders ofClass B units.  

**Compensation of Directors**

The board of directors meets from time to time atsuch time and place as may be fixed by resolution adopted by a majority of thewhole board of directors. Members of the board of directors receive a per diempayment of $250 for each activity on behalf of USPB, as well as directreimbursement of travel expenses related to service on the board of directors.

**Audit Committee**

The board of directors has an AuditCommittee consisting of Messrs. Gardiner, Ramsey, Bohn and Laue.  Subjectto the qualifications in the section headed “Directors who are unitholders” inItem 13 below, all members of the Audit Committee are considered independentwithin the meaning of the listing standards of the NASDAQ.  Mr. Gardiner isChairman of the Audit Committee.  The Board has identified Messrs. Ramsey andBohn as “audit committee financial experts”.  The Audit Committee selects andretains independent auditors and assists the board of directors in itsoversight of the integrity of U.S. Premium Beef’s financial statements, includingthe performance of our independent auditors in their audit of our annualfinancial statements.  The Audit Committee meets with management and theindependent auditors, as may be required.  The independent auditors have fulland free access to the Audit Committee without the presence of management. 

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**Code of Ethics**

USPB has adopted a corporate Codeof Conduct that is enforced throughout all levels of management and a Code of EthicsFor Financial Officers for its chief executive officer, principal financial andaccounting officer and treasurer within the meaning of the rules andregulations of the Securities and Exchange Commission.  The Code of Ethics areintended to deter wrongdoing and promote honest and ethical conduct; providefull, fair, accurate, timely and understandable disclosure in public reports;comply with applicable laws; ensure prompt internal reporting of codeviolations; and provide accountability for adherence to the code.  A copy ofthe Code of Conduct may be obtained, without charge, upon written request toScott J. Miller, Chief Reporting and Compliance Officer, U.S. Premium Beef,LLC, P. O. Box 20103, Kansas City, Missouri 64195.

** **

**ITEM 11.               EXECUTIVE COMPENSATION**

**COMPENSATION DISCUSSION AND ANALYSIS**

**Overview of Compensation Program**

This Compensation Discussion andAnalysis (CD&A) describes the material elements of compensation paid to ournamed executive officers as well as the objectives and material factorsunderlying our compensation program.  The compensation program places emphasison USPB’s financial performance and the benefits received by the Company’sunitholders.  Except for the Chief Executive Officer’s (CEO) phantom unit optionplan, which is discussed below, all compensation is paid in the form of cash. 

The Compensation Committee(Committee) is responsible for developing and administering the compensationprogram for the Company’s named executive officers and professional staff.   

**Compensation Philosophy and Objectives**

The Company’s compensationprogram is a key element in attracting, retaining, and motivating namedexecutive officers with the skills necessary to create value for theunitholders.  To achieve this goal we have designed the compensation program withthe following objectives:

-  *Attracting and retaining top talent*—The compensation of theCompany’s executive officers must be commensurate with the competitive regionalmarketplace taking into consideration job responsibilities and supply ofcompetent employees with the education and background to perform at the highestlevels in their field.  
-  *Paying for financial and operational performance*—The compensationof the Company’s executive officers should motivate them to achieve strongfinancial and operational results.  The Company must achieve specific levels offinancial and operational performance to allow executives to earn this portionof their compensation.    
-   *Alignment with the equity interests of our unitholders*—Althoughthe Company does not maintain an ongoing equity compensation plan, part of ourexecutive officers’ compensation is based on the year-over-year change in theweighted average selling price of the Company’s Class A and Class B units.   

Each element of our compensationprogram is designed to achieve one or more of these objectives.  The structureof a particular executive’s compensation may vary depending on the scope andlevel of that executive’s responsibilities. 

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**Determining Executive Compensation**

The CEO makes recommendations tothe Committee regarding the salaries and bonus programs for the executiveofficers.  The Committee reviews the recommendations, taking into account eachelement of total compensation.  Based on the foregoing, the Committee uses itsjudgment in making compensation decisions that will best carry out theCompany’s philosophy and objectives for executive compensation.

**Fiscal Year 2007 Executive Compensation Elements**

The elements of our namedexecutive officers total compensation package are as follows:

-  base salary, 
-  annual cash bonuses, 
-  long-term cash bonus, 
-  full-term cash bonus, 
-  discretionary cash bonuses, 
-  retirement plans, and 
-  limited personal benefits. 

**Elements of our Compensation Program**

*Base Salary*.  Basesalaries are intended to provide a level of compensation sufficient to attractand retain an effective management team, when considered in combination withthe other components of our executive compensation program.  The relativelevels of base salary for named executive officers are designed to reflect eachexecutive officer’s scope of responsibility and accountability with theCompany.  Except for the CEO’s salary, base salaries are reviewed annually todetermine if they are consistent with the performance of the individualexecutive and equitable relative to the Company’s other executive officers andprofessional staff.  

The CEO’s base salary is paid inaccordance with his employment agreement, which provides for the CEO to be paidan annual base salary of $700,000 for employment years ending August 31, 2007,August 31, 2008 and August 31, 2009.  Salary surveys summarizing thecompensation packages for positions of equivalent responsibility in relatedindustries were used to establish the CEO’s base salary.

*Annual Cash Bonuses*. Cash bonuses plans were designed to provide the financial incentive to the CEOand other named executive officers to influence USPB unitholder benefits andare only paid after certain levels of benefits have been achieved.  

If the CEO is employed on thelast day of each fiscal year during the term of his employment agreement, he isto be paid a bonus equal to two percent of the sum of the USPB Total Benefitsthat exceed $18,000,000. USPB Total Benefits are: (1) audited fiscalyear-end USPB earnings before tax; and (2) two times the fiscal year USPBgrid premiums, which is the net sum of all unitholder grid premiums anddiscounts calculated through the USPB grids.  

If the other named executiveofficers and the professional staff are employed on the last day of the fiscalyear, he or she is to be paid his or her proportionate share of the ManagementBonus Pool.  The Management Bonus Pool is: (1) the audited fiscal year-end USPBearnings before tax plus current fiscal year USPB grid premiums, less(2) prior year book equity threshold, multiplied by (3) management bonusfactor, multiplied by (4) the equity multiplier, which is the current fiscalyear weighted average transfer price divided by the  prior fiscal year weightedaverage transfer price.  The bonus plan payments are vested over a two-yearperiod to provide an added incentive to remain with the Company.

 *Long-term Cash Bonuses*. As a part of the CEO’s employment agreement, the CEO was given the opportunityto earn a long-term cash bonus.  If the CEO is employed on the last day offiscal year 2009, he is eligible to be paid a long-term cash bonus.   Paymentunder such plan is dependent upon USPB Total Benefits, for fiscal years 2007through 2009, exceeding certain benchmarks.  Mr. Hunt will receive 1.25% of thelong-term benefits that are greater than $54 million and less than $84 million,and 0.75% of the long-term benefits that are greater than $84 million.

*Full Term Cash Bonus*.  Asa part of the CEO’s employment agreement, the CEO was given the opportunity toearn a full term cash bonus.  If the CEO is employed through August 31, 2009, a$700,000 full-term cash bonus will be paid to him. 

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*Discretionary Cash Bonuses*. Discretionary bonuses are sometimes paid to named executive officers, otherthan the CEO, and professional staff to compensate for extraordinary cases ofindividual or Company performance.

*Retirement Plans*. Qualifying employees are encouraged to participate in a Company sponsored401(k) savings plan.  Under the Company’s plan, employees may contribute up tothe maximum amount permissible by IRS limits.  The Company matches 100% of eachdollar contributed by a participant up to a maximum of 4% of his or herqualifying compensation.

 *Limited Personal Benefits*. We also provide certain benefits to all salaried employees that are notincluded as perquisites in the Summary Compensation Table for the namedexecutives because they are broadly available.  These include health andwelfare benefits, and disability and life insurance.

**Equity Compensation**

The Board implemented a phantomstock option plan for the CEO when the Company was formed in 1997 to providethe CEO the incentive to create and grow share price in the new businessventure.  The Board established 20,000 phantom shares, representing 2.9% of thetotal shares outstanding, and a strike price of $55 per share, the initialoffering price for the Company.  In fiscal year 2004, when the Companyconverted to a Limited Liability Company, the 20,000 phantom shares convertedto 20,000 Class A units, with an exercise price of $55 per unit, and20,000 phantom Class B Units, with an exercise price of $0 per unit.  Theoptions vested over a 4 year period and are now fully vested.

The Company has not implementedadditional stock ownership or option plans since formation. 

**Employment Agreements**

With the exception of the CEO,all of our executive officers are employed at-will, without employmentagreements, severance payment agreements or payment arrangements that would betriggered by a “change in control” of USPB.  

The Company has entered into anemployment agreement with its CEO that provides for his base salary, annualcash bonus, long-term cash bonus, full-term cash bonus, all of which arediscussed above.  The employment agreement also provides for post terminationcompensation.  If Mr. Hunt terminates the agreement for any or no reason, theCompany need only pay salary earned to the date of the termination. If USPBterminates the agreement for any reason other than cause, or if Mr. Huntterminates the agreement for good reason, Mr. Hunt shall be entitled tosalary and benefits through fiscal year 2009; the annual incentive bonus forthe year in which the termination occurs and each subsequent year throughfiscal year 2009; the long-term incentive bonus that would have accrued hadMr. Hunt been employed through fiscal year 2009; and the payment on orbefore October 2, 2009 of the full-term bonuses that would have accrued ifMr. Hunt had remained employed through fiscal year 2009.

The compensation provided to Mr.Hunt in the form of salary, annual cash bonus, long-term cash bonus andfull-term cash bonus shall be subject to a cumulative annual cap pro-rated overthe term of his contract not to exceed $2 million per year averaged over theterm.

The employment agreement contains provisions that require renegotiation of theterms and conditions of Mr. Hunt's compensation in the event of certain materialorganic changes in the Company's business including, but not limited to,significant changes in the sources of revenue for the Company or NBP or theCompany entering into a joint venture by merger, acquisition, contract orotherwise in which the Company is not a majority owner.

**Impactof Tax and Accounting Treatments**

We believethat the compensation paid to our named executive officers is fully deductibleunder the Internal Revenue Code at the time it is paid.  We further believethat Statement of Financial Accounting Standards No. 123 (revised 2004)Share-Based Payment (“SFAS 123(R)”) does not have a material effect on our consolidatedfinancial statements.

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**Unit Ownership Guidelines**

The Company does not allow itsnamed executive officers, other than the CEO, to own the Company’s Class A andClass B units.  The CEO owns 20,000 Class A and Class B phantom unit options asdiscussed above.

**Compensation CommitteeReport**

            TheCommittee has reviewed and discussed the foregoing Compensation Discussion andAnalysis with the Company’s management.  Based on the Committee’s review anddiscussions with management, the Committee has recommended to the Board thatthis Compensation Discussion and Analysis be included in this Annual Report onForm 10-K.

                                                                                               **CompensationCommittee**

**                                                                                               **Mark Gardiner – Chairman

                                                                                                JohnFairleigh

                                                                                                JerryBohn 

** **

**Summary Compensation Table**

The table below sets forthinformation regarding the fiscal year compensation for our named executiveofficers.

|                                                                                                                                                                                                                                                              |   |                 |   |                |   |               |   |                                                               |   |                                          |   |               |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------|---------------------|--------|--------------------|--------|--------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------------------|
| **Name and Principal Position**                                                                                                                                                                                                                    |   | **Fiscal**

**Year** |   | **Salary ($)** |   | **Bonus ($)** |   | **Non-Equity**

**Incentive Plan**

**Compensation**

**($)** |   | **All Other**

**Compensation**

**($)** |   | **Total ($)** |
| Steven D. Hunt                                                                                                                                                                                                                                          |   | 2007                 |   | 695,486        |   | 550,000       |   | 550,206                                                       |   | 10,725                                   |   | 1,806,417     |
| Chief Executive Officer                                                                                                                                                                                                                                 |   |                 |   |                |   | (1)                |   | (2)                                                                |   | (3)                                           |   |               |
|                                                                                                                                                                                                                                                              |   |                 |   |                |   |               |   |                                                               |   |                                          |   |               |
| Scott J. Miller                                                                                                                                                                                                                                         |   | 2007                 |   | 104,173        |   | 5,000         |   | -                                                             |   | -                                        |   | 109,173       |
| Chief Reporting and Compliance Officer                                                                                                                                                                                                        |   |                 |   |                |   | (4)                |   |                                                               |   |                                          |   |               |
|                                                                                                                                                                                                                                                              |   |                 |   |                |   |               |   |                                                               |   |                                          |   |               |
| Stanley D. Linville                                                                                                                                                                                                                                     |   | 2007                 |   | 107,059        |   | 5,000         |   | -                                                             |   | -                                        |   | 112,059       |
| Chief Operating Officer                                                                                                                                                                                                                                 |   |                 |   |                |   | (4)                |   |                                                               |   |                                          |   |               |
|                                                                                                                                                                                                                                                              |   |                 |   |                |   |               |   |                                                               |   |                                          |   |               |
| Danielle D. Imel                                                                                                                                                                                                                                        |   | 2007                 |   | 99,820         |   | 5,000         |   | -                                                             |   | -                                        |   | 104,820       |
| Treasurer                                                                                                                                                                                                                                                         |   |                 |   |                |   | (4)                |   |                                                               |   |                                          |   |               |
|                                                                                                                                                                                                                                                              |   |                 |   |                |   |               |   |                                                               |   |                                          |   |               |
| (1)  This full-term cash bonus was earned pursuant to the terms of Mr. Hunt's employment agreement dated September 1, 2004.                                                                                                              |
| (2)  This annual cash bonus was earned pursuant to the terms of Mr. Hunt's employment agreement dated September 1, 2004.                                                                                             |
| (3)  Amount for Mr. Hunt includes Company match under our 401(k) plan and the cost	of	excess life insurance, $8,899 and $1,826 respectively.  None of the perquisites and other benefits paid to Mr. Miller, Mr. Linville or	Ms. Imel exceeded $10,000. |
| (4)  This amount represents a discretionary cash bonus paid to the named executive officer.                                                                                                                |

**Grants ofPlan-Based Awards in Fiscal Year 2007**

The table below sets forth informationregarding grants of non-equity plan-based awards made to our named executiveofficers during fiscal year 2007.  The Summary Compensation Table abovereflects the actual dollar amounts earned under our annual and long term cashbonus plans.    

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|                                                                                                                                                                                                                      |   |                |   |                                                                                                   |   |                |   |                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|--------------------------------------------------------------------------------------------------------|--------|---------------------|--------|----------------------|
|                                                                                                                                                                                                                      |   |                |   | **Estimated Future Payouts under Non-Equity**

**Incentive Plan Awards** |
| **Name and Principal Position**                                                                                                                                                                            |   | **Grant Date** |   | **Threshold ($)**                                                                                 |   | **Target ($)** |   | **Maximum ($)** |
| Steven D. Hunt                                                                                                                                                                                                  |   |                |   | -                                                                                                 |   | -              |   | -               |
| Chief Executive Officer                                                                                                                                                                                         |   |                |   |                                                                                                   |   |                |   |                 |
|                                                                                                                                                                                                                      |   |                |   |                                                                                                   |   |                |   |                 |
| Scott J. Miller                                                                                                                                                                                                 |   | 8/25/2007           |   | -                                                                                                 |   | -              |   | 104,000         |
| Chief Reporting and Compliance Officer                                                                                                                                                                |   |                |   |                                                                                                   |   | (1)                 |   | (2)                  |
|                                                                                                                                                                                                                      |   |                |   |                                                                                                   |   |                |   |                 |
| Stanley D. Linville                                                                                                                                                                                             |   | 8/25/2007           |   | -                                                                                                 |   | -              |   | 109,000         |
| Chief Operating Officer                                                                                                                                                                                         |   |                |   |                                                                                                   |   | (1)                 |   | (2)                  |
|                                                                                                                                                                                                                      |   |                |   |                                                                                                   |   |                |   |                 |
| Danielle D. Imel                                                                                                                                                                                                |   | 8/25/2007           |   | -                                                                                                 |   | -              |   | 101,000         |
| Treasurer                                                                                                                                                                                                                 |   |                |   |                                                                                                   |   | (1)                 |   | (2)                  |
|                                                                                                                                                                                                                      |   |                |   |                                                                                                   |   |                |   |                 |
| (1) We are using a representative amount based on the previous fiscal year's performance because a target amount                     |
|       is not determinable based on the terms of the management annual cash bonus plan.                                     |
|                                                                                                                                                                                                                      |   |                |   |                                                                                                   |   |                |   |                 |
| (2) We are using a representative amount based on the calendar annual base salary in effect at the end of the         |
|       previous year's management annual cash bonus plan year.  The actual maximum for this management annual     |
|       cash bonus plan year will be the annual base salary in effect at the end of such plan year. |

**Discussion of SummaryCompensation Table and Grants of Plan-Based Awards**

**Performance Based Annual Cash Bonuses**

Our executive officers earn bonusawards made pursuant to various annual cash bonus plans.  The awards utilize formulasset by the Compensation Committee.  The bonuses earned pursuant to the plansappear in the Non-Equity Incentive Plan Compensation in the SummaryCompensation Table. Annual bonuses awarded to executives, excluding Mr. Hunt,also appear in the Grants of Plan Based Awards table. Mr. Hunt’s is notincluded in the Grants of Plan Based Awards table as the plan was not awardedto him in fiscal year 2007.  For fiscal year 2007, the formulas used tocalculate the annual performance-based bonus awards to the Named ExecutiveOfficers were as follows:

|                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Name**                                                                               |   | **Bonus Formula**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Steven D. Hunt                                                               |   | 2% of the sum of USPB Total Benefits that exceed $18 million.  USPB Total

Benefits are audited fiscal year end USPB earnings before tax plus two times the

fiscal year USPB grid premiums, as defined in the CEO Employment Agreement.                                                                                                                                                                                                                                                                                                             |
|                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Scott J. Miller,

Stanley D. Linville,

Danielle D. Imel |   | The executive's proportionate share of the Management Bonus Pool, which is

(1) audited fiscal year USPB earnings before tax plus the fiscal year USPB grid

premiums less (2) a set percentage of the prior year's book equity multiplied by

(3) a set management bonus factor multiplied by (4) the current fiscal year

weighted average unit transfer price divided by the prior year weighted average

unit transfer price. |

**Other Bonuses**

We also pay discretionary cashbonuses to executive officers from time to time to reward elements ofperformance that are not reflected in the criteria for performance based cashbonuses.  Messrs. Miller and Linville and Ms. Imel received such discretionary cashbonuses in fiscal year 2007.  These awards are disclosed in the Bonus column inthe Summary Compensation Table.

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**Outstanding Equity Awardsat Fiscal Year End 2007**

 

|                                                                                                                                                                                                                                                               |   |                                                                                                       |   |                                         |        |                                 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|-------------|--------------------------------------|--------|
|                                                                                                                                                                                                                                                               |   |                                                                                                       |   | **Option Awards**                       |        |                                 |
| **Name and Principal Position**                                                                                                                                                                                                                     |   | **Number of Securities**

**Underlying**

**Unexercised Options**

**(#) Exercisable** |   | **Option Exercise**

**Price ($)** |        | **Option Expiration**

**Date** |
| Steven D. Hunt                                                                                                                                                                                                                                           |   | 20,000 Class A Units                                                                        |   | $                                            | 55.00  |                                 | None   |
| Chief Executive Officer                                                                                                                                                                                                                                  |   | (1)                                                                                                        |   |                                         |        | (2)                                  |
|                                                                                                                                                                                                                                                               |   | 20,000 Class B Units                                                                        |   | $                                            | 0.00   |                                 | None   |
|                                                                                                                                                                                                                                                               |   | (1)                                                                                                        |   |                                         |        | (2)                                  |
| Scott J. Miller                                                                                                                                                                                                                                          |   | -                                                                                                     |   | -                                       |        | -                               |
| Chief Reporting and Compliance Officer                                                                                                                                                                                                         |   |                                                                                                       |   |                                         |
|                                                                                                                                                                                                                                                               |   |                                                                                                       |   |                                         |        |                                 |
| Stanley D. Linville                                                                                                                                                                                                                                      |   | -                                                                                                     |   | -                                       |        | -                               |
| Chief Operating Officer                                                                                                                                                                                                                                  |   |                                                                                                       |   |                                         |        |                                 |
|                                                                                                                                                                                                                                                               |   |                                                                                                       |   |                                         |        |                                 |
| Danielle D. Imel                                                                                                                                                                                                                                         |   | -                                                                                                     |   | -                                       |        | -                               |
| Treasurer                                                                                                                                                                                                                                                          |   |                                                                                                       |   |                                         |        |                                 |
|                                                                                                                                                                                                                                                               |   |                                                                                                       |   |                                         |        |                                 |
| (1) Mr. Hunt is fully vested in the 20,000 Class A and 20,000 Class B phantom rights on phantom units.                                                              |
| (2) Mr. Hunt is entitled to exercise phantom unit rights upon termination of Mr. Hunts employment agreement,                                                                       |
|      or at his election, at the time and under the conditions, and with the same consequences as if Mr. Hunt held                     |
|      similar unqualified options to purchase USPB Class A or Class B units acquired at the same time as the phantom unit rights. |

**Retirement Plans**

We do notmaintain a qualified or non-qualified defined benefit pension plan covering anyof our employees.  Our named executive officers are eligible to participate inour tax-qualified Profit Sharing and Savings Plan on the same basis as otheremployees under the plan.  The Company makes a matching contribution to thisplan equal to 100% of each participant’s own elective contributions up to 4% ofhis or her qualifying compensation.  The Company also has the discretion tomake annual profit sharing contributions that are allocated among all eligibleparticipants in proportion to their respective compensation.  The Company didnot make a profit sharing contribution to the plan in fiscal year 2007.  TheSummary Compensation Table above reflects the contributions to our ProfitSharing and Savings Plan.

**Potential Payments UponTermination**

If USPB terminates the CEOEmployment Agreement (the Agreement) for cause or if Mr. Hunt terminates the Agreementfor any or no reason, USPB needs only pay salary earned to the date of thetermination. If USPB terminates the Agreement for any reason other than cause,or if Mr. Hunt terminates the Agreement for good reason, Mr. Hunt shall beentitled to salary and benefits through fiscal year 2009; the annual cash bonusfor the year in which the termination occurs and each subsequent year throughfiscal year 2009; the long-term cash bonus that would have accrued had Mr. Huntbeen employed through fiscal year 2009; and the payment of the full-term bonusthat would have accrued if Mr. Hunt had remained employed through fiscal year2009.

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|                                                                                                                                                                                                                                                                        |   |                  |   |                                                                                                                                                     |   |                                                                                                                                         |   |                                                                                 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|
| **Name and Principal**

**Position**                                                                                                                                                                                                                              |   | **Payment Type** |   | **Termination by the**

**Company for cause or**

**by Executive for any**

**or no reason 	($)** |   | **Termination by the**

**Company without**

**cause or by Executive**

**for good reason**

**($)** |   | **Termination upon**

**death or permanent**

**disability**

**($)** |
| Steven D. Hunt                                                                                                                                                                                                                                                    |   | Salary                |   | -                                                                                                                                                   |   | 1,400,000                                                                                                                               |   | 700,000                                                                         |
| Chief Executive Officer                                                                                                                                                                                                                                           |   | Bonus                 |   | -                                                                                                                                                   |   | 700,000                                                                                                                                 |   | 466,667                                                                         |
|                                                                                                                                                                                                                                                                        |   | Incentive Pay    |   | -                                                                                                                                                   |   | 1,869,394                                                                                                                               |   | 1,319,188                                                                       |
|                                                                                                                                                                                                                                                                        |   |                  |   |                                                                                                                                                     |   |                                                                                                                                         |   |                                                                                 |
| (1) In determining the incentive pay above, we have assumed the plan inputs for fiscal year 2008 and 2009 are consistent with                                      |
|      the inputs for fiscal 2007.  Based on these assumptions, amounts due to Mr. Hunt for Annual and Long-Term Incentive based                 |
|      pay would be $1,100,412 and $768,982 if terminated by us without cause or by Mr. Hunt for good reason and $550,206 and $768,982 |
|      upon death or permanent disability, respectively.  The amounts that would actually be paid to Mr. Hunt would be based on the         |
|      actual fiscal year 2008 and fiscal year 2009 inputs.                                                                                                                                                  |   |                  |   |                                                                                                                                                     |

**Director Compensation Table**

Each director receives cash compensation formeetings he or she attends. Directors are compensated $250 per diem for regularmeetings, special meetings, compensation committee meetings and audit committeemeetings.  We do not award any other type of compensation to our directors.

> 
 

 

 

**Name**

 

**Fees Earned or**

**Paid in Cash ($)**

Mark R. Gardiner

 

6,250 

John D. Fairleigh

 

5,250 

Jerry L. Bohn

 

4,750 

Douglas A. Laue

 

5,000 

Carol A. Keiser

 

5,000 

Rex W. McCloy

 

5,000 

Duane K. Ramsey

 

3,750 

**Compensation CommitteeInterlocks and Insider Participation**

None of themembers of our Compensation Committee is, or was, an officer or employee ofU.S. Premium Beef, LLC or its subsidiaries.  None of our executive officersserved as a director or was a member of the compensation committee of anyentity where a member of our Board or Compensation Committee was an executiveofficer.

| 51 |
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** ITEM 12.               SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS**

**Equity Compensation Plan Information**

The table below sets forthinformation with respect to securities available for issuance under our equitycompensation plan.

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Plan Category** |   | **Type of			Equity**			 
**Number of**

**securities to be**

**issued upon**

**exercise of**

**outstanding options,**

**warrants and rights**

 

**Weighted-average**

**exercise price of**

**outstanding options,**

**warrants and rights**

 

**Number of**

**securities**

**remaining available**

**for future issuance**

**under equity**

**compensation plans**

**(excluding**

**securities reflected**

**in column (2))**

Equity compensation plans approved by

security holders

 
			 			 
- 

 

N/A 

 

- 

Equity compensation plans not approved by

security holders  (1)

 
Class A Units			 
20,000 

 

$

55.00 

 

- 
			 			 Class B Units			 
20,000 
			 
$

0.00 
			 
- 

Total

 
			 			 
40,000 

 

 

 

- 

 

 
			 			 
 

 

 

 

 

(1) See Note 7 to our consolidated financial statements for a description of the equity compensation plan.

**Security Ownership of Certain Beneficial Owners**

The following table sets forthcertain information as of October 27, 2007 regarding the only persons known bythe Company to own directly or indirectly, more than 5% of its Class A andClass B units.

 

 

 

 

 

 

 

**Name and Address of Beneficial Owner**

 

**Title of Class**

 

**Number of Units**

**Beneficially**

**Owned**

 

**Percent of Class**

Douglas A. Laue  (1)

     509 Country Lane

     Council Grove, Kansas 66846

 

Class A & Class B Units

 

95,000 

 

12.9% 

Fairleigh Corporation dba Fairleigh Feed Yard

 

Class A & Class B Units

 

54,288 

 

7.4% 

     Box 560

 

 

 

 

 

 

     Scott City, KS 67871

 

 

 

 

 

 

Desert Beef, LLC

     34673 E. County 9th Street

     Wellton, AZ 85356

 

Class A & Class B Units

 

44,160 

 

6.0% 

Crown H Cattle Co., Inc.

 

Class A & Class B Units

 

41,200 

 

5.6% 

     PO Box 186

 

 

 

 

 

 

     Scott City, KS 67871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)     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.

 

 

 

 

 

 

 

 
    52

 

 

**Security Ownership of Management**

The following table furnishesinformation, as of October 27, 2007, regarding ownership of the USPB’s Class Aand Class B units is furnished with respect to (1) each director anddirector nominee, (ii) each executive officer named in the Summary CompensationTable on page 48, and (iii) all current directors and executive officers as agroup. 

 

 

 

 

 

 

 

**Beneficial Ownership of**

 

 

**Class A and Class B Units**

**Name**

 

**Number (1)**

 

**Percentage (2)**

Douglas A. Laue  (3)

 

95,000 

 

12.9% 

John D. Fairleigh  (4)

 

54,288 

 

7.4% 

Jerry L. Bohn  (5)

 

19,161 

 

2.6% 

Duane K. Ramsey  (6)

 

8,800 

 

1.2% 

Rex W. McCloy  (7)

 

6,085 

 

0.8% 

Mark R. Gardiner  (8)

 

3,000 

 

0.4% 

Carol A. Keiser  (9)

 

1,000 

 

0.1% 

Joe Morgan  (10)

 

32,518 

 

4.4% 

Steven D. Hunt  (11)

 

20,000 

 

2.7% 

Scott J. Miller

 

- 

 

0.0% 

Stanley D. Linville

 

- 

 

0.0% 

Danielle D. Imel

 

- 

 

0.0% 

All current Directors and Executive Officers as a group (12 persons)  (12)

 

239,852 

 

32.6% 

 

(1)     Each cooperative shareholder received one Class A unit and one Class B unit in USPB 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 54,288 Class A and Class B units held by Fairleigh Corporation, of which Mr. Fairleigh is an owner. 
        	54,288 are pledged as security.
 

(5)     Includes i) 11,800 Class A and Class B units held by Pratt Feeders, LLC, of which Mr. Bohn is the 

      	  general manager, and ii) 7,361	Class A and Class B units held by Hays Feeders, LLC, of which 
        	Mr. Bohn is the general manager. 7,361 are pledged as security.
 

	(6)	    Includes 8,800 Class A and Class B units held by the Duane K. Ramsey Trust, over which Mr. Ramsey 

         	has sole voting and investment power.

 

(7)     Includes 5,685 Class A and Class B units held by McLeod Farms, Inc., of which Mr. McCloy is an owner.

 

	(8)	    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.

 

(9)     Includes 1,000 Class A and Class B units held by C-Bar Cattle Co. Inc., of which Ms. Keiser is the president.

 

(10)    Mr. Morgan is a nominee to the board. Includes i) 30,518 Class A and Class B units held by  Poky Feeders, 

 	        of which Mr. Morgan is the	Secretary and Treasurer, ii) 1,000 Class A and Class B units held by Lone 

          Tree Cattle Co., of which Mr. Morgan is a partner, and iii) 1,000 units held by Joe Morgan.

 

(11)    Includes the option held by Mr. Hunt, the CEO, to purchase 20,000 Class A and Class B units

 

(12)    Reflects unit ownership by all seven directors, the nominee to the board and the named executive officers of USPB.
     
 

**ITEM 13.               CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,AND DIRECTOR INDEPENDENCE**

**Related party transactions**

            USPB’s boardof directors has not adopted a formal policy or procedure that must be followedprior to any transaction, arrangement or relationship with a related person, asdefined by SEC regulations (e.g., directors, executive officers, any 5 percentshareholder, or immediate family member of any of the foregoing).    

    53

 

 

USPB has adopted a corporate Codeof Conduct that is enforced throughout all levels of management.  It deals withconflicts of interest, among other things.  The Code prohibits any conduct oractivities that conflict with the interests of the Company, or that mightinfluence or appear to influence our judgment or actions in performing ourduties.  The Code also requires directors and all levels of management to makefull written disclosure of any activity that may present a conflict of interestand receive prior written approval from the Company.  No waivers have beengranted.

Our directors and all levels ofmanagement are required each year to respond to a Related Party Questionnaire. The questionnaire requires each director and all levels of management to identifyif they or an immediate family member had been indebted to, or had been aparticipant in any material transactions with, the Company or any of itsaffiliates.  The questionnaire requires disclosure of the name of relatedparties if such parties have an ownership or management control relationshipwith the Company sufficient to exert significant influence over the Company’smanagement or operating policies which could cause significantly differentoperating results or financial position of the Company.

The standards applied pursuant tothe above-described procedures are to provide comfort that any conflict ofinterest or related party transition is on an arms-length basis which is fairto the Company.

**Directors who are unitholders**

USPB is not a listed company andas a result has chosen the NASDAQ independence listing standards to determinewhether our directors are independent.  The NASDAQ independence definitionsprovide that directors cannot be independent if they do not meet certainobjective standards.  

All of the USPB’s directors holdunits of the LLC and are also agricultural producers. By virtue of theirunitholder status and ownership of Class A units, each of these individuals isobligated to deliver cattle to USPB. The amount and terms of the paymentsreceived by these individuals (or the entities they represent) for the deliveryof cattle are made on exactly the same basis as those received by other unitholdersand associates of USPB for the delivery of their cattle.  Based on the NASDAQ’sstandards and as a result of their equal treatment with respect to the deliveryof cattle, the following current directors were determined to be independent:Ms. Keiser and Messrs. Laue, Fairleigh, Bohn, Ramsey, McCloy, and Gardiner.

**Certain Arrangements with Holders of NBP’s MembershipInterests**

 Simultaneouswith the ownership changes on August 6, 2003, all of the holders of NBP’smembership interests entered into a limited liability company agreement thatprovides for, among other things, election of its board of managers, the powersof its board of managers and its officers, approval rights for certain of itsequity holders, restrictions and rights related to the transfer, sale orpurchase of its membership interests, and preemptive and repurchase rights. 

 Thelimited liability company agreement provides that NBPCo Holdings and themembers of NBP management who hold membership interests in NBP have the rightto request that NBP purchase their membership interests under certaincircumstances.  

**Transactions with NBP** 

In December 1997, USPB entered into acontract with FNB to deliver cattle annually to NBP relative to: (i) USPB’sownership in NBP and (ii) the number of cattle processed annually by NBP. Duringfiscal year 2007, USPB and its owners and associates provided approximately 17%of NBP’s total cattle requirements.  The purchase price for the cattle isdetermined by pricing grids, which, under the terms of our agreement with NBP,must be competitive with the formula pricing of our competitors and may not beless favorable than formula pricing it offers to other suppliers. Any newpurchase agreements and payment formulas with NBP must be consistent with theagreement existing at the time U.S. Premium Beef acquired the majority interestin NBP on August 6, 2003.

**Transactions with Beef Products, Inc.** 

Since 1994, NBP has had abusiness relationship with Beef Products, Inc. (BPI), which is an affiliate ofNBPCo Holdings, whereby NBP sold beef trimmings, referred to as trim, to BPI,and purchased processed lean beef from BPI for use in its ground beefoperations. NBP’s aggregate sales of trim to BPI totaled approximately $89.1million in fiscal year 2007.  NBP’s aggregate purchases of processed lean beeffrom BPI totaled approximately $14.2 million in fiscal year 2007. 

    54

 

 

**Transactions with John R. Miller**

In October 2003, NBP entered intoan aircraft lease agreement under which it leases a business jet aircraft fromJohn R. Miller Enterprises III, L.L.C., a Utah limited liability company ofwhich John R. Miller, NBP’s Chief Executive Officer, is the beneficial owner.The term of the lease is 81 months. The monthly lease payments will range from$25,400 in the first year of the lease to $45,380 in the fourth year of thelease and thereafter, and are adjusted quarterly based on the change in thethree month LIBOR interest rate.  During fiscal year 2007, NBP paid $0.8 millionto lease the aircraft and $0.1 million into an engine replacement reserveaccount.  The funds in the reserve account are to be used to finance newengines installed on the aircraft. 

In December 2004, NBP enteredinto an aircraft lease agreement under which it leases a business jet aircraftfrom John R. Miller Enterprises, L.L.C., a Utah limited liability company ofwhich John R. Miller, NBP’s Chief Executive Officer, is the beneficial owner.The term of the lease is 72 months. This aircraft replaces an aircraft leasedfrom John R. Miller Enterprises, L.L.C. in March 2001.  The base monthly leasepayments will range from $35,400 in the first year of the lease to $45,380 inthe fourth year of the lease and thereafter, and are adjusted quarterly basedon the change in the three month LIBOR interest rate.  During the fiscal year2007, NBP paid $0.8 million to lease the aircraft and $0.1 million into anengine replacement reserve account.  The funds in the reserve account are to beused to finance new engines installed on the aircraft.    

NBP believes that the terms ofthese aircraft leases are at least as favorable to it as we could have obtainedfrom unaffiliated third parties. 

See Item 10*.Directors,Executive Officers and Corporate Governance* for additional informationregarding the independence of our Board.****

 

**ITEM 14.               PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

KPMG LLP, an independentregistered public accounting firm, served as our auditors for the fiscal yearsended August 25, 2007 and August 26, 2006.

 

 

 

 

 

 

 

**Type of Service**

 

**Fiscal Year Ended**

**August 25, 2007**

 

**Fiscal Year Ended**

**August 26, 2006**

 

 

(dollars in thousands)

Audit Fees

 

$

421 

 

$

386 

Audit Related Fees

 

9 

 

1 

Tax Fees

 

- 

 

26 

All Other Fees

 

- 

 

- 

 

 

$

430 

 

$

413 

 

 

 

 

 

 

 

 

 

 

**Audit Fees**

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

**Audit-Related Fees**

Audit-related fees in fiscal years 2007 and 2006 primarilyrelate to consultations on accounting related matters.

**Tax Fees**

Tax fees related to tax compliance, tax adviceand tax planning services.

    55

 

 

**All Other Fees**

We did not pay any other typeof fee and did not receive any other services from KPMG LLP during fiscal years2007 and 2006. 

Our Audit Committee appoints our independentauditors.  The Audit Committee is solely and directly responsible for theapproval of the appointment, re-appointment, compensation and oversight of ourindependent auditors.  The Audit Committee approves in advance all work to beperformed by the independent auditors.

** **

**PART IV**

**ITEM 15.               EXHIBITS AND FINANCIALSTATEMENT SCHEDULES.**

**(a) Financial Statements and Financial StatementSchedules**

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

(2)       Thefinancial statement schedules required to be filed by Item 8 of this report is setforth in “Item 15(c) Financial Statement Schedules” contained herein.

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

2.1        
Agreement and Plan ofMerger between U.S. Premium Beef, Ltd. and U.S. Premium Beef, Inc.(incorporated herein by reference to Appendix A to voting materials-prospectuscontained in U.S. Premium Beef, Inc. Registration Statement on Form S-4 (FileNo. 333-115164) filed with the SEC on August 5, 2004).

  

2.2
Plan of Conversionadopted by U.S. Premium Beef, Inc. (incorporated herein by reference toAppendix 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 theSEC on August 5, 2004).

  

2.3+
ContributionAgreement dated as of May 19, 2006 between Brawley Beef, LLC, National BeefCalifornia, L.P. and National Beef Packing Company, LLC (incorporated byreference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for thequarter ended May 27, 2006, filed with the SEC on July 10, 2006).

  

2.4+
ContributionAgreement dated as of May 30, 2006 between U.S. Premium Beef, LLC and BrawleyBeef, LLC (incorporated by reference to Exhibit 2.2 to the Company’s QuarterlyReport on Form 10-Q for the quarter ended May 27, 2006, filed with the SEC onJuly 10, 2006).

  

2.5+
ContributionAgreement dated as of May 30, 2006 between U.S. Premium Beef, LLC and NationalBeef Packing Company, LLC (incorporated by reference to Exhibit 2.3 to theCompany’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006, filedwith the SEC on July 10, 2006).

  

3.1
Certificateof Formation of U.S. Premium Beef, LLC (incorporated herein by reference toAppendix 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 theSEC on August 5, 2004).

  

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

     

     

    56

 

 
			3.3(a)        
LimitedLiability Company Agreement of National Beef Packing Company, LLC, dated as ofAugust 6, 2003 (incorporated herein by reference to Exhibit 3.1(a) to theCompany’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006,filed with the SEC on July 10, 2006).  
3.3(b)
Amendment to the LimitedLiability Company Agreement of National Beef Packing Company, LLC, dated as ofJuly 7, 2005 (incorporated by reference to Exhibit 3.1(b) to the Company’sQuarterly Report on Form 10-Q for the quarter ended May 27,2006, filed with theSEC on July 10, 2006).  
3.3(c)
Revised Exhibit 3.1 to theLimited Liability Company Agreement of National Beef Packing Company, LLC,effective as of May 30, 2006 (incorporated by reference to Exhibit 3.1(c) tothe Company’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006,filed with the SEC on July 10, 2006).  
3.4(a) 
Certificate ofIncorporation of NB Finance Corp. (incorporated herein by reference to Exhibit3.2 to Registration Statement on Form S-4 (File No. 333-111407) filed with theSEC on December 19, 2003).  
3.4(b)
Bylaws of NB Finance Corp.(incorporated herein by reference to Exhibit 3.3 to Registration Statement onForm S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).  
4.1(a)
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 toRegistration Statement on Form S-4 (File No. 333-111407) filed with the SEC onDecember 19, 2003).  
4.1(b)			
Form of Series B Senior Notedue 2011 (incorporated herein by reference to Exhibit 4.1 to RegistrationStatement on Form S-4 (File No. 333-111407) filed with the SEC on December 19,2003).  
4.1(c)			
Registration Rights Agreementdated as of August 6, 2003 by and among National Beef Packing Company, L.P., NBFinance Corp., Deutsche Bank Securities Inc., U.S. Bancorp Piper Jaffray Inc.and Rabo Securities USA, Inc.  (incorporated herein by reference to Exhibit 4.3to Registration Statement on Form S-4 (File No. 333-111407) filed with the SECon December 19, 2003).  
10.1 
Cattle Purchase and SaleAgreement dated as of December 1, 1997 by and among Farmland National BeefPacking Company, L.P. and U.S. Premium Beef, Ltd.  (incorporated herein byreference to Exhibit 10.7 to Registration Statement on Form S-4 (File No.333-111407) filed with the SEC on December 19, 2003).  
10.2(a)
Form of Uniform Deliveryand Marketing Agreement – Even Slots (incorporated herein by reference toExhibit 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)  
10.2(b)  
Form of Uniform Cattle Deliveryand Marketing Agreement – Even Slots (filed herewith)  
10.3(a)
Form of Uniform Deliveryand Marketing Agreement – Odd Slots (incorporated herein by reference toExhibit 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).  
10.3(b) 
Form of Uniform Cattle Deliveryand Marketing Agreement – Odd Slots (filed herewith)  
10.4 
Office Lease by andbetween HDP – Kansas City, LLC and U.S. Premium Beef, Ltd.  (incorporatedherein by reference to Exhibit 10.5 to U.S. Premium Beef Registration Statementon Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).  

 

 

 

    57

 

 
10.5          
* U.S. Premium Beef, Ltd.Management Incentive Plan (incorporated herein by reference to Exhibit 10.8 toU.S. Premium Beef Registration Statement on Form S-4 (File No. 333-115164)filed with the SEC on August 5, 2004).  
10.6(a) 
Seventh Amendment to CreditAgreement, dated June 20, 2006, effective as of May 30, 2006, by and among U.S.Premium Beef, LLC and CoBank, ACB, as agent for the benefit of the syndicationparties.  (filed herewith)  
10.6(b)  
Sixth Amendment to CreditAgreement, dated June 20, 2006, effective as of May 30, 2006, by and among U.S.Premium Beef, LLC and CoBank, ACB, as agent for the benefit of the syndicationparties.  (incorporated by reference to Exhibit 10.1(b) to the Company’sQuarterly Report on Form 10-Q for the quarter ended May 27, 2006, filed withthe SEC on July 10, 2006).  
10.6(c)
Fifth Amendment to CreditAgreement, dated September 30, 2004, by and among U.S. Premium Beef, LLC. and CoBank, ACB, as agent for the benefit of the syndication parties.  (incorporatedherein by reference to Exhibit 10.6 to the Annual Report on Form 10-K for thefiscal year ended August 28, 2004, filed by U.S. Premium Beef with the SEC onNovember 26, 2004).  
10.6(d)  
Fourth Amendment to CreditAgreement, dated August 6, 2003, by and among U.S. Premium Beef, Ltd. and CoBank, ACB, as agent for the benefit of the syndication parties. (incorporatedherein by reference to Exhibit 10.9 to U.S. Premium Beef Registration Statementon Form S-4 (File No. 333-115164) filed with the SEC on August 5, 2004).  
10.6(e) 
Third Amendment to CreditAgreement, dated August 29, 2002, by and among U.S. Premium Beef, Ltd. and CoBank, ACB, as agent for the benefit of the syndication parties  (incorporatedherein by reference to Exhibit 10.10 to U.S. Premium Beef RegistrationStatement on Form S-4 (File No. 333-115164) filed with the SEC on August 5,2004).  
10.6(f) 
Second Amendment to CreditAgreement, dated August 24, 2001, by and among U.S. Premium Beef, Ltd. and CoBank, ACB, as agent for the benefit of the syndication parties (incorporatedherein by reference to Exhibit 10.11 to U.S. Premium Beef RegistrationStatement on Form S-4 (File No. 333-115164) filed with the SEC on August 5,2004).  
10.6(g) 
First Amendment to CreditAgreement, 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 ofthe syndication parties (incorporated herein by reference to Exhibit 10.12 toU.S. Premium Beef Registration Statement on Form S-4 (File No. 333-115164)filed with the SEC on August 5, 2004).  
10.6(h) 
Credit Agreement, datedNovember 25, 1997, by and among U.S. Premium Beef, Ltd. and CoBank, ACB, forits own benefit as a lender and as agent for the benefit of the syndicationparties (incorporated herein by reference to Exhibit 10.13 to U.S. Premium BeefRegistration Statement on Form S-4 (File No. 333-115164) filed with the SEC onAugust 5, 2004).  
10.7(a)* 
*CEO Employment Agreement byand 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 BeefRegistration Statement on Form S-4 (File No. 333-115164) filed with the SEC onAugust 5, 2004).  
10.7(b)*  
Employment Agreement datedas of August 6, 2003 by and between National Beef Packing Company, LLC and JohnR. Miller (incorporated herein by reference to Exhibit 10.2 to RegistrationStatement on Form S-4 (File No. 333-111407) filed with the SEC on December 19,2003).  
			10.7(c)* 
DeferredEquity Incentive Compensation Agreement dated August 6, 2003 by and betweenNational Beef Packing Company, LLC and John R. Miller (incorporated herein byreference to Exhibit 10.3 to Registration Statement on Form S-4 (File No.333-111407) filed with the SEC on December 19, 2003).

 

 

    58

 

 
			10.7(d)*          
EmploymentAgreement dated as of August 6, 2003 by and between National Beef PackingCompany, LLC and Timothy M. Klein (incorporated herein by reference to Exhibit10.4 to Registration Statement on Form S-4 (File No. 333-111407) filed with theSEC on December 19, 2003).  
			10.7(e)* 
DeferredEquity Incentive Compensation Agreement dated August 6, 2003 by and betweenNational Beef Packing Company, LLC and Timothy M. Klein (incorporated herein byreference to Exhibit 10.5 to Registration Statement on Form S-4 (File No.333-111407) filed with the SEC on December 19, 2003).  
10.8   
Purchase Agreement datedJuly 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 referenceto Exhibit 10.1 to Registration Statement on Form S-4 (File No. 333-111407)filed with the SEC on December 19, 2003).  
10.9			
SixthAmended and Restated Credit Agreement dated as of July 25, 2007 (“CreditAgreement”) by and among National Beef Packing Company, LLC and certain agents,lenders and issuers (incorporated by reference to Exhibit 10.1 (File No. 333-111407)to Form 8-K filed with the SEC on July 31, 2007).  
			10.10(a)
LeaseAgreement dated as of February 1, 1999 between City of Dodge City, Kansas andFarmland National Beef Packing Company, L.P. securing $1,000,000 City of DodgeCity, Kansas Industrial Development Revenue Bonds (Farmland National BeefPacking Company, L.P. Project), Series 1999 (incorporated herein by referenceto Exhibit 10.8 to Registration Statement on Form S-4 (File No. 333-111407)filed with the SEC on December 19, 2003).  
			10.10(b) 
Indentureof Trust dated as of February 1, 1999 between City of Dodge City, Kansas andCommerce Bank, N.A., as trustee, securing $1,000,000 City of Dodge City, KansasIndustrial Development Revenue Bonds (Farmland National Beef Packing Company,L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.9 toRegistration Statement on Form S-4 (File No. 333-111407) filed with the SEC onDecember 19, 2003).  
			10.11(a)
Indentureof Trust dated as of January 1, 1999 between City of Liberal, Kansas andCommerce Bank, N.A., as trustee, securing $1,000,000 City of Liberal, KansasIndustrial Development Revenue Bonds (Farmland National Beef Packing Company,L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.11to Registration Statement on Form S-4 (File No. 333-111407) filed with the SECon December 19, 2003).  
			10.11(b)  
Amendedand Restated Lease Agreement dated as of January 1, 1999 between City ofLiberal, 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 onForm S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).  
			10.12(a) 
LeaseAgreement dated as of March 1, 2000 between City of Dodge City, Kansas andFarmland National Beef Packing Company, L.P. securing $6,000,000 City of DodgeCity, Kansas Industrial Development Revenue Bonds (Farmland National BeefPacking Company, L.P. Project), Series 2000 (incorporated herein by referenceto Exhibit 10.12 to Registration Statement on Form S-4 (File No. 333-111407)filed with the SEC on December 19, 2003).  
			10.12(b) 
Indentureof Trust dated as of March 1, 2000 between City of Dodge City, Kansas andCommerce Bank, N.A., as trustee, securing $6,000,000 City of Dodge City, KansasIndustrial Development Revenue Bonds (Farmland National Beef Packing Company,L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.13to Registration Statement on Form S-4 (File No. 333-111407) filed with the SECon December 19, 2003).

 

 

    59

 

 
			10.13(a)           
LeaseAgreement dated as of March 1, 2000 between City of Liberal, Kansas andFarmland National Beef Packing Company, L.P. securing $5,850,000 City ofLiberal, Kansas Industrial Development Revenue Bonds (Farmland National BeefPacking Company, L.P. Project), Series 2000 (incorporated herein by referenceto Exhibit 10.14 to Registration Statement on Form S-4 (File No. 333-111407)filed with the SEC on December 19, 2003).  
			10.13(b) 
Indentureof Trust dated as of March 1, 2000 between City of Liberal, Kansas and CommerceBank, N.A., as trustee, securing $5,850,000 City of Liberal, KansasIndustrial Development Revenue Bonds (Farmland National Beef Packing Company,L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.15to Registration Statement on Form S-4 (File No. 333-111407) filed with the SECon December 19, 2003).  
			10.14(a)
Leasedated as of December 1, 2004 between City of Dodge City, Kansas and NationalBeef Packing Company, LLC securing $102,300,000 City of Dodge City, KansasIndustrial Development Revenue Bonds, Series 2004 (National Beef PackingCompany, LLC Project) (incorporated by reference to Exhibit 10.2 to Form 8-K(File No. 333-111407) filed with the Commission on January 6, 2005).  
			10.14(b) 
TrustIndenture dated as of December 1, 2004 between City of Dodge City, Kansas andCommerce Bank, N.A., as trustee, securing $102,300,000 City of Dodge City,Kansas Industrial Development Revenue Bonds, Series 2004 (National Beef PackingCompany, LLC Project) (incorporated by reference to Exhibit 10.3 to Form 8-Kfiled (File No. 333-111407) with the Commission on January 6, 2005).  
10.15			
Agreementdated December 22, 2003 by and between National Beef and United Food andCommercial Workers International Union, AFL-CIO-CK, UFCW District Local Two(incorporated herein by reference to Exhibit 10.25 to Amendment No. 1 toRegistration Statement on Form S-4 (File No. 333-111407) filed with the SEC onFebruary 11, 2004).  
10.16
Leaseagreement dated as of January 16, 2001 between Joint Development Authority ofBrooks, Colquitt, Grady, Mitchell and Thomas counties and Farmland NationalBeef Company (incorporated herein by reference to Exhibit 10.20 to RegistrationStatement on Form S-4 (File No. 333-111407) filed with the SEC on December 19,2003).  
10.17
AircraftLease dated October 15, 2003 by and among John R. Miller Enterprises III, LLCand National Beef Packing Company, LLC (incorporated herein by reference toExhibit 10.22 to Registration Statement on Form S-4 (File No. 333-111407) filedwith the SEC on December 19, 2003).  
			10.18
AircraftLease dated as of December 9, 2004 by and among John R. Miller Enterprises, L.L.C. and National Beef Packing Company, LLC (incorporated by reference toExhibit 10.1 to Form 8-K (File No. 333-111407) filed with the Commission onDecember 9, 2004).  
10.19*
NationalBeef Packing Company, LLC Management Incentive Program (incorporated herein byreference to Exhibit 10.23 to Registration Statement on Form S-4 (File No.333-111407) filed with the SEC on December 19, 2003).  
10.20*
NationalBeef Packing Company, LLC Management Long Term Incentive Plan (incorporatedherein by reference to Exhibit 10.24 to Registration Statement on Form S-4(File No. 333-111407) filed with the SEC on December 19, 2003).  
21.1
Subsidiariesof National Beef Packing Company, LLC (incorporated herein by reference to Exhibit21.1 to Form 10-K (File No. 333-111407) filed with the SEC on November 17, 2006).

 

 

    60

 

 

31.1                    Certificationof the Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (filed herewith).    

31.2                    Certificationof the Chief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (filed herewith).

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

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

_____________

*  Managementcontract or compensatory plan or arrangement.

+ The Contribution Agreements in Exhibits 2.1,2.2 and 2.3 contain Schedules and Exhibits that the Company hereby agrees tofurnish supplementally to the SEC upon its request.

    61

 

 

**(c) Financial Statement Schedules:**

**Schedule I – Parent Company Financial Statements**

** **

 

 

 

 

 

 

 

 

 

 

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

**Balance Sheets of Parent Company**

(in thousands, except unit information)

**Assets**

 

**August 25, 2007**

 

**August 26, 2006**

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

32,425 

 

$

25,748 

 

Accounts receivable

 

3 

 

- 

 

Other receivables

 

215 

 

688 

 

 

Total current assets

 

32,643 

 

26,436 

Property, plant, and equipment, at cost

 

256 

 

229 

 

Less accumulated depreciation

 

(217)

 

(220)

 

 

Net property, plant, and equipment

 

39 

 

9 

Investments in National Beef Packing Company, LLC

 

132,859 

 

134,029 

Other assets

 

432 

 

403 

 

 

Total assets

 

$

165,973 

 

$

160,877 

**Liabilities and Capital Shares and Equities**

 

 

 

 

Current liabilities:

 

 

 

 

 

Current installments of long-term debt

 

$

1,030 

 

$

1,030 

 

Accounts payable

 

70 

 

56 

 

Due to affiliates

 

622 

 

507 

 

Accrued compensation and benefits

 

2,697 

 

4,088 

 

Other accrued expenses and liabilities

 

730 

 

1,232 

 

 

Total current liabilities

 

5,149 

 

6,913 

Long-term liabilities:

 

 

 

 

 

Long-term debt, excluding current installments

 

3,089 

 

4,119 

 

 

Total long-term liabilities

 

3,089 

 

4,119 

 

 

Total liabilities

 

8,238 

 

11,032 

Capital shares and equities:

 

 

 

 

 

Members' capital, 735,385 and 735,505 Class A units and 735,385 and 735,505	        	Class B units authorized, issued and outstanding

 

107,093 

 

99,203 

 

Patronage notices

 

50,642 

 

50,642 

 

 

Total capital shares and equities

 

157,735 

 

149,845 

Commitments and contingencies

 

- 

 

- 

 

 

Total liabilities and capital shares and equities

 

$

165,973 

 

$

160,877 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

** **

    62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

**Statements of Operations of Parent Company**

(in thousands, except per unit data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**52 weeks ended**

**August 25, 2007**

 

**52 weeks ended**

**August 26, 2006**

 

**52 weeks ended**

**August 27, 2005**

Net sales

 

 

 

 

$

- 

 

$

- 

 

$

381,496 

Costs and expenses:

 

 

 

 

 

 

 

Cost of sales

 

 

- 

 

- 

 

381,496 

 

Selling, general, and administrative expenses

 

3,630 

 

3,590 

 

3,509 

 

Depreciation and amortization

 

13 

 

17 

 

38 

 

 

Total costs and expenses

 

3,643 

 

3,607 

 

385,043 

 

 

 

Operating loss

 

(3,643)

 

(3,607)

 

(3,547)

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

1,428 

 

864 

 

354 

 

Interest expense

 

(367)

 

(404)

 

(469)

 

Equity in earnings of National Beef Packing

 

 

 

 

 

 

 

 

Company, LLC

 

12,187 

 

22,779 

 

12,244 

 

Other, net

 

 

 

62 

 

123 

 

248 

 

 

Total other income

 

13,310 

 

23,362 

 

12,377 

 

 

 

Income before taxes

 

9,667 

 

19,755 

 

8,830 

Income tax expense

 

(22)

 

(36)

 

(191)

 

 

 

Net income

 

$

9,645 

 

$

19,719 

 

$

8,639 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Linked Unit:

 

 

 

 

 

 

 

Basic

 

 

 

 

$

13.11 

 

$

28.06 

 

$

12.49 

 

Diluted

 

 

 

 

$

12.91 

 

$

27.56 

 

$

12.25 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding weighted-average Class A and Class B units:

 

 

 

 

 

 

Basic

 

 

 

 

735,455 

 

702,843 

 

691,845 

 

Diluted

 

 

 

 

747,067 

 

715,385 

 

705,063 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

    63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

**Statements of Cash Flows of Parent Company**

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**52 weeks ended**

**August 25, 2007**

 

**52 weeks ended**

**August 26, 2006**

 

**52 weeks ended**

**August 27, 2005**

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

 

$

9,645 

 

$

19,719 

 

$

8,639 

 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

13 

 

17 

 

38 

 

 

 

Equity in earnings of National Beef Packing Company, LLC

 

(12,187)

 

(22,779)

 

(12,244)

 

 

 

Distribution from National Beef Packing Company, LLC

 

13,358 

 

10,701 

 

10,954 

 

 

 

Interest rate exchange agreement

 

- 

 

- 

 

(105)

 

 

 

Changes in assets and liabilities (net of acquisition):

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(3)

 

3 

 

15,554 

 

 

 

 

Due from affiliates

 

473 

 

(184)

 

(504)

 

 

 

 

Other receivables

 

- 

 

- 

 

1,225 

 

 

 

 

Other assets

 

(30)

 

(19)

 

(39)

 

 

 

 

Accounts payable

 

14 

 

7 

 

(197)

 

 

 

 

Due to affiliates

 

115 

 

(627)

 

(198)

 

 

 

 

Accrued compensation and benefits

 

(1,391)

 

558 

 

257 

 

 

 

 

Other accrued expenses and liabilities

 

(502)

 

77 

 

325 

 

 

 

 

Cattle purchases payable

 

- 

 

- 

 

(3,574)

 

 

 

 

 

Net cash provided by operating activities

 

9,505 

 

7,473 

 

20,131 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures, including interest capitalized

 

(43)

 

(2)

 

(8)

 

 

 

 

 

Net cash used in investing activities

 

(43)

 

(2)

 

(8)

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of notes payable and fees

 

(1,030)

 

(1,029)

 

(1,030)

 

Payments of patronage refunds/patronage notices

 

- 

 

- 

 

(957)

 

Change in overdraft balances

 

- 

 

- 

 

(11,983)

 

Partnership distributions

 

(1,755)

 

(1,250)

 

(1,210)

 

 

 

 

 

Net cash used in financing activities

Net increase in cash

 

(2,785)

6,677 

 

(2,279)

5,192 

 

(15,180)

4,943 

Cash and cash equivalents at beginning of period

 

25,748 

 

20,556 

 

15,613 

Cash and cash equivalents at end of period

 

$

32,425 

 

$

25,748 

 

$

20,556 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental cash disclosures:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

381 

 

$

402 

 

$

494 

 

Cash paid during the period for taxes, net of refunds

 

$

22 

 

$

36 

 

$

191 

Supplemental non-cash disclosures of investing activities:

 

 

 

 

 

 

 

Issuance of equity for acquisition of Brawley Beef

 

$

- 

 

$

7,631 

 

$

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

    64

 

 

**Schedule II – Allowance for Returns and Doubtful Accounts Rollforward**

The following table representsthe consolidated rollforward of the allowance for returns and doubtful accountsfor the fiscal years ended August 25, 2007, August 26, 2006, and August 27,2005.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Period Ending**

 

**Beginning**

**Balance**

 

**Provision**

 

**Charge Off**

 

**Other**

 

**Ending**

**Balance**

 

 

 

 

 

 

 

 

 

 

 

August 25, 2007

 

$

(2,411,676)

 

$

(8,688,782)

 

$

6,458,800 

 

$

- 

 

$

(4,641,658)

August 26, 2006

 

$

(3,902,549)

 

$

(1,615,548)

 

$

3,380,259 

 

$

(273,838)

(1)

$

(2,411,676)

August 27, 2005

 

$

(5,613,545)

 

$

(3,186,535)

 

$

4,897,531 

 

$

- 

 

$

(3,902,549)

 

 

 

 

 

 

 

 

 

 

 

(1) Represents the acquisition of Brawley Beef, LLC

 

 

 

 

 

 

 

 

 

 

 

 

    65

 

 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

Under date of November 14, 2007, we reported on theconsolidated balance sheets of U.S. Premium Beef, LLC and subsidiaries (theCompany) as of August 25, 2007 and August 26, 2006, and the relatedconsolidated statements of operations, comprehensive income, capital shares andequities, and cash flows for each of the fiscal years in the three-year periodended August 25, 2007, as contained in the Annual Report on Form 10-K for thefiscal year 2007. In connection with our audits of the aforementionedconsolidated financial statements, we also audited the related financialstatement schedules in the Form 10-K. These financial statement schedules arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, whenconsidered in relation to the basic consolidated financial statements taken asa whole, present fairly, in all material respects, the information set forththerein.

 

/s/ KPMG

Kansas City, MissouriNovember 14, 2007

 

 

    66

 

 

**SIGNATURES**

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

U.S. PremiumBeef, LLC

By: /s/ Steven D. Hunt

                                                                     

Name: Steven D.Hunt

*ChiefExecutive Officer*

*(PrincipalExecutive Officer)*

 

Date: November14, 2007

*** * * ***

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed by the followingpersons on behalf of the registrant and in the capacity and on the datesindicated.

**Signature**

**Title**

**Date**
 /s/ Steven D. Hunt
			Chief Executive Officer			(Principal Executive Officer)

November  			14, 2007Steven D. Hunt
  /s/ Scott J. Miller

		Chief Financial Officer		(Principal Financial and Accounting Officer)

November		14, 2007

Scott J. Miller

 /s/ Mark R. Gardiner
Chairman of the Board
November		14, 2007
Mark R. Gardiner/s/ John D. FairleighVice Chairman of the Board
November 14, 2007John D. Fairleigh/s/ Jerry L. BohnSecretary of the Board
November		14, 2007
Jerry L. Bohn /s/ Duane K. RamseyDirector
November		14, 2007
Duane K. Ramsey
 /s/ Douglas A. Laue
Director
November		14, 2007

Douglas A. Laue
/s/ Carol A. KeiserDirector
November 14, 2007Carol A. Keiser
/s/ Rex W. McCloy

		Director

November		14, 2007
Rex W. McCloy
 
 

    67

 

 

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

**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

 

 

**Page**

 

 

**Audited Consolidated Financial  Statements:**

 

** **

 

Report of Independent Registered Public Accounting  Firm

F-2

 

 

Consolidated Balance Sheets at August 25, 2007 and August  26, 2006

F-3

 

 

Consolidated Statements of Operations for the years  ended August 25, 2007, August 26, 2006, and August 27, 2005

F-4

 

 

Consolidated Statements of Comprehensive Income for  the years ended August 25, 2007, August 26, 2006, and August 27, 2005

F-5

 

 

Consolidated Statements of Capital Shares and Equities  for the years ended August 25, 2007, August 26, 2006, and August 27, 2005

F-6

 

 

Consolidated Statements of Cash Flows for the years  ended August 25, 2007, August 26, 2006, and August 27, 2005

F-7

 

 

Notes to Consolidated Financial Statements

F-8

 

 

 

 

 

 

 

F-1
 

 

 

 

 

 

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

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

We have audited the accompanying consolidated balance sheetsof U.S. Premium Beef, LLC and subsidiaries (the Company) as of August 25, 2007and August 26, 2006, and the related consolidated statements of operations,comprehensive income, capital shares and equities, and cash flows for each ofthe fiscal years in the three-year period ended August 25, 2007. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

We conducted our audits in accordance with standards of thePublic Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the consolidated financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall consolidated financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of U.S. Premium Beef, LLC and subsidiaries as of August 25, 2007 and August26, 2006, and the results of their operations and their cash flows for each ofthe fiscal years in the three-year period ended August 25, 2007, in conformity withU.S. generally accepted accounting principles.

 

/s/ KPMGKansas City, MissouriNovember 14, 2007

F-2

 

 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

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

**Consolidated Balance Sheets**

August 25, 2007 and August 26, 2006

(in thousands, except unit information)

**Assets**

 

**August 25, 2007**

 

**August 26, 2006**

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

62,869 

 

$

54,412 

 

Accounts receivable, less allowance for returns and doubtful

   accounts of $4,642 and $2,412, respectively

 

189,728 

 

173,233 

 

Due from affiliates

 

4,609 

 

3,391 

 

Other receivables

 

8,389 

 

5,943 

 

Inventories

 

 

177,244 

 

145,009 

 

Other current assets

 

14,144 

 

20,171 

 

 

Total current assets

 

456,983 

 

402,159 

Property, plant, and equipment, at cost

 

372,404 

 

331,500 

 

Less accumulated depreciation

 

(99,575)

 

(69,490)

 

 

Net property, plant, and equipment

 

272,829 

 

262,010 

Goodwill

 

80,042 

 

79,411 

Other intangible assets, net of accumulated amortization of $7,214 and $5,276,

respectively

 

28,659 

 

30,562 

Other assets

 

10,104 

 

10,616 

 

 

Total assets

 

$

848,617 

 

$

784,758 

**Liabilities and Capital Shares and Equities**

 

 

 

 

Current liabilities:

 

 

 

 

 

Current installments of long-term debt

 

$

4,421 

 

$

3,400 

 

Cattle purchases payable

 

62,995 

 

58,320 

 

Accounts payable - trade

 

60,257 

 

54,449 

 

Due to affiliates

 

977 

 

878 

 

Accrued compensation and benefits

 

18,785 

 

27,894 

 

Accrued insurance

 

14,550 

 

17,651 

 

Other accrued expenses and liabilities

 

11,757 

 

12,086 

 

Distributions payable

 

2,708 

 

4,880 

 

 

Total current liabilities

 

176,450 

 

179,558 

Long-term liabilities:

 

 

 

 

 

Long-term debt, excluding current installments

 

438,544 

 

380,496 

 

Other liabilities

 

2,559 

 

2,961 

 

 

Total long-term liabilities

 

441,103 

 

383,457 

 

 

Total liabilities

 

617,553 

 

563,015 

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

 

 

 

 

 

Steak Company, LLC

 

77,890 

 

72,956 

Capital shares and equities:

 

 

 

 

 

Members' capital, 735,385 and 735,505 Class A units and 735,385 and 735,505

 

 

 

 

 

 

Class B units authorized, issued and outstanding, respectively

 

102,472 

 

98,092 

 

Patronage notices

 

50,642 

 

50,642 

 

Accumulated other comprehensive income

 

60 

 

53 

 

 

Total capital shares and equities

 

153,174 

 

148,787 

Commitments and contingencies

 

- 

 

- 

 

 

Total liabilities and capital shares and equities

 

$

848,617 

 

$

784,758 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

F-3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

**Consolidated Statements of Operations**

(in thousands, except per unit data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**52 weeks ended**

**August 25, 2007**

 

**52 weeks ended**

**August 26, 2006**

 

**52 weeks ended**

**August 27, 2005**

Net sales

 

$

5,578,533 

 

$

4,636,030 

 

$

4,338,920 

Costs and expenses:

 

 

 

 

 

 

 

Cost of sales

 

5,443,964 

 

4,503,814 

 

4,229,903 

 

Selling, general, and administrative expenses

 

46,103 

 

37,624 

 

33,975 

 

Depreciation and amortization

 

32,451 

 

28,667 

 

24,487 

 

 

Total costs and expenses

 

5,522,518 

 

4,570,105 

 

4,288,365 

 

 

 

Operating income

 

56,015 

 

65,925 

 

50,555 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

2,097 

 

1,267 

 

734 

 

Interest expense

 

(39,793)

 

(32,413)

 

(29,021)

 

Minority owners' interest in net income of

      National Beef Packing Company, LLC

      (net of tax expense of $789 in 2007, $660 in

       2006 and $830 in 2005)

 

(7,817)

 

(16,632)

 

(8,535)

 

Minority owners' interest in net income of

 

 

 

 

 

 

 

 

Kansas City Steak Company, LLC

 

(313)

 

(160)

 

(160)

 

Equity in loss of aLF Ventures, LLC

 

(102)

 

(143)

 

(577)

 

Interest rate exchange agreement

 

- 

 

- 

 

105 

 

Other, net

 

1,498 

 

3,447 

 

(2,412)

 

 

Total other expense

 

(44,430)

 

(44,634)

 

(39,866)

 

 

 

Income before taxes

 

11,585 

 

21,291 

 

10,689 

Income tax expense

 

(1,940)

 

(1,572)

 

(2,050)

 

 

 

Net income

 

$

9,645 

 

$

19,719 

 

$

8,639 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Linked Unit:

 

 

 

 

 

 

 

Basic

 

$

13.11 

 

$

28.06 

 

$

12.49 

 

Diluted

 

$

12.91 

 

$

27.56 

 

$

12.25 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding weighted-average Class A and Class B units:

 

 

 

 

 

 

Basic

 

735,455 

 

702,843 

 

691,845 

 

Diluted

 

747,067 

 

715,385 

 

705,063 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

F-4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

**Consolidated Statements of Comprehensive Income**

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**52 weeks ended**

**August 25, 2007**

 

**52 weeks ended**

**August 26, 2006**

 

**52 weeks ended**

**August 27, 2005**

Net income

 

$

9,645 

 

$

19,719 

 

$

8,639 

Other comprehensive income:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

7 

 

18 

 

22 

 

 

Comprehensive income

 

$

9,652 

 

$

19,737 

 

$

8,661 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-5

 

 

 

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

 

**Consolidated Statements of Capital Shares and Equities**

(in thousands)

 

 

 

			 

 

			 

 
			 
 
			 
 
			 
 
			 
 
			 			 			 
 

 

 

**Members'			Capital**

 

**Common			stock**

 

**Cooperative**

**members'**

**contributed**

**capital**

 

**Nondelivery**

**fee**

 

**Patronage**

**refunds for**

**reinvestment**

 

**Patronage**

**notices**

 

**Unallocated**

**equity**

 

**Accumulated**

**other**

**comprehensive**

**income**

 

**Total capital**

**shares and**

**equities**

Balance at August 28, 2004

$

- 

 

$

7 

 

$

39,531 

 

$

1,330 

 

$

50,752 

 

$

- 

 

$

26,375 

 

$

13 

 

$

118,008 

Foreign currency translation adjustment

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

22 

 

22 

Nondelivery fee transferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to current liabilities

- 

 

- 

 

- 

 

(1,330)

 

- 

 

- 

 

- 

 

- 

 

(1,330)

Conversion from cooperative to LLC

65,913 

 

(7)

 

(39,531)

 

- 

 

(50,642)

 

50,642 

 

(26,375)

 

- 

 

- 

Allocation of net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ended August 27, 2005

8,639 

 

- 

 

- 

 

- 

 

- 

 

- 

 

 

 

- 

 

8,639 

Partner distributions

(1,209)

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(1,209)

Patronage refunds payable in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

transferred to current liabilities

- 

 

- 

 

- 

 

- 

 

(110)

 

- 

 

- 

 

- 

 

(110)

Balance at August 27, 2005

$

73,343 

 

$

- 

 

$

- 

 

$

- 

 

$

- 

 

$

50,642 

 

$

- 

 

$

35 

 

$

124,020 

Foreign currency translation adjustment

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

18 

 

18 

Equity Issued in Brawley acquisition

7,631 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

7,631 

Allocation of net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ended August 26, 2006

19,719 

 

- 

 

- 

 

- 

 

- 

 

- 

 

 

 

- 

 

19,719 

Adjustment to fair value of minority

interest

(1,351)

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(1,351)

Partner distributions

(1,197)

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(1,197)

Redemption of Members' Capital

(53)

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(53)

Balance at August 26, 2006

$

98,092 

 

$

- 

 

$

- 

 

$

- 

 

$

- 

 

$

50,642 

 

$

- 

 

$

53 

 

$

148,787 

Foreign currency translation adjustment

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

7 

 

7 

Allocation of net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ended August 25, 2007

9,645 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

9,645 

Adjustment to fair value of minority

interest

(3,510)

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(3,510)

Partner distributions

(1,743)

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(1,743)

Redemption of Members' Capital

(12)

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

- 

 

(12)

Balance at August 25, 2007

$

102,472 

 

$

- 

 

$

- 

 

$

- 

 

$

- 

 

$

50,642 

 

$

- 

 

$

60 

 

$

153,174 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-6

 

**U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES****Consolidated Statements of Cash Flows**(in thousands)
  
**52 weeks	ended**  
**52 weeks	ended**  
**52 weeks	ended**  
**August	25, 2007**     
**August	26, 2006**     
**August	27, 2005**Cash flows from operating activities:           Net income$9,645 $19,719 $8,639   Adjustments to reconcile net income to net	cash (used in) provided              by operating activities:                 Depreciation and amortization 32,451  28,667  24,487         (Gain) loss on disposal of property,	plant, and equipment (369)  (64)  703         Minority interest 7,992  16,656  8,656         Write-off of debt issuance costs 702  527  2,552         Interest rate exchange agreement -  -  (105)         Changes in assets and liabilities (net	of acquisitions):                    Accounts receivable (16,495)  25,652  6,760            Due from affiliates (1,218)  (412)  (106)            Other receivables (2,446)  1,007  1,128            Inventories (32,235)  (53,271)  536            Other assets 6,065  (2,863)  579            Cattle purchases payable 41  3,870  (459)            Accounts payable 661  891  2,527            Due to affiliates 99  (655)  (215)            Accrued compensation and benefits (9,109)  4,662  1,340            Accrued insurance (3,101)  (317)  1,625            Other accrued expenses and	liabilities (731)  387  1,200               Net cash (used in) provided by	operating activities (8,048)  44,456  59,847Cash flows from investing activities:           Capital expenditures, including interest	capitalized (41,765)  (34,494)  (18,208)   Acquisition of businesses, net of cash	acquired (500)  648  -   Proceeds from sale of property, plant, and	equipment 802  939  1,528   Change in restricted cash for purchases of	capital assets -  -  4,610               Net cash used in investing	activities (41,463)  (32,907)  (12,070)Cash flows from financing activities:           Net receipts (payments) under revolving	credit lines 19,505  3,863  (27,059)   Repayment of Brawley Beef, LLC debt -  (52,850)  -   Borrowings under term note payable 40,000  50,000  3,594   Repayments of other indebtedness/capital	leases (2,496)  (1,067)  (428)   Proceeds from sale leaseback 10,474  -  -   Payments of notes payable and fees (8,414)  (1,029)  (3,374)   Payments of patronage refunds/patronage	notices -  -  (957)   Cash paid for financing costs (395)  (126)  (1,653)   Change in overdraft balances 9,781  1,763  5,818   Distributions to minority interest owners in	National Beef         Packing Company, LLC (8,739)  (7,007)  (7,224)   Partnership distributions and redemptions (1,755)  (1,250)  (1,210)               Net cash provided by (used in)	financing activities 57,961  (7,703)  (32,493)Effect of exchange rate changes on cash 7  18  22               Net increase in cash 8,457  3,864  15,306Cash and cash equivalents at beginning of	period 54,412  50,548  35,242Cash and cash equivalents at end of period$62,869 $54,412 $50,548Supplemental cash disclosures:           Cash paid during the period for interest$40,293 $29,559 $25,687   Cash paid during the period for taxes, net	of refunds$758 $176 $2,545Supplemental noncash disclosures of investing	and financing activities:           Assets acquired through capital lease$49 $8,697 $-   Issuance of equity for the acquisition of	Brawley Beef, LLC$- $7,631 $- 
See accompanying notes to consolidated		financial statements.        
** **

** **

F-7

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

**(1)       Description of Business**

U.S. Premium Beef (USPB) was formed as a closed marketing cooperative on July 1,1996, and was then known as U.S. Premium Beef, Ltd. Its mission is to increasethe quality of beef and long‐term profitability of cattle producers by creatinga fully integrated producer‐owned beef processing system that is a globalsupplier of high quality, value-added beef products responsive to consumerdesires.

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

On May 31, 2002, Farmland and four of its subsidiaries filed voluntary petitionsto reorganize under Chapter 11 of the United States Bankruptcy Code. FNB was nota party of these filings. Provisions of FNB’s Operating Agreement and itsfinancing agreement restricted partners’ access to FNB’s assets. In the fourthquarter of fiscal year 2003, USPB acquired a controlling interest in the formerFNB, now National Beef Packing Company, LLC (NBP).

On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved themerger 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 underDelaware law, converted into a Delaware limited liability company (see Note 11). Following the effective date of the merger and the statutory conversion, thebusiness of the cooperative continues in the limited liability company form ofbusiness organization.

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

NBP operates beef slaughter and fabrication facilities in Liberal and DodgeCity, Kansas and Brawley, California, case‐ready beef processing facilities inHummels Wharf, Pennsylvania and Moultrie, Georgia, and holds a 75% interest inKansas City Steak Company, LLC, a portion control processing facility in KansasCity, Kansas. NBP’s wholly-owned subsidiary, National Carriers, Inc., located inLiberal, Kansas, provides trucking services to NBP and third parties.

In connection with its initial acquisition of its interest in FNB, USPB owns theright and is subject to the obligation to deliver cattle annually to NBPrelative to: (i) USPB’s ownership in NBP and (ii) the number of cattle processedannually by NBP. This agreement remains in effect with NBP. The price receivedfor cattle is based upon pricing grids determined by USPB and NBP, which reflectcurrent market conditions. The Cattle Purchase Agreement is effective as long asUSPB is a partner in NBP. Cattle delivered by USPB, which approximated 17% ofNBP’s total cattle processed in fiscal year 2007, are processed in NBP’s threeprocessing facilities.

USPB acquires all its cattle requirements from its unitholders and associates. Unitholders enter into Uniform Cattle Delivery and Marketing Agreements and areobligated to deliver a designated number of cattle to USPB during specifieddelivery periods, as defined. The original agreements were for a term of tenyears; the renewal agreements carry a term of five years and have an evergreenrenewal provision.  Both agreements provide for minimum quality standards,delivery variances, and termination provisions, as defined.

Cattle acquired from unitholders pursuant to the Uniform Cattle Delivery andMarketing Agreements are delivered to NBP pursuant to the Cattle PurchaseAgreement.  Both agreements remain in effect under the new LLC structure.

 

F-8

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

USPB, NBPCo Holdings, LLC (NBPCoHoldings), 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 ofadditional Class A and Class C interests in NBP in lieu of cash payments owedunder existing employment arrangements as noted below.

Capital Structure of NBP

*Class A Interests*** –**Class A interests are non-voting and are entitled to a priority distribution of5% per year on the face amount of the Class A interests, payable not later than30 days after the close of NBP’s tax year quarters in cash to the extentpermitted by NBP’s senior lenders and the indenture governing the Senior Notes.The face amount of the Class A interests, together with all unpaid prioritydistributions, will be distributed on a priority basis upon liquidation.

*Class B Interests*** –**Class B interests, together with the Class C interests described below, areentitled to receive all assets available for distribution upon liquidation afterpayment of the Class A face amount together with all unpaid Class A prioritydistributions. Class B interests will also be allocated all items of income andloss earned or incurred by NBP after allocation of income attributable to theClass A priority distribution. In addition, the holders of Class B interests areentitled to receive quarterly distributions to make tax payments, which consistof 48% of NBP’s remaining taxable net income after the Class A prioritydistributions are made. Certain of the Class B interests (B‐2 interests) issuedto management of NBP are in the form of “profits interests” issued in exchangefor services previously rendered. The B‐2 interests have rights in liquidationonly 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 themembers) 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 asClass B‐1 interests. The face amount of the Class C interests will bedistributed out of the assets available for distribution upon liquidation on aparity basis with the Class B interests after payment of the Class A face amounttogether with all unpaid Class A priority distributions.

USPB holds approximately 54.8% of the Class B interests, as well as Class Ainterests with an aggregate face amount of approximately $94.7 million; NBPCoHoldings owns approximately 19.5% of the Class B interests, as well as Class Ainterests with an aggregate face amount of approximately $31.5 million; andmembers of management of NBP own approximately 25.7% of the Class B interests,as well as Class A interests with an aggregate face amount of approximately$1.5 million. After the earlier of the occurrence of a specified major liquiditytransaction, change of control or August 2008, certain members of management ofNBP will be issued a fixed number of additional Class A interests with anaggregate face amount of approximately $9.1 million and Class C interests withan aggregate face amount of approximately $0.9 million in lieu of cash paymentsowed under existing employment arrangements pursuant to deferred compensationagreements. These amounts were previously expensed as compensation expense.

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

 (2)      Basis of Presentation and Accounting Policies

Basis of Presentation and Consolidation

The consolidated financialstatements include the accounts of USPB and its majority owned subsidiary, NBP,and its direct and indirect subsidiaries. All significant intercompany accountsand transactions have been eliminated in consolidation. 

 

F-9

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Fiscal Year

The Company’s fiscal yearends on the last Saturday in August. Fiscal years 2007, 2006, and 2005 consistedof fifty‐two week fiscal years. All references to years in these notes toconsolidated financial statements represent fiscal years unless otherwise noted.

Use of Estimates

The consolidated financial statements have been prepared in conformity withaccounting principles generally accepted in the United States of America, usingmanagement’s best estimates and judgments where appropriate. These estimates andjudgments affect the reported amounts of assets and liabilities and disclosureof the contingent assets and liabilities at the date of the financialstatements. The estimates and judgments will also affect the reported amountsfor certain revenues and expenses during the reporting period. Actual resultscould differ materially from these estimates and judgments. 

Cash and Cash Equivalents

The Company considers allhighly liquid investments with an original maturity of three months or less whenpurchased to be cash equivalents. As of August 25, 2007, the Company had cashand cash equivalents of $62.9 million.  As of August 26, 2006, the Companyhad cash and cash equivalents of $54.4 million.  As detailed below under *Reclassifications*, the Company included certain restricted cash in Otherassets.  The Company also included $7.4 million of cash restricted tosupport a workers compensation letter of credit related to the Brawleyacquisition in Other current assets at August 26, 2006.

Allowance for Returns and Doubtful Accounts

The allowance for returnsand doubtful accounts is NBP’s best estimate of the amount of probable returnsand credit losses in NBP’s existing accounts receivable. NBP determines theseallowances based on historical experience, customer conditions and management’sjudgments. NBP considers factors such as changes in the economy and industry. Specific accounts are reviewed individually for collectibility. As of August 25,2007, the allowance for returns and doubtful accounts balance of $4.6 millionincluded a $1.9 million reserve, recorded during the fourth quarter of fiscalyear 2007, related to damaged goods for which settlement has not yet beenfinalized.

Inventories

Inventories consistprimarily of meat products and supplies. Product inventories are stated at thelower 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(amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**August 25,**

 

**August 26,**

 

 

 

 

 

 

 

 

**2007**

 

**2006**

Product inventories:

 

 

 

 

 

Dressed and boxed meat products

 

$

144,766 

 

$

117,712 

 

Beef by-products

 

19,540 

 

15,180 

Supplies

 

 

 

 

12,938 

 

12,117 

 

 

 

 

 

 

 

 

$

177,244 

 

$

145,009 

 

 

 

 

 

 

 

 

 

 

 

 

F-10

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Property, Plant, and Equipment

Property, plant, andequipment are recorded at cost. Property, plant, and equipment are depreciatedprincipally on a straight‐line basis over the estimated useful life (based uponoriginal acquisition date) of the individual asset by major asset class asfollows:

 
Buildings and improvements15 to 25 yearsMachinery and equipment2 to 8 yearsTrailers and automotive equipment2 to 4 yearsFurniture and fixtures3 to 5 years
 

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

The Company capitalizes thecost of interest on borrowed funds, which are used to finance the constructionof certain property, plant, and equipment. Such capitalized interest costs arecharged to the property, plant, and equipment accounts and are amortized throughdepreciation charges over the estimated useful lives of the assets. Interestcapitalized was $0.1 million, $0.1 million, and less than $0.1 million for thefiscal years ended August 25, 2007, August 26, 2006 and August 27, 2005,respectively.

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

A summary of cost andaccumulated depreciation for property, plant, and equipment as of August 25,2007 and August 26, 2006 follows (dollars in thousands):  

 

 

 

 

 

 

 

 

 

 

 

**August 25,**

 

**August 26,**

 

 

 

**2007**

 

**2006**

Land and improvements

 

$

16,889 

 

$

17,018 

Building and improvements

 

90,648 

 

85,522 

Machinery and equipment

 

222,223 

 

195,286 

Furniture and fixtures

 

4,812 

 

4,477 

Trailers and automotive equipment

 

1,428 

 

1,346 

Construction in process

 

36,404 

 

27,851 

 

Total property, plant, and equipment, at cost

 

372,404 

 

331,500 

Accumulated depreciation

 

(99,575)

 

(69,490)

 

Property, plant, and equipment, net

 

$

272,829 

 

$

262,010 

 

 

 

 

 

 

 

Debt Issuance Costs

Costs related to the issuance of debt are capitalized and amortized to interestexpense using the straight line method, which approximates the effectiveinterest method, over the period the debt is outstanding. Effective December 30,2004, NBP amended and restated its senior credit facility with a consortium ofbanks for the fourth time, additionally capitalizing $1.7 million in debtissuance costs.  This amendment and restatement is within the scope of theEmerging Issues Task Force (EITF) 96-19, *Debtor’s Accounting for aModification or Exchange of Debt Instruments* as well as EITF 98-14, *Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements*. In accordance with that guidance, a portion of the unamortized loan costs ofapproximately $2.6 million from the previous credit facility as well asadditional finance and legal charges associated with the new amended andrestated credit facility of approximately $0.6 million were expensed in other,net in the statement of operations during the fiscal year ended August 27, 2005. 

 

 

F-11

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Effective June 1, 2006, NBP amended and restated its fifth senior creditfacility with a consortium of banks, additionally capitalizing $1.6 million indebt issuance costs.  This amendment and restatement is also within thescope of EITF 96-19, *Debtor’s Accounting for a Modification or Exchange ofDebt Instruments* as well as EITF 98-14, *Debtor’s Accounting for Changesin Line-of-Credit or Revolving-Debt Arrangements*.  In accordance withthat guidance, a portion of the unamortized loan costs of approximately $0.5million from the fourth credit facility as well as additional finance and legalcharges associated with the new fifth amended and restated credit facility ofapproximately $0.1 million were expensed in other, net in the statement ofoperations during the fiscal year ended August 26, 2006.  On March 21,2007, NBP amended its credit facility to increase the available credit under thefacility by $50.0 million.  The term loan was increased by $40.0 millionand the line of credit was increased by $10.0 million.  Additional financeand legal charges associated with the restated credit facility of less than $0.1million were expensed in other, net in the statement of operations during thefiscal year ended August 25, 2007.

 

Effective July 25, 2007, NBP amended and restated its sixth senior creditfacility with a consortium of banks, additionally capitalizing $0.4 million indebt issuance costs.  This sixth amendment and restatement is within thescope of the Emerging Issues Task Force (EITF) 96-19, *Debtor’s Accounting fora Modification or Exchange of Debt Instruments* as well as EITF 98-14, *Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements*. In accordance with that guidance, a portion of the unamortized loan costs ofapproximately $0.7 million from the previous amended and restated creditfacility as well as additional finance and legal charges associated with the newamended and restated credit facility of less than $0.1 million were expensed inother, net in the statement of operations during the fiscal year ended August25, 2007.  The remaining costs are being amortized over the life of therelated debt instruments.  Amortization of $1.0 million, $1.1 million and$1.2 million was charged to interest expense during the fiscal years endedAugust 25, 2007, August 26, 2006 and August 27, 2005, respectively, related tothese costs.  The Company had unamortized costs of $5.6 million and $7.0million for the fiscal years ended August 25, 2007 and August 26, 2006,respectively.

 

Goodwill and Other Intangible Assets

Statement of Financial Accounting Standard No. 142 (SFAS 142),*Goodwill andOther Intangible Assets,* provides that goodwill and other intangible assetswith indefinite lives shall not be amortized but shall be tested for impairmenton an annual basis. Identifiable intangible assets with definite lives areamortized over their estimated useful lives.  NBP evaluates goodwill andother indefinite life intangible assets annually for impairment and, if there isimpairment, the carrying amount of goodwill and other intangible assets iswritten down to the implied fair value.  For goodwill, this test involvescomparing the fair value of each reporting unit to the unit’s book value todetermine if any impairment exists.  NBP calculates the fair value of eachreporting unit using estimates of future cash flows.  In connection withthe acquisition of Vintage Foods, L.P. during the fourth quarter of fiscal year2006 and subsequent adjustments, NBP recognized excess cost over the fair valueof the net tangible and identifiable intangible assets acquired, and recorded anexcess of $1.2 million as goodwill.  In accordance with SFAS 142, goodwillwas tested for impairment and, as of August 25, 2007, management determinedthere was no impairment.

The amounts of goodwill are as follows (amounts in thousands):

 

 

 

 

 

 

 

 

 

**August 25,**

 

**August 26,**

 

 

**2007**

 

**2006**

Beginning balance

$

79,411 

 

$

78,858 

 

Goodwill from acquisitions during the year

- 

 

553 

 

Adjustment of goodwill from prior year acquisition

631 

 

- 

Ending balance

$

80,042 

 

$

79,411 

 

 

 

 

 

 

F-12
 
 
 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

 

The amounts of other intangibles assets are as follows(amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**August 25, 2007**

 

**August 26, 2006**

 

 

**Weighted**

**Average**

**Amortization**

**Period**

 

**Gross**

**Carrying**

**Amount**

 

**Accumulated**

**Amortization**

 

**Gross**

**Carrying**

**Amount**

 

**Accumulated**

**Amortization**

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

Customer Relationships

8.3 years

 

$

15,435 

 

$

7,214 

 

$

15,400 

 

$

5,276 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets not subject to amortization:

 

 

 

 

 

 

 

 

 

Trademarks

indefinite

 

20,438 

 

- 

 

20,438 

 

- 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

 

$

35,873 

 

$

7,214 

 

$

35,838 

 

$

5,276 

Customer relationships, including contractual and noncontractual relationships,are being amortized using the straight-line method over their useful lives whichrange from four to 15 years.  Trademarks are not scheduled for amortizationdue to their expected indefinite useful life.  In accordance with SFAS 142,these trademarks were tested for impairment and, as of August 25, 2007,management determined there was no impairment.

For the fiscal years ended August 25, 2007, August 26, 2006, and August 27,2005, NBP recognized $1.9 million, $1.9 million, and $1.6 million, respectively,of amortization expense on intangible assets. The following table reflects theanticipated amortization expense relative to intangible assets recognized inNBP’s consolidated balance sheet as of August 25, 2007, for each of the next five years andthereafter: 

 

 

 

 

 

(amounts in thousands)

 

 

2008(1)

$

2,132 

2009

2,092 

2010

1,951 

2011

258 

2012

256 

Thereafter

$

1,532 

 

 

 

 

(1)	FYE 2008 consists of 53 weeks.

 

Overdraft Balances

The majority of the Company’s bank accounts are zero balance accounts where cashneeds are funded as checks are presented for payment by the holder. Checksissued pending clearance that result in overdraft balances for accountingpurposes are included in the trade accounts payable and cattle purchases payablebalances, and the change in the related balances is reflected in financingactivities on the statement of consolidated cash flows.  Overdraft balances of $73.7million and $63.9 million were included in trade accounts and cattle purchasespayables at August 25, 2007 and August 26, 2006, respectively. 

Self‐Insurance

NBP is self‐insured forcertain losses relating to worker’s compensation, automobile liability, generalliability, and employee medical and dental benefits. NBP has purchased stop‐losscoverage in order to limit its exposure to any significant levels of claims.Self‐insured losses are accrued based upon NBP’s estimates of the aggregateuninsured claims incurred using actuarial assumptions accepted in the insuranceindustry and NBP’s historical experience rates.

Environmental Expenditures and Remediation Liabilities

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

 

 

F-13

 
 

 

 

 

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Foreign Currency Translation

NBP has representativeoffices located in Tokyo, Japan, Seoul, South Korea and Beijing, China. Theprimary activity of these offices is to assist customers with product and orderrelated issues. For foreign operations, the local currency is the functionalcurrency. Translation into U.S. dollars is performed for assets and liabilitiesat the exchange rates as of the balance sheet date. Income and expense accountsare translated at average exchange rates for the period. Adjustments resultingfrom the translation are reflected as a separate component of othercomprehensive income.

Income Taxes

Subchapter T of the InternalRevenue Code sets forth rules for the tax treatment of cooperatives and appliesboth to cooperatives exempt from tax under Section 521 of the Internal RevenueCode and to nonexempt cooperatives. Prior to August 29, 2004, the Companyoperated as an exempt cooperative. As an exempt cooperative, it was not taxedon amounts of patronage and nonpatronage source income withheld from itspatrons in the form of qualified per-unit retains or on amounts distributed toits patrons in the form of Qualified Written Notices of Allocation. Suchamounts were instead taxed directly to the patrons. If the Company had not beenan exempt cooperative prior to August 29, 2004 and was also not entitled to betaxed under Subchapter T, its income would have been taxed to the Companysimilar to a corporation and the patrons would have been taxed when and ifdividends are distributed. The characterization of income as patronage ornon-patronage source income is subject to challenge by the Internal RevenueService. Under Subchapter T, non-patronage source income, if deemed more thanincidental, is subject to tax at the entity level instead of passed through tothe patrons in the form of a patronage dividend.  Notwithstanding theacquisition of a controlling interest in NBP on August 6, 2003, managementcontinues to believe that it was an exempt cooperative under Section 521 of theInternal Revenue Code prior to August 29, 2004.  In addition, even if theCompany was not an exempt cooperative prior to August 29, 2004, managementcontinues to believe that its non-patronage source income, if any, wasincidental and would vigorously defend any such challenge by the InternalRevenue Service. However, USPB recognized tax expense in its fiscal year 2004consolidated financial statements on a portion of its earnings for periods fromAugust 6, 2003 to August 29, 2004 (date of conversion to an LLC) to provide forsuch potential recharacterization of income from patronage-source tonon-patronage source, which may be asserted by the Internal Revenue Service.

Effective August 29, 2004, the Company converted to an LLC, and under thisstructure, taxes are not provided at the Company level because the results ofoperations are included in the taxable income of the individual members.

The provision for income taxes for NBP is computed on a separate legalentity basis. Accordingly, NBP does not provide for income taxes as the resultsof 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 differencebetween the final statement and tax bases of assets and liabilities at eachbalance sheet date using enacted tax rates expected to be in effect in the yearthe differences are expected to reverse, and thus included in the consolidatedfinancial statements of NBP. 

Fair Value of Financial Instruments

The carrying amounts of theCompany’s financial instruments, including cash and cash equivalents, short‐termtrade receivables and payables, approximate their fair values due to theshort‐term nature of the instruments. At August 25, 2007, the Senior Notes had acarrying value of $160.0 million and a fair value of $164.4 million, based on acalculation using a weekly High Yield Market report prepared by Deutsche Bank.The carrying value of other debt also approximates its fair value at August 25,2007, as substantially all such debt has a variable interest rate.

 

F-14

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

Revenue Recognition

NBP recognizes revenue fromthe sale of products upon delivery to customers.  National Carriers, Inc.recognizes revenue when shipments are complete.

Selling, General, and Administrative

Selling expenses consistprimarily of salaries, unit option expense, trade promotions, advertising,commissions and other marketing costs. General and administrative costs consistprimarily of general management, insurance and professional expenses. Selling, general, and administrative costs consist of aggregated expenses forUSPB and NBP.

Shipping Costs

Pass‐through finished goodsdelivery costs reimbursed by customers are reported in sales, while anoffsetting expense is included in cost of sales.

Advertising and Promotion Expenses 

Advertising and promotionexpenses are charged to operations in the period incurred and were $3.3 millionin fiscal year 2007, $3.0 million in fiscal year 2006, and $2.5 million infiscal year 2005.

Comprehensive Income

Comprehensive incomeconsists of net income, foreign currency translation adjustments, and unrealizedgains or losses on interest rate exchange agreements accounted for as cash flowhedges. NBP deems its foreign investments to be permanent in nature and does notprovide for taxes on currency translation adjustments arising from convertingthe investment in a foreign currency to U.S. dollars.

Derivatives and Hedging Activities

NBP uses futures contracts in order to reduce exposure associated with enteringinto firm commitments to purchase live cattle at prices determined prior to thedelivery of the cattle as well as firm commitments to sell certain beef productsat sales prices determined prior to shipment. In accordance with SFAS 133, *Accounting for Derivative Instruments and Hedging Activities*, as amended,NBP accounts for futures contracts and their related firm purchase commitmentsat fair value. Certain firm commitments for live cattle purchases and all firmcommitments for boxed beef sales are treated as “normal purchases and sales” andnot marked to market.  SFAS No. 133 imposes extensive recordkeepingrequirements in order to treat a derivative financial instrument as a hedge foraccounting purposes. Derivatives qualify for treatment as hedges when there is ahigh correlation between the change in fair value of the instrument and therelated change in fair value of the underlying commitment. For derivatives thatqualify as effective hedges, the change in fair value has no net effect onearnings until the hedged transaction affects earnings. For derivatives that arenot designated as hedging instruments, or for the ineffective portion of ahedging instrument, the change in fair value does affect current period netearnings. 

While management believes each of these instruments help mitigate various marketrisks, they are not designated and accounted for as hedges under SFAS 133 as aresult of the extensive recordkeeping requirements of this statement.Accordingly, the gains and losses associated with the change in fair value ofthe instrument and the offsetting gains and losses associated with changes inthe market value of certain of the firm purchase commitments related to thefutures contracts are recorded to income and expense in the period of change. 

 The fair value of derivative assets is recognized within other currentassets, while the fair value of derivative liabilities is recognized withinaccrued liabilities. The net fair value of derivatives recognized within othercurrent assets and other accrued liabilities at August 25, 2007 and August 26,2006 is not significant.

 

 

F-15

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

***Reclassifications***

 

Certain prior year amounts have been reclassified to conform to fiscal year 2007presentations.  Included in Other Assets at August 25, 2007, August 26, 2006,August 27, 2005, and August 28, 2004 was $4.2 million, 4.0 million, $3.9million, and $8.3 million, respectively, of cash restricted to IndustrialRevenue Bond (IRB) approved expenditures.  The cash restricted to the IRBexpenditures was previously classified as cash and cash equivalents and has beenreclassified to other assets on the consolidated balance sheets and on theconsolidated statements of cash flows.  There was no impact on net income; however,net cash provided by operating activities decreased by $0.1 million for bothfiscal years 2006 and 2005, and net cash used in investing activities decreasedby $4.6 million for fiscal year 2005, on the consolidated statements of cashflows as a result of the reclassifications.  

 

Earnings Per Unit

Prior to the conversion from a cooperative to an LLC, per share data hadbeen omitted because, under the cooperative structure, earnings of the Companywere distributed as patronage dividends to members and associate members, thosewho leased delivery rights from shareholders, based on the level of businessconducted with the Company as opposed to a common shareholder’s proportionateshare of underlying equity in the Company.  Under the LLC structure,earnings of the Company are to be distributed to unitholders based on theirproportionate share of underlying equity, and, as a result, earnings per unit (EPU)has been presented in the accompanying Consolidated Statement of Operations andin the table that follows.

Basic EPU excludes dilution and is computed by dividing income available tounitholders by the weighted-average number of linked Class A and Class B unitsoutstanding for the period.  Class A units and Class B units shall beissued, redeemed, and transferred together on a one for one basis until theboard of directors determines the extent and conditions under which Class Aunits and Class B units may be issued, redeemed, and transferred separately.

Diluted EPU reflects the potential dilution that could occur if potentialunit purchase rights were exercised or contractual appreciation rights wereconverted into units.   Upon termination of the CEO employmentagreement, at the election of the CEO, or upon mutual agreement of the Board ofthe Company and the CEO, the CEO may purchase up to 20,000 Class A and Class Bunits, or upon agreement of the CEO and the Board of the Company, the CEO mayconvert the contractual unit appreciation rights to up to 20,000 Class A andClass B units.  The diluted EPU reflects the circumstances of terminationof the CEO employment agreement, and the election of CEO or agreement by theBoard of the Company and the CEO for the CEO to purchase or convert contractualrights to the maximum 20,000 units at $55 per unit for the periods as providedin the CEO employment agreement.  

 

F-16

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

 

 

 

 

 

   

 

 

 

**Earnings Per Linked Unit Calculation**

 

 

 

 

 

 

 

 

 

 

 

 

 

	(In thousands, except unit and per unit data)

 

	52 weeks ended

 

 

	August 25, 2007

 

	August 26, 2006

 

	August 27, 2005

	Basic earnings per unit:

 

 

 

 

 

 

	  	Income available to unitholders (numerator)

 

	$

	9,645 

 

	$

	19,719 

 

	$

	8,639 

 

 

 

 

 

 

 

	  	Weighted average outstanding units (denominator)

 

	735,455 

 

	702,843 

 

	691,845 

 

 

 

 

 

 

 

	     	Per unit amount

 

	$

	13.11 

 

	$

	28.06 

 

	$

	12.49 

 

 

 

 

 

 

 

	Diluted earnings per unit:

 

 

 

 

 

 

	  	Income available to unitholders (numerator)

 

	$

	9,645 

 

	$

	19,719 

 

	$

	8,639 

 

 

 

 

 

 

 

	  	Weighted average outstanding units

 

	735,455 

 

	702,843 

 

	691,845 

	  	Effect of dilutive securities - unit options

 

	11,612 

 

	12,542 

 

	13,218 

	     	Units (denominator)

 

	747,067 

 

	715,385 

 

	705,063 

 

 

 

 

 

 

 

	Per unit amount

 

	$

	12.91 

 

	$

	27.56 

 

	$

	12.25 

 

 

 

 

 

 

 

 

 

(3)       New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASBInterpretation No. 48 (FIN 48), *Accounting for Uncertainty in Income Taxes*,to address uncertainty in income taxes recognized in an enterprise’s financialstatements.  Specifically, FIN 48 prescribes (a) a consistent recognitionthreshold and (b) a measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken in atax return, and provides related guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition.  FIN 48 will apply to fiscal years beginning after December 15,2006.  The Company will adopt FIN 48 in the first quarter of fiscal year2008.  We have evaluated the impact it will have on our consolidatedfinancial statements and expect that it will not be material.  As a resultof the adoption, tax reserves in the amount of approximately $0.5 million areexpected to be reversed ((for further information, see Note 9*Income Taxes*to our consolidated financial statements included in Item 8 of this report).

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108(SAB 108), *Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements.* Traditionally there have been two widely recognized methods for quantifying theeffects of financial statement misstatements:  the “roll-over” method andthe “iron-curtain” method.  The roll-over method focuses primarily on theimpact of a misstatement on the income statement, including the reversing effectof prior year misstatements.  The iron-curtain method focuses primarily onthe effect of correcting the period-end balance sheet with less emphasis on thereversing effects of prior year errors on the income statement.  In SAB108, the SEC staff established an approach that is commonly referred to as a“dual approach” as the SEC now requires quantification of errors under both theiron-curtain and the roll-over methods.  SAB 108 was adopted by the Companyduring the first quarter of fiscal year 2007.  The adoption of SAB 108 didnot have any effect on the Company’s financial position, net earnings or prioryear financial statements.

In September 2006, the FASB issued Statement of Financial AccountingStandard No. 157 (SFAS 157), *Fair Value Measurement*s.  Thisstatement establishes a single authoritative definition of fair value, sets outa framework for measuring fair value, and requires additional disclosures aboutfair value measurements.  SFAS 157 defines fair value as “the price thatwould be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date.”  SFAS 157will apply to fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years.  The Company is currently evaluating theimpact SFAS 157 may have, if any, on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standard No.159 (SFAS 159), *The Fair Value Option for Financial Assets and FinancialLiabilities*.  This statement provides companies with an option toreport selected financial assets and liabilities at fair value.  SFAS 159will apply to fiscal years beginning after November 15, 2007.  The Companyis currently evaluating the impact SFAS 159 may have, if any, on itsConsolidated Financial Statements.

 

F-17

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

** (4)      Acquisitions**

On May 19, 2006, USPB’s majority owned subsidiary, NBP, entered into aContribution Agreement (Agreement) with Brawley Beef, LLC (Brawley Beef) andNational Beef California, LP (NBC). NBC is a newly formed limited partnership,formed for the purpose of acquiring substantially all of the assets of BrawleyBeef, with National Carriers, a wholly-owned subsidiary of NBP, acting as itsgeneral partner. Brawley Beef was an alliance of cattle producers in Arizona andCalifornia who supplied the beef processing facility in Brawley, California. Thefacility commenced operations in December 2001.

Pursuant to the terms of the Agreement, Brawley Beef contributed substantiallyall of its assets to NBC in exchange for limited partnership units of NBC, andNBC assumed approximately $74.7 million of Brawley Beef’s debt and currentliabilities. Brawley Beef then exchanged all of its NBC units with USPB for44,160 new Class A and 44,160 new Class B units at an aggregate fair value ofapproximately $7.6 million. Under a separate unit exchange agreement betweenUSPB and NBP, USPB then exchanged these units of NBC with NBP for 5,899,297Class A nonvoting units, at a price per unit of $1.00, and 664,475 Class B-1voting units, at an approximate price per unit of $2.61, or an aggregate valueof approximately $7.6 million. As a result, USPB’s ownership interest in theCompany’s Class B voting units increased to 54.76%.  The acquisition wasaccounted for using the purchase method.

 

Adjustments reducing the purchase price by $1.3 million were made during thefirst quarter of fiscal year 2007 based on changes in the working capital anddebt of Brawley Beef determined as of the closing date. The effective date forthis acquisition was May 30, 2006.

 

Concurrently with the transfer of assets, Brawley Beef entered into long-termcattle supply agreements with both NBC and USPB under which Brawley Beefcommitted to supply approximately 275,000 head of cattle to NBC’s Brawleyfacility, annually.

 

Under the terms of the Agreement, Brawley Beef makes customary covenants,representations and warranties and agreed to indemnify NBC, NBP and USPB forbreaches of these representations and warranties. Brawley Beef can satisfy theseindemnification obligations over a three-year period with a combination of cash,deductions from payments under certain cattle contracts or surrender of itsClass A and Class B USPB units at $165 per unit. In addition, Brawley Beefpledged its USPB units to NBC to secure its obligations under the Agreement.Brawley Beef’s obligations under the Agreement and cattle supply agreements arealso supported by limited guaranties from its members.  In connection withacquisition of Brawley Beef, LLC, during fiscal year 2006, intangible assetsassociated with customer relationships were identified and valued by anindependent third party at approximately $2.4 million at acquisition and will be amortized on astraight-line basis over 15 years.  

NBP acquired Vintage Foods, L.P., including the VintageTM Natural Beef brand,during fiscal year 2006 for $1.5 million.  The Vintage brand is marketed asnatural beef that is antibiotic- and hormone-free from cattle that are 20 monthsof age and younger.  In connection with this acquisition, NBP recognizedexcess cost over the fair value of the net tangible and identifiable intangibleassets acquired, and recorded this excess of $0.6 million as goodwill and $0.1million of intangible assets. Also in connection with the Vintage acquisition, if certain future net salesmargin target levels are achieved, potential additional consideration will bepayable, up to the maximum amounts of $0.5 million, $0.6 million and $0.6million, respectively, for the fiscal years 2007, 2008 and 2009.  Duringthe fourth quarter of fiscal year 2007, $0.5 million was paid based on the netsales margin target level being achieved and the transaction was recorded asadditional goodwill.

 

 

F-18

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 In connection with acquisitions of Vintage Foods, L.P. and Rains Agency, atransportation company acquired for $0.6 million by National Carriers, Inc.during fiscal year 2006, intangible assets were identified from each acquisitionand separately valued by an independent third party.  As a result of thesevaluations, intangible assets of approximately $1.7 million associated withcustomer relationships were recorded and are being amortized on a straight-linebasis over a range of four to 12 years.  Also in connection with the Rainsacquisition, if certain future contingent objectives are achieved, potentialadditional consideration will be payable in amounts of approximately $0.1million for the fiscal year 2008.  During fiscal year 2007, $0.3 millionwas paid based on the achievement of certain objectives and was recorded as anintangible asset.

The following table summarizes the fair values of the assets acquired andliabilities assumed at the date of the Brawley acquisition after allocatingnegative goodwill of approximately $36.6 million to property, plant andequipment and intangible assets.   The net assets acquired include anadditional approximate $0.9 million incurred by NBP associated with costs fromthird parties attributable to the acquisition.

 

 

 

 

 

 

 

 

 

**(in millions)**

	Current assets

	$

	46.3 

	Property, plant, and equipment

	34.5 

	Intangibles

	2.4 

 

	Total assets acquired

	83.2 

 

 

 

 

	Current liabilities, including current maturities

	(13.4)

	Long-term debt

	(61.3)

 

	Total liabilities assumed

	(74.7)

 

 

 

 

 

	Net assets acquired

	$

	8.5 

 

 

 

 

 

 Had the acquisition of Brawley Beef occurred at the beginning of fiscalyear 2005, unaudited pro forma revenue and earnings would have been $5.0 billionand $9.9 million, respectively, for fiscal year 2006 and $4.8 billion and $1.1million, respectively, for fiscal year 2005.

 

(5)       Long‐Term Debt and Loan Agreements

The Company entered into various debtagreements to finance the Acquisition described in Note 1 and to provideliquidity to operate the business on a going forward basis.  As of August25, 2007 and August 26, 2006, debt consisted of the following (dollars inthousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**August 25,**

 

**August 26,**

 

 

 

 

 

**2007**

 

**2006**

	Short-term debt:

 

 

 

 

 

	Current portion of long-term debt (term loan) (a)

 

	$

	1,030 

 

	$

	1,030 

 

	Current portion of long-term debt (term loan) (b)

 

	- 

 

	- 

 

	Current portion of capital lease obligations (e)

 

	3,391 

 

	2,370 

 

 

 

 

 

	$

	4,421 

 

	$

	3,400 

	Long-term debt:

 

 

 

 

 

	Term loan facility, net of current portion (a)

 

	$

	3,089 

 

	$

	4,119 

 

	Term loan facility, net of current portion (b)

 

	202,616 

 

	170,000 

 

	Senior Notes (c)

 

	160,000 

 

	160,000 

 

	Industrial Development Revenue Bonds (d)

 

	20,665 

 

	20,665 

 

	Revolving credit facility (b)

 

	38,368 

 

	18,864 

 

	Long-term capital lease obligations and other (e)

 

	13,806 

 

	6,848 

 

 

 

 

 

	$

	438,544 

 

	$

	380,496 

 

 

	Total debt

 

	$

	442,965 

 

	$

	383,896 

 

 

 

 

 

 

 

 

 

 **           (a)   *CoBank Term Debt***

Effective June 1, 2006, and related to the purchase of the assets of BrawleyBeef, USPB amended the CoBank term debt agreement to facilitate USPB’sacquisition of additional membership units in NBP.  USPB contributedpartnership units in NBC, which were acquired from Brawley Beef, LLC, to NBP inexchange for an additional (i) 5,899,297 Class A units and (ii) 664,475 ClassB-1 units in NBP.  The amendment also modifies the term “Collateral” to notinclude the partnership units in NBP and exempts USPB from being required togrant CoBank a security interest in the NBC partnership units.  Theamendment also permits USPB to have up to a one-hundred percent (100%) interestin NBP and to acquire the NBC partnership units and additional units in NBP.

F-19

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

Effective July 19, 2006, USPB amended the CoBank term debt agreement to causedistributions that are made in excess of the amount allowed (ExcessDistribution) to be deducted from the amount which could otherwise bedistributed to its members for the subsequent periods until the ExcessDistribution has been fully deducted.

The debt agreement with CoBank contains certain covenants which require, amongother things: reporting requirements, a minimum working capital reserve, aminimum debt service coverage ratio, a minimum net worth, restrictions ontransactions with related parties and restrictions on dividend payments. TheCompany was in compliance with all CoBank debt covenants as of August 25, 2007.The debt is secured by USPB’s interest in NBP.

The Company’s rate margin,which is adjusted annually, is determined pursuant to a table based on the NBPleverage ratio, as of the end of each fiscal year of NBP. Based on the table,the rate margin was 2.50% at August 25, 2007, August 26, 2006 and August 27,2005. CoBank term debt is payable in equal quarterly installments with finalpayment due in July 2011, bearing interest at the LIBOR index plus a rate marginbased on an NBP leverage ratio, adjusted quarterly (7.86% at August 25, 2007,8.01% at August 26, 2006, and 6.01% at August 27, 2005).

**           (b)   *Senior Credit Facilities***

 Effective July 25, 2007, the Company amended and restated its existingsenior credit facility with a consortium of banks.  The facility nowconsists of a $202.6 million term loan that matures in May 2016 and a $200.0million revolving line of credit loan that matures in July 2012 that is subjectto certain borrowing base limitations.  A non-use fee is payable quarterlyon the daily average unused amount of the revolving credit facility.   

 

Borrowings under the facility bear interest at LIBOR or the Base Rate, plus theapplicable margin.  The applicable margin for the revolving line of creditwill be based on borrowing base availability with grids greater than $150.0million, $50.0 to $150.0 million and less than $50.0 million as depicted in thetable below:

 

 

 

 

 

 

 

 

 

**Borrowing Base**

**Availability**

**Level**

 

**Average Amount of**

**Borrowing Base**

**Availability**

 

**LIBOR Rate**

**Line of Credit**

**Loan**

 

**LC Fees**

 

**Non-Use Fee**

 

 

 

 

 

 

 

 

 

	Level 1

 

	Greater than or equal to

	$150.0 million

 

	1.25% 

 

	1.25% 

 

	0.375% 

 

 

 

 

 

 

 

 

 

	Level 2

 

	Less than $150.0 million,

	but greater than or equal

	to $50.0 million

 

	1.50% 

 

	1.50% 

 

	0.250% 

 

 

 

 

 

 

 

 

 

	Level 3

 

	Less than $50.0 million

 

	1.75% 

 

	1.75% 

 

	0.250% 

 

 

 

 

 

 

 

 

 

 

As of August 25, 2007 and August 26, 2006, the interest rate for the revolvingloan was equal to 6.95% and 8.75%, respectively. 

The applicable margin for the Company’s term loan was also revised to a gridbasis with different margins for Funded Debt to EBITDA Ratios greater than 3.50to 1.00 and less than 3.50 to 1.00 as depicted in the table below:  

 

F-20

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

**Financial**

**Performance**

**Level**

 

**Funded Debt to EBITDA**

**Ratio**

 

**Base Rate**

**Advance on**

**Term Loan**

 

**LIBOR Rate**

**Term Loan**

 

 

 

 

 

 

 

	Level 1

 

	Greater than or equal to

	3.50 to 1.00

 

	0.25% 

 

	2.00% 

 

 

 

 

 

 

 

	Level 2

 

	Less than 3.50 to 1.00

 

	0.00% 

 

	1.75% 

 

 

 

 

 

 

 

 

As of August 25, 2007 and August 26, 2006, the interest rate for the term loanwas equal to 7.32% and 8.0625%, respectively.

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-ownedsubsidiaries’ assets. The borrowing base consists of percentages of NBP’seligible accounts receivable, inventory and supplies less certain eligibilityand availability reserves. NBP is required to report the borrowing base on amonthly basis and, as a result, the availability under the senior creditfacilities is subject to change. At August 25, 2007, NBP’s amended and restatedcredit facility consisted of a $202.6 million term loan, all of which wasoutstanding, and a $200.0 million revolving line of credit loan, which hadoutstanding borrowings of $38.4 million, outstanding letters of credit of $52.4million and available borrowings of $109.2 million based on the most restrictivefinancial covenant calculations.

The revolving line of credit and the term loan will have no financial covenantsunless the borrowing base availability is less than $50.0 million for fiveconsecutive business days or less than $35.0 million on any single business dayduring any fiscal quarter.  If the borrowing base availability falls belowthese amounts, a fixed charge ratio of 1:15 to 1:00 must be maintained at theend of each subsequent fiscal quarter until the borrowing base availability hasbeen greater than or equal to $50.0 million for 90 consecutive days.  Theadvance rates under the borrowing base at August 25, 2007 are 90% on eligibleaccounts and 70% on eligible inventory.  As of August 25, 2007, the Companyhad met the borrowing base availability requirements under its senior creditfacilities and was not subject to any financial covenants.

The borrowings under the revolving loan are available for the Company’s workingcapital requirements, capital expenditures and other general corporate purposes. The amended and restated credit facility is secured by a first priority lien onsubstantially all of the Company’s assets.  The principal amountoutstanding under the term loan is partially due and payable in equal installments ofapproximately $3.5 million on the last business day of each June and Decembercommencing on June 30, 2011.  All remaining outstanding amounts of the term loan aredue and payable on May 30, 2016.  Prepayment is allowed at any time.

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

The amended and restated credit facility contains customary events of default,including without limitation, failure to make payment when due, materiallyincorrect representations and warranties, breach of covenants, events ofbankruptcy, default of other indebtedness that would permit acceleration of suchindebtedness, the occurrence of one or more unstayed or undischarged judgmentsin excess of $3.0 million, changes in custody or control of the Company’sproperty, changes in control of the Company, the failure of any of the loandocuments to remain in full force, and the Company’s failure to properly fundits employee benefit plans.  The facility also includes customaryprovisions protecting the lenders against increased cost or loss of yieldresulting from changes in tax, reserve, capital adequacy and other requirementsof law.

 

 

F-21

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

NBP’s net capital expenditures are limited to $50.0 million in fiscal year 2008and in each fiscal year thereafter throughout the term of the credit agreement.

 

***(c)   Senior Notes***

 

On August 6, 2003, NBP issued $160.0 million of its 10 1/2% SeniorNotes due 2011. The Senior Notes will mature on August 1, 2011. Interest on theSenior Notes is payable semi-annually in arrears on August 1 and February 1 ofeach year. The Senior Notes are senior unsecured obligations, ranking equal inright of payment with all other senior unsecured obligations of NBP.  The SeniorNotes may be redeemed at 105.250% and 102.625%, respectively, of the principalamount during the twelve-month period commencing August 1, 2007 and August 1,2008. Thereafter, the Senior Notes may be redeemed at 100% of face value. TheIndenture governing the Senior Notes contains certain covenants that restrictNBP’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 25, 2007, NBP was in compliance with all covenants associated withthe Senior Notes. 

 

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

 

***(d)   Industrial Development Revenue Bonds***

 

In conjunction with the fourth amended and restated credit facility, effectiveDecember 30, 2004, NBP entered into a transaction with the City of Dodge City,Kansas, in order to provide property tax savings to NBP.  Under thetransaction, the City purchased NBP’s Dodge City facility (the “facility”) byissuing $102.3 million in bonds due in December 2014, and leased the facility toNBP for an identical term under a capital lease.  The City’s bonds werepurchased by NBP using proceeds of its term loan under the fourth amended andrestated credit facility.  Because the City has assigned the lease to thebond trustee for the benefit of NBP as the sole bondholder, NBP, in effect,controls enforcement of the lease against itself.  As a result of thecapital lease treatment, the facility will remain a component of property, plantand equipment in NBP’s consolidated balance sheet.  As a result of thelegal right of offset, the capital lease obligation and the corresponding bondinvestments have been eliminated in consolidation.  The transactionprovides NBP with property tax exemptions for the leased facility, which, afternetting payments to the City and local school district under payment in lieu oftax agreements, result in an annual property tax savings of approximately 25%. The facility remains subject to a prior mortgage and security interest in favorof the lenders under the existing senior credit facility.  Additionalrevenue bonds may be issued to cover the costs of certain improvements to thisfacility.  The total amount of revenue bonds authorized for issuance is$120.0 million.

 

 

F-22

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

In 1999 and 2000 the cities of Liberal and Dodge City, Kansas issued anaggregate of $13.8 million of industrial development revenue bonds to fund thepurchase of equipment and construction improvements at NBP’s facilities in thosecities. These bonds were issued in four series of $1.0 million, $1.0 million,$6.0 million and $5.8 million and are due on demand or on February 1, 2029,March 1, 2027, March 1, 2015 and October 1, 2009. However, because each seriesof bonds are backed by a letter of credit under NBP’s senior credit facilities,the bonds have been presented as non-current obligations.  Pursuant tocapital lease agreements, NBP leases the facilities, equipment and improvementsfrom the respective cities and makes lease payments in the amount of principaland interest due on the bonds. 

 

The 1999 and 2000 issued bonds are variable rate demand obligations that bearinterest at a rate that is adjusted weekly, which rate will not exceed 10% perannum. The per annum interest rate for each series of bonds was 3.4% in 2006 and2.3% in 2005. NBP has the option to redeem a series of bonds at any time for anamount equal to the principal plus accrued interest to the date of suchredemption. The holders of the bonds have the option to tender the bonds uponseven days’ notice for an amount equal to par plus accrued interest. To theextent that the remarketing agent for the bonds is unable to resell any of thebonds that are tendered, the remarketing agent will use the letter of credit tofund such tender. 

 

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

 

In connection with the Brawley Beef acquisition, NBP assumed the obligationunder a Trust Indenture securing $6.8 million in California Pollution ControlFinancing Authority Tax-Exempt variable rate demand solid waste disposal revenuebonds dated as of October 1, 2001.  The bonds bear a rate that is adjustedweekly.  The average per annum interest rate for this series of bonds forfiscal year 2007 was $3.7%.  These bonds have a maturity date of October 1,2016.  NBP has the option to redeem all or a portion of the bonds at anytime for an amount equal to the principal plus accrued interest to the date ofsuch redemption.  The holders of the bonds have the option to tender thebonds 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 anyof the bonds that are tendered, the remarketing agent will use the letter ofcredit to fund such tender.  Because these bonds are backed by a letter ofcredit under NBP’s senior credit facilities, the bonds have been presented asnon-current obligations.

 

**           (e)   *Capital and Operating Leases ***

NBP leases a variety of buildings and equipment, some of which were acquiredthrough the Brawley Beef, LLC acquisition, as well as tractors and trailersthrough its subsidiary National Carriers, under capital and operating leaseagreements that expire in various years. Future minimum lease payments requiredat August 25, 2007, under capital leases and non-cancelable operating leaseswith terms exceeding one year, are as follows:  

 

F-23

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Non-Cancelable**

 

 

 

 

 

 

 

 

**Capital**

 

**Operating**

 

 

 

 

 

 

 

 

**Lease**

 

**Lease**

 

 

 

 

 

 

 

 

**Obligations**

 

**Obligations**

 

 

 

 

 

 

 

 

	(dollars in thousands)

	For the fiscal years ended August:

 

 

 

 

 

	2008

 

 

 

 

 

	$

	4,474 

 

	$

	13,424 

 

	2009

 

 

 

 

 

	4,925 

 

	10,736 

 

	2010

 

 

 

 

 

	2,887 

 

	7,821 

 

	2011

 

 

 

 

 

	1,659 

 

	3,273 

 

	2012

 

 

 

 

 

	1,659 

 

	1,150 

 

	Thereafter

 

 

 

	4,569 

 

	61 

 

 

 

	Net minimum lease payments

 

	$

	20,173 

 

	$

	36,465 

	Less amount representing interest

 

	(3,176)

 

 

 

 

 

	Present value of net minimum lease payments

	$

	16,997 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent expense associated with operating leases was $14.1 million, $10.9 millionand $10.6 million, for fiscal years 2007, 2006 and 2005, respectively. NBPexpects that it will renew lease agreements or enter into new leases as theexisting leases expire. 

 

***(f)    Utilities Commitment***

 

Not included in the table above are the obligations under an agreement for autilities commitment at the Dodge City, Kansas, facility.  In order to meetthe continuing growth needs for water and wastewater services of the Dodge Cityfacility, effective December 30, 2004, NBP entered into a services agreement forthe city to provide NBP water and wastewater services at a price and termsufficient to permit the city to recoup up to one-half of the capital cost ofproviding fresh water service from a parcel of land owned by NBP eleven milessouth of Dodge City, and of providing upgraded city wastewater facilities tohelp service the needs of the Dodge City facility.  The city sold twentyyear municipal bonds to pay for these improvements and NBP has committed to makea series of service charge payments totaling $19.3 million over a 20 yearperiod, of which $1.4 million, $1.2 million and $0.8 million was paid in fiscalyears 2007, 2006 and 2005, respectively.  Payments under the commitmentwill be $1.4 million in each of fiscal years 2008 and 2009, $1.7 million infiscal year 2010, and $0.8 million in each of the fiscal years 2011 and 2012,with the remaining balance of $9.8 million to be paid in subsequent years.  

 

Additinally, NBP makes a verbal commitment to cattle producers to purchasecattle 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 aredelivered and inspected at the Company’s facilities.   NBP’s estimatedcattle commitments as of August 25, 2007 were $97.2 million.

 

The aggregate minimum principal maturities of the long-term debt for each of thefive fiscal years and thereafter following August 25, 2007, are as follows: 

 

 

 

	2008

	$

	4,421 

	2009

	5,333 

	2010

	9,303 

	2011

	162,325 

	2012

	39,745 

	After 2013

	221,838 

 

	$

	442,965 

 

 

 

(6)       Interest Rate Exchange Agreement

At August 25, 2001, the Company had an interest rate exchange agreement in placeeffectively fixing the interest rate on approximately $27.5 million of variablerate debt to a fixed rate of 6.153% plus 1.25%. The Company entered into theinterest rate exchange agreement concurrent with its variable rate term debtagreement to reduce its exposure to changes in interest rates. The Companyinitially designated the interest rate exchange agreement to be 100% effectivein hedging its variable interest rate risk, as both the variable interest rateof 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 wouldcontinue to be exposed to interest rate risk as a result of the intention of FNBto make a significant cash distribution to its partners. As a result of thisdetermination, in accordance with SFAS No. 133, the Company recognized the fairvalue on August 25, 2001 of the interest rate exchange agreement recorded inaccumulated other comprehensive income of $1.2 million as a charge tooperations. 

 

 

F-24

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

On August 31, 2002, thenotional amount of the interest rate exchange agreement was realigned with theprincipal balance of the debt obligation, effectively fixing the interest rateon approximately $9.1 million of the variable rate debt to a fixed rate of6.153% plus the applicable rate margin (Note 5). The rate margin was 2.50% atAugust 27, 2005. As a result of this development, the Company designated therevised interest rate exchange agreement as a hedge of its forecasted variablerate interest payments and determined the hedge would continue to be highlyeffective in accordance with SFAS No. 133.  In 2003, the Company recordedthe change in the fair value of its interest rate swap as an increase to equitythrough Accumulated Other Comprehensive Income (AOCI), rather than as otherincome.  In 2004, the balance in the AOCI of $256,430 was adjusted torecognize the fair value of the interest rate swap as other income and currentyear changes in the fair value of the remaining notional amount of the exchangeagreement were charged to operations in accordance with SFAS No. 133. Changes in the fair value were charged to operations.  This interest rateexchange agreement expired on January 3, 2005 and at this time the Company doesnot anticipate entering into another interest rate exchange agreement.

(7)       Employee Compensation and Benefits 

The cooperative had established a phantom stock option plan which provided forthe issuance of 20,000 phantom stock options with an exercise price of $55 pershare, all of which had been issued and were exercisable upon election. Inconnection with the Conversion, this phantom stock option plan was convertedinto a phantom unit plan in a similar fashion as the conversion of cooperativeshares to LLC units.  The 20,000 phantom stock options converted into20,000 phantom Class A units and 20,000 phantom Class B units with an exerciseprice of $55 per unit and $0 per unit, respectively.  During this periodwhen unitholders of USPB are required to transfer each Class A unit with acorresponding Class B unit, a phantom Class A unit cannot be exercised without acorresponding Class B unit being exercised.  The Company recognizescompensation expense for the difference between the weighted average transferprice of the last 20,000 non-conditional trades and the $55 exercise price. A reduction in compensation expense of $0.6 million and $0.2 million wasrecognized for the fiscal years ended August 25, 2007 and August 26, 2006,respectively, and $0.3 million in compensation expense was recognized for theyear ended August 27, 2005.

The Company maintains a tax-qualified employee savings and retirement plan(together, the 401(k) Plan) covering its non-union employees. Pursuant to the401(k) Plan, eligible employees may elect to reduce their current compensationby up to the lesser of 75% of their annual compensation or the statutorilyprescribed annual limit and have the amount of such reduction contributed to the401(k) Plan. The 401(k) Plan provides for additional matching contributions bythe Company, based on specific terms contained in the 401(k) Plan. The trusteeof the 401(k) Plan, at the direction of each participant, invests the assets ofthe 401(k) Plan in designated investment options. The 401(k) Plan is intended toqualify under Section 401 of the Internal Revenue Code. Expenses related to the401(k) Plan totaled approximately $0.7 million, $0.6 million, and $0.7 millionfor the fiscal years ended August 25, 2007, August 26, 2006, and August 27,2005, respectively.  

NBP has agreed to make contributions to the United Food & Commercial WorkersInternational Union-Industry Pension Fund (the UFCW Plan) for employees coveredby a collective bargaining agreement as provided for in that agreement. Expenses related to the UFCW Plan totaled approximately $0.6 million, $0.6million and $0.6 million for the fiscal years ended August 25, 2007, August 26,2006 and August 27, 2005, respectively. 

 

 

F-25

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

 *Postretirement Benefits*— Certain former employees are covered byan unfunded postretirement benefit plan that provides medical and dentalbenefits.  Costs associated with this plan, which relate primarily toinsurance premiums, benefit payments and changes in the accumulated benefitobligation were approximately $0.2 million, $0.2 million and $0.1 million, forfiscal years 2007, 2006 and 2005, respectively, and are included in cost ofsales. 

 

The health care trend rate used to value the accumulated benefit obligation atAugust 25, 2007 is a rate of 9% per year, declining by 1% per year to anultimate rate of 5% in 2011 and thereafter.  The discount rate used tovalue the accumulated benefit obligation is 6%.  The unfunded accumulatedbenefit obligation was $1.9 million and $2.1 million at August 25, 2007 andAugust 26, 2006, respectively, and has been recorded as a liability in thefinancial statements.  A reduction in participants and a reduction inpremiums resulting from Medicare changes necessitated a reduction in theunfunded benefit obligation of $1.4 million in fiscal year 2006.  Thisreduction was included in other, net in the consolidated statement of operations during thefiscal year ended August 26, 2006.

 

 (8)      Other Income 

Other non-operating income, net was $1.5 million in the fiscal year 2007 and$3.4 million in the fiscal year 2006 while other non-operating expense was $2.4million in fiscal year 2005.    Other non-operating income, netincludes miscellaneous non-operating items of income and expense such asadjustments to unamortized loan costs as discussed in Note 2. *Basis ofPresentation and Accounting Policies – Debt Issuance Costs*, adjustments topost-retirement benefits costs as discussed in Note 7. *Employee Compensationand Benefits,*and gains or losses on the disposal of fixed assets as discussed in Note 2. *Basis of Presentation and Accounting Policies – Property, Plant, and Equipmentand disclosed on the consolidated statements of operations.*

 

 (9)      Income Taxes  

Income tax expense includes thefollowing current and deferred provisions (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Year Ended**

 

 

 

 

 

**August 25,**

 

**August 26,**

 

**August 27,**

 

 

 

**2007**

 

**2006**

 

**2005**

	Current provision:

 

 

 

 

 

 

	Federal

	$

	1,098 

 

	$

	2,198 

 

	$

	1,339 

 

	State

	227 

 

	437 

 

	388 

 

	Foreign

	16 

 

	12 

 

	12 

 

 

	Total current tax expense

	1,341 

 

	2,647 

 

	1,739 

 

 

 

 

 

 

 

 

	Deferred provision:

 

 

 

 

 

 

	Federal

	509 

 

	(909)

 

	263 

 

	State

	90 

 

	(166)

 

	48 

 

	Foreign

	- 

 

	- 

 

	- 

 

 

	Total deferred tax expense

	599 

 

	(1,075)

 

	311 

 

 

 

 

 

 

 

 

 

 

	Total income tax expense

	$

	1,940 

 

	$

	1,572 

 

	$

	2,050 

 

 

 

 

 

 

 

 

 

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

F-26

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Year Ended**

 

 

 

 

**August 25,**

 

**August 26,**

 

**August 27,**

 

 

**2007**

 

**2006**

 

**2005**

	Computed “expected” income tax expense

	$

	4,055 

 

	$

	7,452 

 

	$

	3,741 

	Passthrough income

	(2,068)

 

	(6,118)

 

	(2,076)

	State taxes, net of federal

	210 

 

	179 

 

	288 

	Adjustment of deferred taxes upon conversion to an LLC

	- 

 

	- 

 

	1,375 

	Change in valuation allowance upon conversion to an LLC

	- 

 

	- 

 

	(1,375)

	Other

	(257)

 

	59 

 

	97 

 

	Total income tax expense

	$

	1,940 

 

	$

	1,572 

 

	$

	2,050 

 

 

 

 

 

 

 

 

The tax effects oftemporary differences that give rise to significant portions of the deferred taxassets and deferred tax liabilities at August 25, 2007 and August 26, 2006 arepresented below (dollars in thousands): 

 

 

 

 

 

 

 

 

 

	Deferred tax assets:

**August 25,**

**2007**

 

**August 26,**

**2006**

 

	Accounts receivable, due to allowance for doubtful accounts

	$

	122 

 

	$

	181 

 

	Intangible assets

	102 

 

	40 

 

	Self-insurance and workers compensation accruals

	1,611 

 

	2,355 

 

 

	Total gross deferred tax assets

	1,835 

 

	2,576 

	Deferred tax liabilities:

 

 

 

 

	Property, plant, and equipment, principally due to differences in depreciation

	402 

 

	544 

 

 

	Total gross deferred tax liabilities

	402 

 

	544 

 

 

 

	Net deferred tax assets

	$

	1,433 

 

	$

	2,032 

 

 

 

 

 

 

 

 

 Net deferred tax assets and liabilitiesat August 25, 2007 and August 26, 2006 are included in the consolidated balancesheet as follows (dollars in thousands):

 

 

 

 

 

 

 

**August 25,**

 

**August 26,**

 

**2007**

 

**2006**

	Other current assets

	$

	1,835 

 

	$

	2,576 

	Other liabilities

	402 

 

	544 

 

	$

	1,433 

 

	$

	2,032 

 

 

 

 

 

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

 

Management believes that itis more likely than not that the results of future operations will generatesufficient taxable income to realize the remaining deferred tax assetsassociated with National Carriers, Inc., a taxable subsidiary. Accordingly, no valuation allowance was provided at August 25, 2007 and August26, 2006.  

Subchapter T of the InternalRevenue Code sets forth rules for the tax treatment of cooperatives and appliesboth to cooperatives exempt from tax under Section 521 of the Internal RevenueCode and to nonexempt cooperatives. Prior to August 29, 2004, the Companyoperated as an exempt cooperative. As an exempt cooperative, it was not taxedon amounts of patronage and nonpatronage source income withheld from itspatrons in the form of qualified per-unit retains or on amounts distributed toits patrons in the form of Qualified Written Notices of Allocation. Suchamounts were instead taxed directly to the patrons. If the Company had not beenan exempt cooperative prior to August 29, 2004 and was also not entitled to betaxed under Subchapter T, its income would have been taxed to the Companysimilar to a corporation and the patrons would have been taxed when and ifdividends are distributed. The characterization of income as patronage ornon-patronage source income is subject to challenge by the Internal RevenueService. Under Subchapter T, non-patronage source income, if deemed more thanincidental, is subject to tax at the entity level instead of passed through tothe patrons in the form of a patronage dividend.  Notwithstanding theacquisition of a controlling interest in NBP on August 6, 2003, managementcontinues to believe that it was an exempt cooperative under Section 521 of theInternal Revenue Code prior to August 29, 2004.  In addition, even if theCompany was not an exempt cooperative prior to August 29, 2004, managementcontinues to believe that its non-patronage source income, if any, wasincidental and would vigorously defend any such challenge by the InternalRevenue Service. However, USPB recognized tax expense in its fiscal year 2004consolidated financial statements on a portion of its earnings for periods fromAugust 6, 2003 to August 29, 2004 (date of conversion to an LLC) to provide forsuch potential recharacterization of income from patronage-source tonon-patronage source, which may be asserted by the Internal Revenue Service.

 

 

F-27

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

The Company will adopt FIN 48 in the first quarter of fiscal year 2008. We have evaluated the impact it will have on our Consolidated FinancialStatements and expect that it will not be material.  As a result of theadoption, tax reserves relating to the potential recharacterization of incomefrom patronage sourced to non-patronage sourced in the amount of approximately$0.5 million are expected to be reversed.

 

 (10)   Related Party Transactions

All of the Company’s directors hold units of the Company.  By virtue of theirownership of the units, each of these individuals is obligated to deliver cattleto the Company. The amount and terms of the payments received by theseindividuals (or the entities they represent) for the delivery of cattle are madeon exactly the same basis as those received by other unitholders of the Companyfor the delivery of their cattle.   

USPB facilitates the delivery of cattle annually to NBP through its unitholdersand associates.  During the fiscal year ended August 25, 2007 USPB and itsunitholders and associates provided approximately 17% of NBP’s cattlerequirements. During the fiscal years ended August 26, 2006 and August 27, 2005,USPB provided approximately 18 and 19%, respectively, of NBP’s cattlerequirements.  The purchase price for the cattle is determined by NBP’spricing 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 beless favorable than pricing grids offered to other suppliers.

At August 25, 2007 and August 26, 2006, the Company had payables to unitholders,which were primarily related to the return of nondelivery penalties, in theamount of $0.6 million and $0.5 million, respectively. At August 25, 2007 andAugust 26, 2006, the Company had receivables from unitholders, which wereprimarily related to non-delivery penalties, in the amount of $0.2 million and$0.7 million, respectively.  

NBP entered into various transactions with a company affiliated with NBPCoHoldings in the ordinary course of business. Sales transactions were based uponprevailing market prices, and purchases were on terms no less favorable to NBPthan would be obtained from an unaffiliated party.  At August 25, 2007 andAugust 26, 2006, the amounts due from Beef Products, Inc., which is an affiliateof NBPCo. Holdings, were approximately $4.4 million and $2.7 million,respectively.  At August 25, 2007 and August 26, 2006, the amount due toBeef Products, Inc. for both years was approximately $0.4 million.

 

In October 2003, NBP entered into an aircraft lease agreement under which itleases a business jet aircraft from John R. Miller Enterprises III, L.L.C., aUtah limited liability company of which John R. Miller, NBP’s Chief ExecutiveOfficer, is the beneficial owner. The term of the lease is 81 months. Themonthly 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 adjustedquarterly based on the change in the three month LIBOR interest rate. During fiscal year 2007, NBP paid $0.8 million to lease the aircraft and paid$0.1 million into an engine replacement reserve account.  The funds in thereserve account are to be used to finance new engines installed on the aircraft. 

 

In December 2004, NBP entered into an aircraft lease agreement under which itleases a business jet aircraft from John R. Miller Enterprises III, L.L.C., aUtah limited liability company of which John R. Miller, NBP’s Chief ExecutiveOfficer, is the beneficial owner. The term of the lease is 72 months. Thisaircraft replaces an aircraft leased from John R. Miller Enterprises, L.L.C. inMarch 2001.  The base monthly lease payments will range from $35,400 in thefirst year of the lease to $45,380 in the fourth year of the lease andthereafter, and are adjusted quarterly based on the change in the three monthLIBOR interest rate.  During the fiscal year 2007, NBP paid $0.8 million tolease the aircraft and paid $0.1 million into an engine replacement reserveaccount.  The funds in the reserve account are to be used to finance newengines installed on the aircraft.  

  

F-28

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 (11)    Capital Shares and Equities

LLC Structure

On August 18, 2004, the shareholders of U.S. Premium Beef, Ltd. approved theconversion of the cooperative into a Delaware LLC.  Under the new ownershipstructure, each share of common stock of the cooperative was converted to oneunit of Class A interest and one unit of Class B interest.  Immediatelyfollowing the Conversion, there were 691,845 units of Class A interests and691,845 units of Class B interests.  For a period to be determined by theboard of directors, each Class A unit will be linked to its corresponding ClassB unit and each pair of linked units must, if transferred, be transferredtogether.  Patronage Refunds for Reinvestment in the cooperative werecarried over at their face amount into the LLC as Patronage Notices.  

 

On June 1, 2006, U.S. Premium Beef’s majority owned subsidiary, NBP,completed the acquisition of the assets of Brawley Beef.  As a result ofthe acquisition, USPB issued 44,160 new Class A units and 44,160 new Class Bunits to Brawley Beef in exchange for 44,160 limited partnership units inNational Beef California (NBC), a subsidiary of National Beef.  USPB thenexchanged the limited partnership units with National Beef for a higherownership percentage in National Beef.  Immediately following the issuance,there were 736,005 units of Class A interests and 736,005 units of Class Binterests.  

 

*Class A Interests*.  Holders of Class A interests are entitled to a prorata share of 33% of the profits and losses; to receive distributions of theCompany’s net cash flow when declared by the board of directors; to participatein the distribution of the Company’s assets in accordance with their positivecapital account balances if the Company dissolves or liquidates after payment ofthe Patronage Notices, and to vote on matters submitted to a vote of theCompany’s Class A unitholders.  Holders of Class A interests are committedunder Uniform Cattle Delivery and Marketing Agreements to deliver one head ofcattle to the Company annually for each unit held. 

 

*Class B Interests*.  Holders of Class B interests are entitled to a prorata share of 67% of the profits and losses; to receive distributions of theCompany’s net cash flow when declared by the board of directors; to participatein the distribution of the Company’s assets in accordance with their positivecapital account balances if the Company dissolves or liquidates after thepayment of the Patronage Notices, and to vote on matters submitted to a vote ofthe Company’s Class B unitholders.  Holders of Class B interests have nocattle delivery commitment.

 

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

***Cooperative Structure***

Prior to the Conversion on August 29, 2004, the Company was organized as acooperative.

           Common Stock

The cooperative was authorized to issue 5,000,000 shares of common stock, $0.01par value. At August 28, 2004, there were 691,845 shares of common stock issuedand outstanding. Ownership of common stock was restricted to agriculturalproducers of cattle, as defined, who resided in the territory served by thecooperative, and who qualify for membership in the cooperative. Membershiprequirements included payments of membership and registration fees, execution ofa Uniform Delivery and Marketing Agreement, and approval by the Board ofDirectors.

 

F-29

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

           

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

           Preferred Stock

The cooperative was authorized to issue 5,000,000 shares of preferred stock,$0.01 par value. At August 28, 2004, there were no shares of preferred stockissued or outstanding. Preferred stock had no voting rights. Dividends couldhave been paid as determined by the Board of Directors.

           Members’ Contributed Capital

Members’ contributed capital represented amounts paid in excess of the par valueof common stock, and membership and registration fees collected from members.

           Nondelivery Fee

A nondelivery fee represents amounts retained by the cooperative ($12 per head)in relation to the nondelivery of cattle by members in accordance with theUniform Delivery and Marketing Agreement. A nondelivery fee was held by thecooperative and then distributed back to the members upon approval of the Boardof Directors. There were $1.3 million in outstanding nondelivery fees as ofAugust 28, 2004.

           Patronage Refunds

The cooperative paid patronage refunds with respect to cattle delivered to thecooperative in the form of cash, stock, or written notices of allocation, or anycombination thereof based on each member’s patronage business with thecooperative. Patronage Refunds for Reinvestment represented the portion ofpatronage refunds payable from current year earnings in equities.

For purposes of patronage refunds, current year earnings were determined inaccordance with federal income tax regulations. For the year ended August 28,2004, 45.12% of current year earnings were distributed in cash and the remaining54.88% was distributed in equities.

The difference in net income for financial reporting purposes, determined inaccordance with accounting principles generally accepted in the United States ofAmerica, and current patronage refunds determined on a federal taxable incomebasis was reflected as deferred patronage.

           Unallocated Equity

Unallocated equity represented equitiesnot allocated to members. Unallocated equity at August 28, 2004 was as follows(dollars in thousands):

 

 

 

 

 

 

 

 

**2004**

	Deferred patronage

 

	$

	9,492 

	Earned surplus

 

	16,883 

 

 

 

	$

	26,375 

 

 

 

 

 

F-30

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

 

Earned surplus consisted of foreign sales income not distributed, the net lossincurred during the Company’s development stage (prior to December 1, 1997) andcorporate subsidiaries.     

 (12)    Minority Interest

At any time after certain dates, the earliest being July 31, 2008, the latestbeing July 31, 2011, certain members of NBP management and/or NBPCo Holdings,LLC have the right to request that NBP repurchase their interests, the value ofwhich is to be determined by a mutually agreed appraisal process. If NBP isunable to effect the repurchase within a specified time, the requesting member(s)have the right to cause a sale process to commence.  NBP accounts forchanges in the redemption value of these interests by accreting the change invalue from the date of change through the earliest redemption date of therespective interests using the interest method. At August 26, 2006, the minorityinterest in National Beef, included in the minority interest in the accompanyingConsolidated Balance Sheet, was revalued by an independent appraisal process,and the value was determined to be $72.1 million which was in excess of itscarrying value.  Accordingly, the carrying value of the minority interestincreased by approximately $3.5 million through accretion during the fiscal yearended August 25, 2007, resulting in the $76.9 million carrying value, which isincluded in the accompanying Consolidated Balance Sheet as of August 25, 2007. 

 

 (13)    Legal Proceedings

*Schumacher v. Tyson Foods, et al.* On July 1, 2002, a lawsuit was filedagainst Farmland National Beef Packing Company, L.P. (FNBPC or the predecessorto NBP), ConAgra Beef Company, Tyson Foods, Inc. and Excel Corporation in theUnited States District Court for the District of South Dakota seekingcertification of a class of all persons who sold cattle to the defendants forcash, or on a basis affected by the cash price for cattle, during the periodfrom April 2, 2001 through May 11, 2001 and for some period up to two weeksthereafter. The case was filed by three named plaintiffs on behalf of a putativenationwide class that plaintiffs estimate is comprised of hundreds or thousandsof members. The complaint alleged that the defendants, in violation of thePackers and Stockyards Act of 1921, knowingly used, without correction ordisclosure, incorrect and misleading boxed beef price information generated bythe USDA to purchase cattle offered for sale by the plaintiffs at a pricesubstantially lower than was justified by the actual and correct price of boxedbeef during this period. Plaintiffs also sought recovery against all defendantsunder a theory of unjust enrichment. The case was certified as a class-actionmatter in June of 2004. The plaintiffs claimed damages against FNBPC in theamount of approximately $4.5 million plus prejudgment interest, attorneys' feesand court costs. The claim is subject to reduction in an unknown amount by thenumber of class members who have opted out of the class. Trial began March 31,2006. On April 13, 2006, the jury returned a verdict in favor of FNBPC butagainst the other defendants. The other defendants have filed an appeal in theUnited States Court of Appeals for the Eighth Circuit. The plaintiffs did notappeal the verdict for the Company but no final judgment will be entered untilafter the appeal is decided.

The Company's wholly owned subsidiary, National Carriers, Inc., hasvarious independent contractor drivers who are involved in accidents from timeto time, which in the aggregate could result in a material liability for theCompany.

 

The Company is a party to a number of other lawsuits and claims arisingout of the operation of its business. Management believes the ultimateresolution of such matters should not have a material adverse effect on theCompany’s financial condition, results of operations or liquidity.

 

(14)     Business Segments

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

 

 

F-31

 

 

 

U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Customer Concentration

In the fiscal year ended August 25, 2007, one customer with its consolidatedsubsidiaries represented 6.8% of total sales, with no other customerrepresenting more than 3.6% of total sales.  In the fiscal year endedAugust 26, 2006, one customer with its consolidated subsidiaries represented7.9% of total sales, with no other customer representing more than 3.0% of totalsales. In the fiscal year ended August 27, 2005, one customer with itsconsolidated subsidiaries represented approximately 7.0% of total sales with noother single customer representing more than 3.7% of total sales.

 

Sales to Foreign Countries

NBP had sales outside the United States of America in the fiscal years endedAugust 25, 2007, August 26, 2006 and August 27, 2005 of approximately $561.9million, $309.7 million and $295.2 million, respectively. No single countryaccounted for more than 4% of total sales. The amount of assets maintainedoutside 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 ofAgriculture (USDA) that a single Holstein dairy cow was discovered in the stateof 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, including Japan, representinga substantial share of NBP’s export business, closed their borders to theimportation of edible beef products from the United States.  Certainby-products have been classified as Specified Risk Materials (SRMs), and havebeen banned from use in feedstocks and the human food chain. Some of theseproducts previously enjoyed a market in foreign countries.  The closure ofmost foreign markets to U.S. beef following the discovery of this cow inWashington state, and lack of alternative U.S. markets for many products whichpreviously were exported, negatively impacted the revenue per head realized bythe U.S. beef packing industry.

 

The reopening of U.S. export markets was further hampered by discovery in 2005of a second case of BSE in the U.S. as well as additional precautions requiredby some other importing countries.  In December 2005, Japan opened theirborder to U.S. beef but subsequently closed a short time later as a result of aU.S. packer erroneously shipping a product not approved for export to Japan. On July 26, 2006, Japan agreed to reopen its market to U.S. beef aged 20 monthsand younger after an inspection of U.S. beef processing plants.  Shipmentsof U.S. beef to Japan commenced in August 2006.  In September 2006, SouthKorea announced a provisional opening of their border to U.S. beef, butrestrictions imposed with the reopening have created uncertainty regardingamounts of beef that may qualify.  South Korea has closed its borders toU.S. beef from time-to-time as a result of alleged findings of products shippedto South Korea by U.S. export businesses that are not allowed by South Korea.

 

These challenges resulted in tremendous volatility in U.S. livestockmarket prices since fiscal year 2004.  Where pre-BSE export sales wereapproximately 17% of total net sales in fiscal year 2003, NBP’s total exportsales were approximately 10%, 7%, 7%, and 10% of total net sales in fiscal years2004, 2005, 2006, and 2007, respectively.  With the age restrictions placedon cattle that qualify for export to Japan, it is anticipated that between 5%and 20% of U.S. fed cattle will be able to meet the criteria.

 

F-32

 

 

 

NBP cannot presently assess the full economic impact of the consequencesof BSE on the U.S. beef packing industry or on its operations.  Existing ornew import restrictions or additional regulatory restrictions or disruptions indomestic consumer demand for beef may continue to have a material adverse affecton the Company’s revenues and net income.

 

(16)     Quarterly Results (Unaudited)

Selected quarterly financial data forfiscal years 2007 and 2006 is set forth below (dollars in thousands, except perunit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Operating**

 

**Net**

 

**Basic**

 

**Diluted**

 

 

 

 

**Income**

 

**Income**

 

**Earnings Per**

 

**Earnings Per**

 

 

**Net sales**

 

**(Loss)**

 

**(Loss)**

 

**Linked Unit**

 

**Linked Unit**

	2007 quarterly results:

 

 

 

 

 

 

 

 

 

 

	November 25, 2006

	$

	1,273,025 

 

	$

	(15,360)

 

	$

	(13,075)

 

	$

	(17.78)

 

	$

	(17.78)

 

	February 24, 2007

	1,313,319 

 

	7,026 

 

	(1,616)

 

	$

	(2.20)

 

	$

	(2.20)

 

	May 26, 2007

	1,479,676 

 

	22,575 

 

	7,035 

 

	$

	9.57 

 

	$

	9.42 

 

	August 25, 2007

	1,512,513 

 

	41,774 

 

	17,301 

 

	$

	23.53 

 

	$

	23.16 

 

 

	$

	5,578,533 

 

	$

	56,015 

 

	$

	9,645 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	2006 quarterly results:

 

 

 

 

 

 

 

 

 

 

	November 26, 2005

	$

	1,095,738 

 

	$

	(4,792)

 

	$

	(6,401)

 

	$

	(9.25)

 

	$

	(9.25)

 

	February 25, 2006

	1,080,026 

 

	(6,778)

 

	(7,607)

 

	$

	(11.00)

 

	$

	(11.00)

 

	May 27, 2006

	1,134,514 

 

	31,493 

 

	12,908 

 

	$

	18.66 

 

	$

	18.33 

 

	August 26, 2006

	1,325,752 

 

	46,002 

 

	20,819 

 

	$

	28.29 

 

	$

	27.85 

 

 

	$

	4,636,030 

 

	$

	65,925 

 

	$

	19,719 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-33

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