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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

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

For the fiscal year ended August 28, 2010

or

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

For the transition period from                  to                 .

Commission file number 333-111407

NATIONAL BEEF PACKING COMPANY, LLC

(Exact name of registrant as specified in its charter)

12200 North Ambassador Drive, Kansas City, MO 64163

(Address of principal executive offices)

Telephone: (800) 449-2333

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

There is no market for the Registrant’s equity.  As of October 29, 2010, there were 203,990,136 Class A units and 15,381,317 Class B units outstanding, all of which were held by affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

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MARKET AND INDUSTRY DATA AND FORECASTS

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

Unless the context indicates or otherwise requires, the terms “National Beef,” “NBP,” “Company,” “we,” “our,” and “us” refer to National Beef Packing Company, LLC and its consolidated subsidiaries.  As used in this report, the term “USPB” refers to U.S. Premium Beef, LLC, a Delaware limited liability company, formerly U.S. Premium Beef, Ltd., a Kansas cooperative.  As used in this report, the terms “fiscal year” or “fiscal year ended” refers to our fiscal year, which ends on the last Saturday in August.

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PART I

ITEM 1.  BUSINESS

General

We are one of the largest beef processing companies in the United States, or U.S., accounting for approximately 14% of the federally inspected steer and heifer slaughter during our fiscal year ended August 28, 2010 as reported by the United States Department of Agriculture, or USDA.  During the fiscal year ended August 28, 2010, we generated approximately $5.8 billion in total net sales and had net income of approximately $248.0 million.

Led by an entrepreneurial management team, we began operations in 1992 with a single facility in Dodge City, Kansas.  Since then, we have successfully grown through internal expansion, selective facility acquisitions, process improvements and a focus on increasing our value-added product offerings consisting of branded boxed beef, case ready beef, portion control beef and further processed hides.  We have invested approximately $410 million from the beginning of fiscal 2001 through the end of fiscal 2010 to expand our operations, modernize and increase the capacity of our facilities, and increase our ability to produce and sell higher margin, value-added products.  In 1997, we entered into a strategic relationship with our current majority owner, U.S. Premium Beef, or USPB, an organization owned by cattle ranchers and feedlot operators.  USPB members supply us with approximately 20% of the cattle we process pursuant to our contractual arrangement with USPB.  Some of these members also sell us additional cattle outside of this arrangement.  We do not own any USPB member cattle or feedlots.  We believe the USPB relationship provides us with a competitive advantage through a consistent and dependable supply of high-quality cattle, including for processing in our value-added and other programs.

We process, package and deliver fresh and frozen beef and beef by-products for sale to customers in the U.S. and international markets. Our products include boxed beef, ground beef, hides, tallow, and other beef and beef by-products.  We emphasize the sale of higher-margin, value-added beef products including branded boxed beef, case-ready beef, portion control beef, and further processed hides.  We market our branded products under several trade names including Black Canyon® Angus Beef ,Black Canyon® Premium Reserve, Certified Premium Beef®, Naturewell® Natural Beef, NatureSource® Natural Angus Beef, Vintage Natural Beef® and Imperial Valley® Premium Beef.  In addition to the brands we own, also part of our value-added product line is Certified Angus Beef®, a registered trademark (used with permission) of Certified Angus Beef LLC, a wholly-owned subsidiary of the American Angus Association; and Certified Hereford Beef® and Nuestro Rancho®, registered trademarks (used with permission) of Certified Hereford Beef, LLC.

In addition, we are a majority owner of Kansas City Steak Company, LLC, or Kansas City Steak, which sells portioned beef and other products directly to customers in the food service and retail channels as well as direct to consumers through the internet, direct mail and QVC.

We market our products to retailers, food service providers, distributors, further processors, and the United States military.  Value-added products represented approximately 35% of our total net sales, and a substantially higher proportion of our operating profit during fiscal year 2010.  We currently export our products to more than 25 countries and we have dedicated sales offices in Japan, South Korea and China.  Our export sales represented approximately 11% of our net sales for the fiscal year ended August 28, 2010.  According to export data from PIERS, we are currently the largest exporter of chilled beef produced in the U.S. to Japan.

We believe our Dodge City, Kansas and Liberal, Kansas beef processing facilities are among the highest capacity and most efficient plants in the U.S.  In addition, we believe our beef processing facility in Brawley, California is among the newest in the industry.  These three beef processing facilities are located to provide efficient access to a ready supply of high quality cattle.  Our two case-ready facilities, which take primal cuts and further process and package meat to customer specifications, are located in Hummels Wharf, Pennsylvania and Moultrie, Georgia and service key customers in readily accessible high density population centers.  We also own and operate a refrigerated and livestock transportation company, National Carriers, Inc., or National Carriers, as part of our commitment to provide high service levels to our customers and suppliers.

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Our Competitive Strengths

Significant Value-Added Product Portfolio.  We are a leading producer of value-added beef products. Our customers market these products under our brands as well as through their own premium private label programs. We believe our value-added products are able to command higher prices because of our ability to consistently meet product specifications, based on quality, trim, weight, size, breed or other factors tailored to the needs of our customers.  We also provide marketing support for our value-added programs.  We believe our value-added products and programs not only provide higher profitability, but also improve customer acquisition and retention.

In March 2009, we expanded our value-added product portfolio through our acquisition of a wet blue tanning facility in Saint Joseph, Missouri.  We sell our wet blue tanned hides to processors that produce finished leather for high quality applications in industries such as automotive, luxury goods, apparel and furniture.  We believe supplementing our value-added product portfolio through further processing of a portion of our hides will generate additional profit for us.

Our total value-added sales in fiscal 2010 were approximately $2,038.4 million, comprising approximately 35% of our total net sales. This represents a compound annual growth rate of 17% from approximately $595.2 million of total value-added sales in fiscal 2002.  We believe our value-added products will continue to be an important contributor to our profitability.  Margins on our value-added products historically have been less volatile than margins on our commodity products.

Differentiated Cattle Supply.  USPB, a limited liability company whose owners consist of cattle ranchers and feedlot operators, is contractually obligated to deliver approximately 735,000 head of cattle per year to us.  We do not own any USPB member cattle or feedlots.  We believe the cattle we receive from USPB members are of high quality, which is important for our value-added programs.  In fiscal 2010, pursuant to our contractual arrangement with USPB, USPB members provided us with approximately 20% of the total cattle we processed. Some USPB members also sold us additional cattle outside of this arrangement.  We believe this supply relationship with USPB members provides us with significant competitive advantages, including: (i) the ability to consistently provide our customers with higher margin, value-added products and (ii) a predictable supply of cattle that enhances production efficiencies.

Our two largest beef processing facilities, which represent approximately 86% of our slaughter capacity, are located in southwest Kansas.  The primary market area for the purchase of cattle for those facilities includes Kansas, Texas and Oklahoma.  According to information from the USDA, cattle on feed in the Kansas, Texas and Oklahoma area represented approximately 48% of the cattle on feed in the U.S. during fiscal 2010.  A significant portion of USPB’s members are located in this area, further enhancing our cattle supply chain.  Our third beef processing facility is located in southeastern California.  An important source of cattle for this facility is an alliance of cattle producers (which alliance is a member of USPB) in Arizona and California with whom we have cattle supply agreements.

The close proximity of our facilities to large supplies of cattle gives our buyers the ability to visit feedlots on a regular basis, which enables us to develop strong working relationships with our suppliers, reduces our reliance on any one cattle supplier and lowers in-bound transportation costs.

Modern and Efficient Facilities. We have invested more than $410 million from the beginning of fiscal 2001 through the end of fiscal 2010 to expand our operations, modernize and increase the capacity of our facilities, and increase our ability to produce and sell higher margin, value-added products. We believe our beef processing facilities in Dodge City, Kansas and Liberal, Kansas are among the largest, most modern and efficient processing facilities in the U.S. With the acquisition of the Brawley, California plant in June 2006, we expanded our daily processing capacity to approximately 14,000 cattle per day and gained a strategic location to access more efficiently Western U.S. and Asian export markets. Our two case-ready facilities in Hummels Wharf, Pennsylvania and Moultrie, Georgia, which began operating in 2001, are outfitted with state-of-the-art processing and packaging equipment that allows us to serve key customers in high density population centers in the Eastern U.S. We are in the process of an expansion project (budgeted at approximately $28.5 million) at our tannery in St. Joseph, Missouri, which is expected to be completed in 2012. This project, which was contemplated as part of our acquisition plan for the tannery assets in March 2009, is designed to increase the capacity and product capabilities of our tannery

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facility. We believe this facility will be one of the largest and most efficient wet blue processing plants in the world once this expansion is completed.

Customer and Channel Diversification. We have a diversified sales mix across distribution channels and customers.  This approach provides multiple avenues of potential growth and reduces our dependence on any one market or customer.  We sell our products to retailers, food service providers, distributors, further processors, the U.S. military, and through other channels.  Across these channels, we serve over 1,100 customers worldwide, which represent most major retailers and food service providers in the U.S.  In fiscal year 2010, no one customer represented more than 3% of our total net sales, other than Wal-Mart and its affiliate Sam’s Club, which together represented approximately 10% of our total net sales.  Our top 10 customers represented approximately 31% of our total net sales in fiscal year 2010.

Export products provide us with geographic diversification and reduce our reliance on the U.S. market.  Of our export sales for fiscal year 2010, approximately 57% were meat and offal products.  The balance was hides and other by-products, which are not generally subject to animal health, food safety or political risks.

Disciplined Financial Management. Our indebtedness of $246.5 million as of August 28, 2010 represents approximately 0.8 times our earnings before interest, taxes, depreciation and amortization, or EBITDA, for the 52 weeks ended August 28, 2010 (EBITDA is calculated in a substantially similar manner under our amended and restated credit facility, or the Credit Facility).  This relatively low leverage provides us with significant operating and financial flexibility to respond to market conditions and to capitalize on business opportunities. A core aspect of our disciplined approach to financial management is our proprietary management information systems that enable us to make data driven, analytical decisions to operate efficiently, allocate capital prudently and manage risk.

Experienced Management Team and Workforce with Entrepreneurial Company Culture. We are led by an experienced management team. Timothy M. Klein, our Chief Executive Officer, has more than 30 years of experience in the beef processing industry and is a founding member and significant owner of NBP. The rest of our executive management team has, on average, over 24 years of industry experience and over 12 years with NBP. We believe our entrepreneurial company culture, advancement opportunities, benefits, training programs and employee safety policies contribute to relatively low employee turnover rates. Our entrepreneurial culture is evidenced by our record of growth, emphasis on individual employee accountability and company-wide focus on profitability. We have never experienced a work stoppage at any of our facilities.

Our Business Strategy

Expand Sales of Value-Added Products. Our value-added sales grew to approximately $2,038.4 million in fiscal 2010 from approximately $595.2 million in fiscal 2002, representing a compound annual growth rate of approximately 17%. We intend to continue expanding sales of value-added products by increasing our penetration with existing customers, targeting new customers that are well-suited for our value-added programs and expanding the number of value-added products we offer. We believe the investments we have already made in our value-added business, including in retail merchandising expertise, customer service and fulfillment capabilities and operational/processing technologies, along with our differentiated cattle supply chain, position us well to capitalize on this strategy. For example, we have been a leader in establishing the case-ready market, and we believe our experience will enable us to benefit from increased customer interest in the advantages case-ready products provide, such as reducing labor costs and workplace injuries associated with slicing beef, reducing food safety risks and shifting the square footage currently used by “back-of-the-store” portioning and packaging to higher profit uses. In addition to beef products, our value-added initiatives also include our wet blue tanning business. We are in the process of expanding our tanning operation, which is expected to be completed in 2012.  When the project is complete, we expect to be able to process nearly all of the hides we produce at our Kansas beef processing plants.

Pursue Additional Export Opportunities. We believe international markets present a significant growth and profit opportunity for us. We believe protein demand will increase in the long term due to rising living standards and a growing middle class in developing countries. As a leading producer of beef products, we believe we are well-positioned to serve this growing global demand.  According to export data from PIERS, we are currently the largest exporter of chilled beef produced in the U.S. to Japan.  South Korea is another significant market for U.S. beef, and

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we believe we can leverage our existing relationships to grow our business there. Although the margins we realize on export sales can vary significantly by product and market, on average we currently realize higher margins on export sales than on domestic sales.

Maintain Highly Disciplined Approach to Acquisitions and Capital Expenditures. Our management team has a history of following a disciplined approach to capital investment. We have effectively executed and integrated several acquisitions in core and complementary businesses, as well as numerous capital expenditure initiatives. We believe the success of these activities is reflected in our rates of return on invested capital. We plan to continue to pursue opportunities that generate attractive returns on invested capital.

Continuing Focus on Margin Expansion. Our operating philosophy is to seek to maximize our profit on all cattle we process regardless of prevailing commodity prices or stage of the cattle cycle. We endeavor to accomplish this through management actions, such as reduction of operating costs, increasing price realization across the entire carcass and improving product yields. We believe our proprietary management information systems allow us to more accurately measure our costs and yields against relevant benchmarks and to make better processing decisions with respect to the cattle we procure in order to increase our profitability.

Industry Overview

Beef products represent the largest segment of the U.S. meat industry based on retail sales and the U.S. is the largest producer of beef in the world, producing approximately 25.4 billion pounds of beef in calendar 2009. According to the USDA, beef consumption in the United States increased from approximately 24.3 billion pounds in 1992 to approximately 26.9 billion pounds in calendar 2009, representing a compound annual growth rate of 0.6%.

Beef production, from the birth of the animal through the delivery of beef products to the end customer, is comprised of two primary segments: production and processing.  The production segment raises cattle for slaughter and the processing segment slaughters cattle and packages beef for delivery to customers.  Beef processors seek to procure cattle through multiple methods, including spot market purchases and a variety of contractual arrangements. The owners of the cattle bear the cost of feeding the cattle to the appropriate market weights and have direct financial exposure to the volatility in grain and other input costs. Beef processors are primarily “spread” operators, earning margin between the price they realize for their products and the cost of procuring and processing the cattle.

The domestic beef industry is characterized by prices that change daily based on seasonal consumption patterns and overall supply and demand for beef and other proteins in the U.S. and abroad.  In general, domestic and worldwide consumer demand for beef products determines beef processors’ long-term demand for cattle.  In order to operate profitably, beef processors seek to acquire cattle at the lowest possible cost and to minimize processing costs by optimizing plant utilization and minimizing the cost of packaging and other input costs.  Cattle prices vary seasonally and are affected by cattle inventory levels, weather and other factors.  In addition to seasonal factors, cattle prices are impacted by the longer term nature of the cattle cycle.  Cattle supply in the beef industry typically follows a ten to twelve year cycle, consisting of about six to seven years of expansion followed by one to two years of consolidation and three to four years of contraction. This cycle is unique to cattle among major protein sources as other animals (such as hogs and chickens) can generate multiple offspring and have shorter incubation periods.

During the past few decades, consumer demand for beef products in the U.S. has grown in line with population growth, which is a key driver of aggregate demand.  We believe consumer demand for U.S. exports in international markets is driven not only by population growth, but also by economic growth. As international consumers’ economic circumstances improve, they increasingly shift their diets to protein.  The ability of the U.S. beef industry to supply the growing international demand has been hindered in certain international markets following the discovery of isolated cases of Bovine Spongiform Encephalopathy, or BSE (also commonly referred to as mad cow disease), in 2003 and 2004, that resulted in the temporary closing of those markets to U.S. beef.  Industry-wide export sales, however, have been increasing from 2004 through mid-2010, trending toward their pre-2003 levels.

In recent years, one U.S. beef processor eliminated approximately two million head per year of slaughter capacity in four plants.  These eliminations represented a reduction of approximately 7% of total U.S. industry-wide

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capacity based on information from Cattle Buyers Weekly, an industry publication, and have helped improve the supply/demand balance of beef in the U.S. and export markets.  We currently do not expect the industry to experience a material increase in capacity for the foreseeable future.

Our Business Segments

The Company reports in two business segments:  Core Beef and Other.  The Company measures segment profit as operating income.  Financial information about those segments may be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Core Beef

Products, Sales and Marketing

The majority of our revenues are generated from the sale of fresh meat either as a boxed beef product or a case-ready product. Boxed beef and case-ready products accounted for approximately 87% of our revenues in fiscal year 2010.  In addition, we sell beef by-products to the variety meat, feed processing, fertilizer and pet food industries. We also supply cattle hides, including hides further processed by our subsidiary National Beef Leathers, LLC, or NBL, to tanners who primarily supply the automotive, luxury goods, apparel and furniture industries for both domestic and international use. The seasonal demand for beef products is generally highest in the summer and spring months as weather patterns permit more outdoor activities and there is an increased demand for higher value items that are grilled, such as steaks.  As a result, boxed beef prices tend to be at seasonal highs during the summer and spring.

We emphasize the sale of higher-margin, branded beef products, and we market these products under several brand names including Black Canyon® Angus Beef, Black Canyon® Premium Reserve, Certified Premium Beef®, Naturewell® Natural Beef, NatureSource® Natural Angus Beef, Vintage Natural Beef®, and Imperial Valley® Premium Beef.  In addition to the brands we own, also part of our value-added product line is Certified Angus Beef®, a registered trademark (used with permission) of Certified Angus Beef LLC, a wholly-owned subsidiary of the American Angus Association; and Certified Hereford Beef® and Nuestro Rancho®, registered trademarks (used with permission) of Certified Hereford Beef, LLC.

We continue to focus on adding further processing, specialized cutting, packaging and other value-added components to our products that generate higher profitability.  In 2001, we opened two state-of-the-art case-ready facilities, which enabled us to expand margins by producing additional quantities of value-added products using the beef we process. Our case-ready operations further process our boxed beef products by trimming and cutting our products into individual portions. These portions are then packaged to increase the shelf-life of these products versus traditional packaging methods.

Our wet blue tanning facility (acquired in 2009) sells processed hides to tanners that produce finished leather for high quality applications in industries such as automotive, luxury goods, apparel and furniture.  Wet blue tanning refers to the first step in further processing raw and brine-cured hides into tanned leather.  The name is derived from the process which results in the further processed hides having a blue coloring.

During fiscal year 2010, we sold our beef products to more than 1,100 customers located in the U.S. and more than 25 foreign countries. We market our beef products through several channels, including:

·                  national and regional retailers, including supermarket chains, independent grocers, club stores and wholesale distributors such as C&S Grocers, Topco, Associated Wholesale Grocers, Sam’s Club, and Sherwood Foods;

·                  national retailers such as Wal-Mart, who purchase a substantial portion of our case-ready and branded products;

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·                  the food service industry, including food service distributors, hotel chains and other institutional customers such as Sysco, U.S. Foodservice and Food Services of America;

·                  further processors, including Oscar-Mayer, Sara Lee and ConAgra;

·                  the United States military; and

·                  international markets, including Mexico, Japan, South Korea, Canada, China (for hides), Hong Kong, Egypt and Taiwan.

Exports to Mexico and a number of other foreign markets have been limited to boxed beef products from cattle younger than 30 months subsequent to the December 23, 2003 discovery of a single case of BSE in Washington state.  Many international importers, such as Japan and South Korea (who were two of our largest export markets for edible beef products in fiscal year 2003), closed their borders to U.S. edible beef products after this report of BSE.  In July 2006, Japan agreed to reopen its market to U.S. beef from cattle 20 months and younger.  In September 2006, South Korea announced it would resume the importation of U.S. boneless beef from cattle less than 30 months of age.  South Korea has closed its borders to U.S. beef from time-to-time as a result of alleged findings of products shipped to South Korea by U.S. export businesses that are not allowed by South Korea.  Additional information regarding the Company’s export sales and long-lived assets in foreign markets is set forth in Note 13, Business Segments of the notes to the consolidated financial statements in Item 8.

The sales office for domestic operations is located in our headquarters building in Kansas City, Missouri.  Our sales team in this office is responsible for selling and coordinating the movement of approximately 47.8 million pounds of boxed beef products per week to our customers nationwide. This centralized sales concept allows us to respond quickly to customer requests for pricing and load information. We have also integrated the satellite tracking capabilities of refrigerated carriers into our website allowing customers to track shipments in process. While providing significant customer advantages, our centralized sales concept also enables our sales force to share key market intelligence in a manner that allows them to react to changing market conditions in an efficient manner.

The sales office for international operations is located in Chicago, Illinois. This office coordinates all aspects of sales, pricing and shipping to all destinations outside of the United States. We also have three satellite offices in Japan, South Korea and China (for hides) that assist in the coordination of sales in those regions.  Historically, two of our largest international markets for edible beef products have been in Japan and South Korea while our largest international market for hides has been in China.

Our marketing efforts include engaging in business-to-business programming and communications to create preferences for our products among our customers. In addition, we support our value-added, branded beef business through in-store merchandising and feature advertising support.

Raw Materials and Procurement

Our primary raw material for our processing plants is live cattle. Seasonal factors affect the price we pay for livestock, with live cattle prices tending to be at seasonal highs during the summer and fall.  Because of higher consumption, more favorable growing conditions and the housing of animals in feedlots for the winter months, there are generally more cattle available in the summer and fall.

During fiscal year 2010, we obtained approximately 20% of the cattle we processed from USPB members using the USPB pricing grid pursuant to our contractual arrangement with USPB.  During fiscal years 2009 and 2008, we obtained approximately 20% and 19%, respectively, of the cattle we processed from USPB members using the USPB pricing grid.  Our arrangement with USPB provides us with a consistent supply of high-quality cattle. For information regarding this agreement, see Item 13, Certain Relationships and Related Transactions and Note 9, Related Party Transactions to our consolidated financial statements in Item 8.  We purchase cattle through cash bids and other arrangements from cattle producers in our primary and secondary markets. In addition to our arrangement with USPB, we have other, non-affiliated supplier arrangements that provide us with high-quality cattle. We believe we are a first choice processor for suppliers seeking to attain premium pricing for their high-quality cattle and  cattle suppliers view us more favorably than our competitors due to our business model, which emphasizes building

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relationships and cooperating with suppliers and paying a premium for high-quality cattle.  During fiscal year 2010, we had approximately 1,000 suppliers provide us with cattle.  We believe our relationships with USPB members and other suppliers have resulted in such suppliers improving their methods to produce more high-quality cattle and sell more of their high-quality cattle to us.

Each cattle supplier must verify its use of antibiotics or other agricultural chemicals follows the manufacturer’s intended purpose. They must also confirm they use only Federal Drug Administration, or FDA-approved pharmaceutical compounds and comply with dosage and administrative standards. Furthermore, each cattle supplier must confirm they do not use feed containing animal-based protein products. Many of our producers participate in state beef quality assurance training programs and have established certification and verification practices. These programs emphasize meeting and/or exceeding the USDA, FDA and live animal Best Practice guidelines. Using guidelines established by National Cattleman’s Beef Association, or NCBA, beef safety and quality assurance programs are administered by various state beef associations. State associations certifying our suppliers include, among others, Texas Cattle Feeders Association, Kansas Livestock Association, California Cattlemen Association, Arizona Cattle Feeders Association and Nebraska Cattlemen’s Association.

Processing Facilities and Operations

We operate a total of five beef processing facilities in the U.S. Our Liberal, Kansas and Dodge City, Kansas facilities are among the largest in the industry and are geographically positioned near our suppliers to efficiently source raw materials by reducing transportation costs. Our Brawley, California facility is among the newest in the industry, and geographically positioned to give us greater access to customers in the Western U.S. and Asia. Our case-ready facilities in Hummels Wharf, Pennsylvania and Moultrie, Georgia are located in close proximity to key customers in high density population centers in the Eastern U.S. resulting in decreased delivery times. Our case-ready facilities are also located in areas with a highly-skilled and cost-effective labor force. Our wet blue tanning facility is located in St. Joseph, Missouri. This facility is located in relative proximity to our two Kansas beef processing facilities and is at the junction of major transportation routes. We have begun and continue to invest in this recently acquired facility to improve its production capabilities and better align it to serve our expanded ongoing hide processing capacity needs. See Item 2, Properties for further information about these facilities.

Cattle delivered to our facilities are generally processed into beef products within 36 hours after arrival. On average, in a typical week, approximately 87% of the boxed beef expected to be produced from the cattle we process is committed to sale before the cattle are delivered to our facilities. Our facilities utilize modern, highly automated equipment to process and package beef products. We have invested more than $410 million from the beginning of fiscal year 2001 through the end of fiscal 2010 to expand our operations, modernize and increase the capacity of our facilities and increase our ability to produce and sell higher margin, value-added products.  The design of our facilities emphasizes worker safety to ensure compliance with all regulations and to reduce worker injury and turnover.  Additionally, we have placed a substantial amount of ammonia piping on the roof versus in the production areas, not in response to regulatory requirements, but in the interest of worker safety.  These and other changes designed the workplace to better fit our employees.  All expansions are reviewed by internal personnel, including our Corporate Environmental Director, Vice President of Safety, Vice President of Technical Services, Vice President of Engineering and Corporate Project Engineer, for regulatory compliance prior to construction.  Our facilities are also intended to reduce waste products and emissions and dispose of waste in accordance with applicable environmental standards.

We distribute our beef products domestically directly from our processing facilities and case-ready facilities. We utilize our subsidiary National Carriers and third party carriers to deliver our products to our customers.

Other

Products, Sales and Marketing

We also sell value-added beef products through our portion control business, Kansas City Steak.  Kansas City Steak provides premium-quality trimmed and cut individual portions both directly to customers in the food service and retail channels as well as direct-to-consumers through the internet, direct mail and QVC.  National Carriers

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currently operates approximately 1,200 refrigerated and livestock trailers.  NBP contracts substantially all of its in-bound and approximately 23% of its out-bound freight services from National Carriers.  In February 2008, we began providing third-party logistics services to the transportation industry through our wholly-owned subsidiary National Elite Transportation, LLC, or National Elite.  Logistics services involve arranging for another company to transport freight for our customers to reduce overall transportation costs while we retain the billing, collection and customer management responsibilities.  We believe these transportation services enable us to provide superior customer service and enhance our ability to be a consistent, reliable and timely supplier, particularly of our value-added products.

Raw Materials and Procurement

The primary raw material for our Kansas City Steak processing facility is boxed beef.  Approximately 30% of Kansas City Steak’s boxed beef purchases are made through contractual agreements predetermined by the customer for whom the product is produced.  These contractual agreements are typically one year in duration and stipulate from whom the boxed beef can be purchased.  In fiscal year 2010, approximately 34% of Kansas City Steak’s boxed beef was purchased from NBP.  The balance of Kansas City Steak’s raw material is purchased at our discretion on the open market from primary and secondary suppliers with similar quality and yield grade specifications as required under our contracts.

Processing Facilities and Operations

Kansas City Steak processes trimmed and cut individual portions at a processing facility in Kansas City, Kansas.  See Item 2, Properties for further information about this facility.  National Carriers has offices located in Liberal, Kansas and Dodge City, Kansas, both of which are within close proximity to our beef processing facilities in those locations, enabling us to efficiently transport product thereby reducing transportation costs.   National Carriers also has offices in Denison, Iowa, Springdale, Arkansas, and Dallas, Texas as well as administrative offices located in Kansas City, Missouri.  National Elite has an office in Springdale, Arkansas.

Competition

The beef processing industry is highly competitive. Competition exists both in the purchase of live cattle, as well as in the sale of beef products. Our products compete with a large number of other protein sources, including pork and poultry, but our principal competition comes from other beef processors, including Tyson Foods, Inc., Cargill Incorporated, and JBS USA LLC.  Management believes the principal competitive factors in the beef processing industry are price, quality, food safety, customer service, product distribution, technological innovations and brand loyalty.  In particular, we focus on quality, food safety, customer service and the offering of value-added programs on an ongoing basis. Some of our competitors have substantially larger beef operations, greater financial and other resources and wider recognition for their consumer branded products than we do.

Regulation

Our operations are subject to extensive regulation by the USDA, the Grain Inspection Packers and Stockyards Administration, or GIPSA, the FDA, the U.S. EPA and other state, local and foreign authorities regarding the processing, packaging, storage, distribution, advertising and labeling of our products, including food safety standards.  Recently, the food safety practices and procedures in the beef processing industry have been subject to more intense scrutiny and oversight by the USDA.  For example, on January 12, 2004, FSIS published an interim final rule on Specified Risk Materials, or SRMs, and requirements for non-ambulatory disabled cattle due to the finding of BSE in routine testing.  We immediately implemented the appropriate programs/policies to ensure compliance with FSIS rules. FSIS published a final rule on July 13, 2007, making permanent the interim regulations issued in January 2004 that prohibits the slaughter of non-ambulatory disabled cattle, requires the description and removal of SRMs that are considered to be inedible, and restricts the use of captive bolt stunners that deliberately inject compressed air into the cranium of an animal.  We work closely with the USDA and other regulatory agencies to help ensure our operations comply with all applicable food safety laws and regulations.

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Our domestic operations are subject to the Packers and Stockyards Act of 1921, or PSA. This statute generally prohibits meat packers in the livestock industry from engaging in certain practices including violations of the PSA’s prompt payment provisions. In general (unless otherwise agreed in writing by our livestock suppliers), this statute requires us to make full payment for our livestock purchases in the case of cash sales before the close of the next business day following the purchase and transfer of possession of the livestock we purchase, or, in the case of a cash purchase on a carcass or ‘‘grade and yield’’ basis, that we make full payment of the purchase price not later than the close of the first business day following determination of the purchase price. Any delay or attempt to delay payment as required by the PSA will be deemed an unfair practice in violation of the statute. Under the PSA, we must hold in trust for the benefit of our unpaid livestock suppliers all livestock we purchase in cash sales (as well as all inventories of, or receivables for or proceeds from, meat, meat food products or livestock products derived from these cash sales) until the sellers have received full payment. As of August 28, 2010, NBP LLC has secured a bond of $35.9 million to satisfy these requirements.

On June 22, 2010, GIPSA published a proposed rule that would add new regulations under the PSA. If adopted as written, the proposed rule appears to, among other things:

· eliminate the requirement that GIPSA or livestock producers demonstrate competitive harm to prove violations of Sections 202(a) and 202(b) of the PSA, which sections limit unfair, unjustly discriminatory or deceptive practices and undue or unreasonable preferences or advantages in livestock purchasing practices;

· require packers to maintain written records justifying deviations from standard price or contract terms offered to livestock producers;

· prohibit packers from purchasing cattle from other packers or their affiliates; and

· limit a packer’s ability to purchase cattle through dealers operating as packer buyers.

If adopted as written, the new regulations could have a significant impact on cattle procurement and marketing practices in the beef processing industry. In particular, if adopted as written, the proposed regulations could impair our ability to pay premiums for cattle that meet the quality standards for our value-added or export programs, thus affecting how we (i) procure cattle for these programs and (ii) process and market value-added and exported products. We cannot predict whether the proposed rule or some modified rule will be adopted or the extent of the effect of any such rule on the beef processing industry or on our operations or financial results.

Our Dodge City, Kansas and Liberal, Kansas facilities are subject to Title V permitting pursuant to the federal Clean Air Act and the Kansas Air Quality Act and implementing regulations.  These permits expired on January 25, 2010, but were administratively extended pending renewal by the Kansas Department of Health and Environment, or KDHE, of our renewal applications.  Our Brawley and St. Joseph plants are subject to secondary air permits which are in place.  The Moultrie and Hummels Wharf plants are subject only to certain reporting requirements. Our Dodge City, Liberal, Hummels Wharf, Moultrie and Brawley, facilities are subject to Clean Air Act Risk Management Plan requirements relating to our use of ammonia as a refrigerant. In February 2010, KDHE requested the Liberal plant submit a construction permit application and a ‘‘Best Available Control Technology,’’ or BACT, analysis for a bone dryer that was installed in the Liberal plant in 1981 by a prior owner of the Liberal plant. We have completed the BACT analysis and have submitted a construction permit for the bone dryer pursuant to KDHE’s request.

All of our plants are indirect dischargers of wastewater to publicly-owned treatment works and are subject to requirements under the federal Clean Water Act and corresponding state laws and implementing municipal laws as well as agreements or permits with municipal or county authorities. We have an agreement with the City of Liberal for wastewater and storm water treatment and are working with the City regarding expansion of the City’s treatment facilities to address new and more stringent discharge requirements that will apply to the City’s discharge in the context of the renewal of the City’s discharge permit. Depending upon the ultimate cost of the required upgrade, there may be significant expenditures associated with the expansion of the City’s treatment facilities. We have an agreement with the City of Moultrie and The Joint Development Authority of Brooks, Colquitt, Grady, Mitchell and Thomas Counties for treatment of wastewater from the Moultrie plant, and we have a pretreatment permit from the

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City of Moultrie for treatment of wastewater from the Moultrie plant.  This permit was reissued in March 2010, and we are making the capital improvements needed to meet new phosphorus limits that are in the reissued permit. Estimated capital expenditures associated with the treatment of phosphorus in our wastewater at Moultrie are estimated at approximately $3.2 million, of which approximately $1.6 million was spent during fiscal year 2010, with the remaining included in our 2011 capital expenditure budget. The Eastern Snyder County Regional Authority has informed us that we will need to reduce nutrients in our wastewater in the future at our Hummels Wharf plant. We expect to construct additional wastewater treatment facilities at the plant to respond to such request at a future date. We have upgraded our treatment facilities at the Brawley plant to provide treatment that meets the ammonia requirements of the Brawley City Ordinance and we are in the process of making improvements that will allow us to consistently meet the total suspended solids limits in such Ordinance. The City of Brawley is in the process of upgrading its publicly-owned treatment works in order to comply with its direct discharge permit, including requirements for ammonia and nutrient controls. The City has increased sewer rates to the Brawley Plant and has suggested that a capacity charge may also be needed in connection with the required upgrades. Such charges may significantly increase our operational costs at Brawley.

Storm water discharges from our plants are regulated pursuant to general permits issued by the respective states with the exception of Missouri which does not have a general permit program available to our St. Joseph tannery. The Missouri Department of Natural Resources made a comprehensive storm water inspection at the tannery in April-May 2009 and in an inspection report and Notice of Violation requested that the plant submit an application for storm water discharges which previously had been determined to be discharged to the City publicly-owned treatment works and, thus, not requiring a permit. We submitted the requested permit application in November 2009.

Our Dodge City, Liberal, Hummels Wharf, and St. Joseph plants are supplied by water from supply wells on our property. We purchase water from the City of Moultrie and the City of Brawley and some water is purchased from the City of St. Joseph, all pursuant to municipal water rate structures. We purchased irrigation water rights for the majority of water needed at our Dodge City plant and are in the process of converting the existing renewable term permits governing our exercise of the irrigation rights to certificates of appropriation for municipal use for a majority of the Dodge City plant water supply. We hold public water supply permits allowing us to supply potable water to our employees at our Dodge City, Kansas and Liberal, Kansas facilities. The public water supply permits do not have expiration dates.

All of our facilities generate solid wastestreams, including small quantities of hazardous wastes. While we are subject to laws that provide for strict, and in certain circumstances joint and several, liability for remediation of hazardous substances at contaminated sites, which could include current or former facilities or other sites where wastes we generated have been disposed, we have not received any demands nor are we aware that we have any liability at such sites under the Comprehensive Environmental Response, Compensation and Liability Act, or Superfund, or state counterparts.

Our National Beef Leathers subsidiary is cooperating with governmental investigations related to the St. Joseph tannery. The company’s operations began at this facility in March 2009.  Region 7 EPA, in cooperation with the Missouri Department of Natural Resources, or MDNR, is investigating the land application of sludge from the tannery wastewater treatment facility to numerous parcels of farmland in a four county area in Northwest Missouri over many years by the former owner of the tannery. The sludge was classified as a fertilizer in Missouri. We have cooperated with the investigations in providing records of land application prepared by the prior owner/operator of the tannery, Prime Tanning, and have provided assistance in interpreting those records. For a six and one-half week period of time following our purchase of certain assets of Prime Tanning, we land applied wastewater treatment sludge to portions of two parcels of land. In April-May, 2009, Region 7 EPA and MDNR conducted a multi-media inspection of our St. Joseph tannery. Following that inspection, EPA issued one information request pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource Conservation and Recovery Act, the Clean Water Act, and the Clean Air Act; a second information request pursuant to the Resource Conservation and Recovery Act, and one Notice of Violation under the Resource Conservation and Recovery Act. The Missouri Department of Natural Resources has issued a Storm Water Notice of Violation (discussed above). We have responded to the information requests and to the Notices of Violation.

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Our plants are subject to community right to know reporting requirements under the Superfund Amendments and Reauthorization Act of 1986, which requires yearly filings as to the substances used on the plant premises. We also report accidental releases of hazardous substances pursuant to the Superfund law and amendments and state law counterparts.

In fiscal year 2010, we incurred expenses of approximately $4.4 million in environmentally-related capital expenditures, of which approximately $1.6 million was spent for wastewater improvements at our Moultrie plant.  We anticipate environmentally-related capital expenditures of approximately $4.4 million in fiscal 2011, of which approximately $1.6 million is budgeted for wastewater improvements at our Moultrie plant.

In addition to the environmental matters discussed above, from time to time we receive notices from regulatory authorities and others asserting that we are not in compliance with some laws and regulations. In some instances, litigation ensues.

Employees

As of August 28, 2010, we had approximately 9,100 employees, of which approximately 43% are represented by collective bargaining agreements.  Approximately 2,700 employees at our Liberal, Kansas facility are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire December 16, 2012. Approximately 1,100 employees at our Brawley, California facility are jointly represented by the United Food and Commercial Workers International Union and the Teamsters International Union under a collective bargaining agreement scheduled to expire on December 8, 2013.  Approximately 80 employees at our St. Joseph, Missouri facility are represented by the United Cereal Workers of the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire on May 18, 2014.

We consider our relations with our employees and the United Food and Commercial Workers International Union and the Teamsters International Union and the United Cereal Workers of the United Food and Commercial Workers International Union to be good.

Food Safety

Food safety is one of our top priorities. We believe our food safety process utilizes many of the industry’s most effective intervention technologies. These intervention technologies are coupled with our ongoing efforts to incorporate and promote “best practices” throughout our production process to enhance product quality and to produce safe, wholesome beef products. Our food safety system incorporates a multiple hurdle strategy that includes multiple hot water thermal pasteurization cabinets, anti-microbial washes, organic rinses, in-line steam vacuums, specific carcass trimming procedures, detailed carcass and product monitoring standard operating procedures, and a rigorous cold chain management system. We support our food safety process in each of our major processing facilities with on-site microbiological laboratories. These on-site laboratories conduct microbial tests, monitor facility processes, test intervention efficacies, and validate that all of our processes are meeting design parameters.

Intellectual Property

We hold a number of trademarks and domain names we believe are material to our business and which are registered with the United States Patent and Trademark Office, including National Beef®, BioLogic® Food Safety System, Black Canyon® Angus Beef, Black Canyon® Premium Reserve, Certified Premium Beef®, Naturewell® Natural Beef, NatureSource® Natural Angus Beef, Vintage Natural Beef®, Imperial Valley® Premium Beef, Leading the Way in Quality Beef®, Royal Blue™ Leather, Regal Blue Leather™, and Radiant Blue Leather™. We have also registered the National Beef® trade name and trademark in most of the foreign countries to which we sell our products. Currently, we have a number of trademark registrations pending in the U.S. and in foreign countries. In addition to trademark protection, we attempt to protect our unregistered marks and other proprietary information under trade secret laws, employee and third-party non-disclosure agreements and other laws and methods of protection. All other trademarks or trade names referred to in this report are the property of their respective owners.

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Management Information Systems

We have developed proprietary management information systems tailored to our business processes which help enable us to make coordinated, data driven decisions and enable us to operate more profitably.  For example, we use individual carcass data (including information on weight, grade and breed as well as historical information with respect to similar animals) to make decisions regarding the appropriate products to process from each carcass, taking into account current supply and demand.  Furthermore, coordinated information systems help the procurement department to anticipate the quality and quantity of cattle it needs to procure to fill sales orders in the short term, and the sales department to tailor its sales efforts to take into account changes in available supply.  Our sophisticated systems also permit our sales force to readily compare orders by location to trailer capacity to reduce transportation costs by better using trailer capacity.  In addition, our management information systems at our plants have been developed to fit our operating and maintenance needs, thereby reducing training time for our employees and simplifying the work order process.

Legal Proceedings

National Beef Leathers, LLC, or NBL, a wholly-owned subsidiary of NBP LLC, is a named defendant in two currently pending purported class actions involving NBL’s tannery located in St. Joseph, Missouri, which NBL purchased in March 2009.  These lawsuits were filed on July 22, 2009 in the U.S. District Court for the Western District of Missouri. The lawsuits allege that NBL spread wastewater sludge containing hexavalent chromium in four counties in northwest Missouri. The plaintiffs are seeking an unspecified amount of damages for economic damages, punitive damages, diminished property values and medical monitoring. On May 11, 2010, the court issued an order ruling that NBL is not liable under a successor liability theory for the conduct of the tannery’s previous owner and another party prior to NBL’s purchase of the tannery.   As a result of this ruling, the plaintiffs in 15 lawsuits filed between April 22, 2009 and April 29, 2010, in the Circuit Courts of Buchannan County, Clinton County, and DeKalb County, Missouri seeking damages for economic damages, punitive damages, diminished property values and medical monitoring voluntarily dismissed their claims against NBL in June 2010.  NBL believes it has meritorious defenses to the claims in the remaining two lawsuits and intends to defend them vigorously.

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

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ITEM 1A.               RISK FACTORS

Our business operations and the implementation of our business strategy are subject to significant risks inherent in our business, including, without limitation, the risks and uncertainties described below.  The occurrence of any one or more of the risks or uncertainties described below could have a material adverse effect on our financial condition, results of operations and cash flows.  While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or are not currently believed to be significant that may adversely affect our business, operations, industry, financial position and financial performance in the future.

Risks Related to Our Industry and Our Business

Outbreaks of disease affecting livestock can adversely affect demand for our products and the supply of cattle and thereby adversely affect our business.

We are subject to risks relating to animal health and disease control. An outbreak of disease affecting livestock, such as BSE (also commonly referred to as mad cow disease) or foot-and-mouth disease could result in restrictions on sales of products to our customers or purchases of livestock from our suppliers. Also, outbreaks of these diseases, or the perception by the public that such an outbreak has occurred or other concerns regarding such disease, whether or not resulting in regulatory action, can lead to cancellation of orders by our customers and create adverse publicity may have a material adverse effect on consumer demand and, as a result, on our results of operations. Furthermore, an outbreak of disease could lead to widespread destruction of cattle, which could have a negative impact on us.

If our products or products made by others using our products become contaminated or are alleged to be contaminated, we may be subject to product liability claims and product recalls that would adversely affect our business.

We may be subject to significant liability potentially in excess of applicable liability insurance policy limits if the consumption of any of our products or products made by others using our products causes injury, illness or death due to contamination or otherwise and we may in the future recall products in the event our products are or may be contaminated, spoiled or inappropriately labeled. Contamination of our products or those of our competitors also may create adverse publicity or cause consumers to lose confidence in the safety and quality of our products that could negatively affect our business. We may encounter the same risks of contamination or negative publicity if a third party tampers with our products. Allegations of contamination of our products may also be harmful to us even if such allegations are untrue. The occurrence of any of these risks may increase our costs and decrease demand for our products, which could negatively affect our business, financial condition, results of operations and cash flows. Organisms producing food borne illnesses are generally found in the environment and there is a risk that as a result of food processing they could be present in our products. For example, E. coli is one of many food borne bacteria commonly associated with beef products. Once contaminated products have been shipped for distribution and consumption, illness or death may result if pathogens are present, increase due to handling or temperatures, and are not otherwise eliminated at the further processing, food service or consumer level. We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future.

Our margins may be negatively impacted by fluctuating raw material and utility costs, selling prices, changes in our relationships with our suppliers and other factors that are outside of our control.

Our margins are dependent on the price at which our beef products can be sold and the price we pay for our raw materials, among other factors. These prices can vary significantly over a relatively short period of time as a result of a number of factors, including the relative supply and demand for live cattle and beef products, as well as the market for competing or complimentary products, such as pork and poultry.  In addition, closure of international markets to U.S. beef product exports as a result of the December 23, 2003 BSE discovery negatively affected U.S. beef product margins, as certain by-products, classified as Specific Risk Materials, or SRMs, have been banned from use in feedstocks and the human food chain.  Some of these products previously enjoyed a market in foreign countries.

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The supply and market price of the livestock that constitute our principal raw material and represent the substantial majority of our cost of goods sold are dependent upon a variety of factors over which we have little or no control, including fluctuations in the size of herds maintained by producers, the relative cost of feed and energy, weather and livestock diseases.  Additionally, the closure of the U.S. border to Canadian livestock from May 2003 until July 2005 constrained the supply of cattle in the U.S. which resulted in higher overall cattle prices in the U.S. compared to Canada, and the closure prompted Canada to increase its processing capabilities, which may also have an adverse impact on our future margins.  In addition, we purchase approximately 52% of the cattle we process on the open market.  If we do not attract and maintain acceptable relationships with growers, the quantity, quality or pricing of our supply of cattle could be negatively affected.

Severe price swings in raw materials, and the resulting impact on the prices we charge for our products, have at times had, and may in the future have, a material adverse effect on our financial condition, results of operations and cash flows.  If we experience increased costs, we may not be able to pass them along to our customers.  In addition, our costs for utilities, such as energy and water may fluctuate over time.

Our international operations expose us to political and economic risks in foreign countries, as well as to risks related to currency fluctuations and could negatively affect our sales to customers in foreign countries and our operations and assets in such countries.

In fiscal year 2010, exports, primarily to Mexico, Japan, South Korea, Canada, China (for hides), Hong Kong, Egypt, and Taiwan accounted for approximately 11% of our total net sales and these sales on average had a higher margin than our sales generally.  A reduction in our international sales would likely adversely affect our margins.  In addition, our international activities expose us to risks not faced by companies that limit themselves to the domestic market.  One significant risk is that the international operations may be affected by tariffs, other trade protection or food safety measures and import or export licensing requirements.

An example of a risk related to our international operations is BSE, as discussed above in Item 1, Business — Industry Overview — Beef Export Markets.

Other risks associated with our international activities include:

·                  changes in foreign currency exchange rates and inflation or deflation in the foreign countries in which we operate;

·                  the closing of borders by foreign countries to the import of our products due to disease or other perceived health or food safety issues;

·                  exchange controls;

·                  changes in tariffs;

·                  changes in political or economic conditions in a specific country or region, particularly in emerging markets;

·                  trade restrictions imposed by countries with respect to the importation of our products, including actions taken in connection with trade disputes;

·                  potentially negative consequences from changes in regulatory requirements; and

·                  international conflict, including terrorist acts, which could significantly impact our financial condition and results of operations.

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

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Compliance with environmental regulations could result in significant costs and failure to comply with environmental regulations and our use of hazardous substances, including at National Beef Leather’s tannery facility, could result in civil as well as criminal penalties, liability for damages and negative publicity.

Our operations are subject to extensive and increasingly stringent regulations, including those relating to wastewater and stormwater discharges, air emissions, waste handling and disposal and remediation of soil and groundwater contamination that are administered by the U.S. Environmental Protection Agency, or EPA and state, local and other authorities.  In many areas, these laws and regulations are becoming increasingly stringent.  Failure to comply with these laws and regulations can have serious consequences for us, including criminal as well as civil and administrative penalties and negative publicity. We have incurred and will continue to incur significant capital and operating expenditures to adapt to more stringent regulations and to avoid violations of these laws and regulations. Additional environmental requirements imposed in the future could result in currently unanticipated investigations, assessments or expenditures, and may require us to incur significant additional costs. Because the nature of these potential future charges is unknown, management is not able to estimate the magnitude of any future costs and we have not accrued any reserve for any potential future costs.

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

In most locations, our processing facilities rely on municipal or other regional governmental agencies for our water supply and for the treatment of our wastewater discharges. These entities themselves are subject to environmental laws regarding the quality of their water discharges, and must meet permit limits. If permit limits become more stringent, upgrades and capital improvements to these municipal treatment facilities are likely. In those locations where we are a significant volume discharger, it is possible we may be asked to contribute toward the costs of such upgrades, or we may become subject to significant increases in water or sewer charges in order for such upgrade costs to be recouped.

As described in Item 1, Business — Legal Proceedings, NBL, a wholly-owned subsidiary of NBP LLC, is a named defendant in two currently pending purported class actions involving NBL’s tannery located in St. Joseph, Missouri, which NBL purchased in March 2009.  These lawsuits were filed on July 22, 2009 in the U.S. District Court for the Western District of Missouri. The lawsuits allege that NBL spread wastewater sludge containing hexavalent chromium in four counties in northwest Missouri. The plaintiffs are seeking an unspecified amount of damages for economic damages, punitive damages, diminished property values and medical monitoring.   NBL believes it has meritorious defenses to the claims in the two lawsuits and intends to defend them vigorously.

Our indebtedness could adversely affect our business and our liquidity position.

As of August 28, 2010, we had $246.5 million of long-term debt, of which $21.4 million was classified as a current liability.  As of August 28, 2010, our Credit Facility consisted of a $375.0 million term loan, $200.0 million of which was outstanding, a $250.0 million revolving line of credit loan, which had outstanding borrowings of $27.0 million, outstanding letters of credit of $26.0 million and available borrowings of $197.0 million, based on the most restrictive financial covenant calculations.  In addition, as of August 28, 2010, we had outstanding industrial revenue bonds of $12.2 million and capital leases and other obligations of $7.3 million.

Our indebtedness may increase from time to time in the future for various reasons, including fluctuations in operating results, working capital requirements, capital expenditures and potential acquisitions.

Our indebtedness, together with additional future indebtedness we may incur, and restrictive covenants contained in the Credit Facility could:

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·                  make it difficult for us to satisfy our obligations, including making interest payments on our debt obligations;

·                  limit our ability to obtain additional financing to operate our business;

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

·                  limit our flexibility to plan for and react to changes in our business and the beef processing industry;

·                  place us at a competitive disadvantage relative to some of our competitors that have less debt than us;

·                  limit our ability to pursue acquisitions; and

·                  increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates, changes in cattle prices or a downturn in our business or the economy.

The occurrence of any one of these events could have a material adverse effect on our business, financial condition and results of operations or cause a significant decrease in our liquidity and impair our ability to pay amounts due on our indebtedness.

The Credit Facility contains, among other things, restrictive covenants that will limit our and our subsidiaries’ ability to finance future operations or capital needs or to engage in other business activities.  The Credit Facility restricts, among other things, our ability and the ability of our subsidiaries to:

·                  incur additional indebtedness or issue guarantees;

·                  create liens on our assets;

·                  make distributions on or redeem equity interests;

·                  make investments;

·                  transfer or sell properties or other assets; and

·                  engage in mergers, consolidations or acquisitions.

In addition, the Credit Facility requires us to meet specified financial ratios and tests under certain circumstances.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital or restructure debt. Our ability to generate cash and make scheduled payments or refinance our obligations depends on our successful financial and operating performance, which depend upon prevailing economic conditions and other factors, many of which are beyond our control.

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Our operating results could be negatively impacted by our hedging and derivative positions.

We use derivative financial instruments and other hedging strategies in an attempt to reduce our exposure to various market risks, including changes in commodity prices. We hold certain positions that do not qualify as hedges for financial reporting purposes. These positions are marked to fair value, and the unrealized gains and losses are reported in earnings at each reporting date. Therefore, losses on these contracts will adversely affect our reported operating results. The use of such instruments may ultimately limit our ability to benefit from favorable commodity price movements, which may adversely affect our reported operating results.

We generally do not have long-term contracts with our customers, and, as a result, the prices at which we sell our beef products are subject to market forces.

We generally do not have long-term sales arrangements with our customers and, as a result, the prices at which we sell products to them are determined in large part by market forces. Our customers, mostly excluding those with which we have long-term contracts, place orders for products on an as-needed basis and, as a result, their order levels have varied from period to period in the past and may vary significantly in the future. The loss of one or more of our key customers, a significant decline in the number of orders from one or more of our key customers or a significant decrease in beef product prices for a sustained period of time could have a material adverse effect on our business, financial condition or results of operations.

Wal-Mart’s failure to continue purchasing from us could have a material adverse effect on our sales.

Sales to Wal-Mart Stores, Inc., or Wal-Mart, and its affiliate, Sam’s Club, represented approximately 10% of our total net sales in fiscal year 2010.  Our contractual agreement with Wal-Mart expired on January 31, 2004, and we have not entered into a new agreement.  If Wal-Mart and its affiliates do not continue to purchase from us, it could have a material adverse effect on our sales, financial position, results of operations and cash flows.

We are subject to extensive governmental regulation and our noncompliance with or changes in applicable requirements could adversely affect our business, financial condition, results of operations and cash flows.

In addition to the environmental regulations discussed above, our operations are subject to extensive regulation and oversight by the USDA (including GIPSA), the FDA, and other state, local and foreign authorities regarding the processing, packaging, storage, distribution, advertising and labeling of our products, including food safety standards.  Our domestic operations are subject to the PSA.  This statute generally prohibits meat packers in the livestock industry from engaging in certain practices including violations of the PSA’s prompt payment provisions.  In general (unless otherwise agreed in writing by our livestock suppliers), this statute requires us to make full payment for our livestock purchases in the case of cash sales before the close of the next business day following the purchase and transfer of possession of the livestock we purchase, or, in the case of a cash purchase on a carcass or ‘‘grade and yield’’ basis, that we make full payment of the purchase price not later than the close of the first business day following determination of the purchase price. On June 22, 2010, GIPSA published a proposed rule that would add new regulations under the PSA. If adopted as written, the proposed rule appears to, among other things:

· eliminate the requirement that GIPSA or livestock producers demonstrate competitive harm to prove violations of Sections 202(a) and 202(b) of the PSA, which sections limit unfair, unjustly discriminatory or deceptive practices and undue or unreasonable preferences or advantages in livestock purchasing practices;

· require packers to maintain written records justifying deviations from standard price or contract terms offered to livestock producers;

· prohibit packers from purchasing cattle from other packers or their affiliates; and

· limit a packer’s ability to purchase cattle through dealers operating as packer buyers.

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If adopted as written, the new regulations could have a significant impact on cattle procurement and marketing practices in the beef processing industry. In particular, if adopted as written, the proposed regulations could impair our ability to pay premiums for cattle that meet the quality standards for our value-added or export programs, thus affecting how we (i) procure cattle for these programs and (ii) process and market value-added and exported products. We cannot predict whether the proposed rule or some modified rule will be adopted or the extent of the effect of any such rule on the beef processing industry or on our operations or financial results.

Recently, the food safety practices and procedures in the meat processing industry have been subject to more intense scrutiny and oversight by the USDA. Food safety standards, processes and procedures are subject to the USDA Hazard Analysis Critical Control Point program, which includes compliance with the Public Health Security and Bioterrorism Preparedness and Response Act of 2002.  In hopes of reducing the development and spread to humans of dangerous antibiotic-resistant bacteria, the Obama administration announced in July 2009 that it would seek to ban routine use of antibiotics, which are fed to farm animals to encourage growth.

We are also subject to a variety of immigration, labor and worker safety laws and regulations, including those relating to the hiring and retention of employees.  Our failure to comply with applicable laws and regulations could subject us to administrative penalties and injunctive relief, civil remedies, including fines, injunctions, interruption of our operations, recalls of our products or seizures of our properties, as well as potential criminal sanctions or personal injury or other damage claims. These remedies, changes in the applicable laws and regulations or discovery of currently unknown conditions could increase our costs and limit our business operations.

Failure to successfully implement our business strategy may impede our plans to increase revenues, margins and cash flow.

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

Changes in consumer preferences could adversely affect our business.

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

The beef processing industry is highly competitive and our customers might not continue to purchase our products from us or prices we receive for our products could fluctuate or be adversely impaired by actions taken by our competitors.

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

Our principal competition arises from other beef processors, including Tyson Foods, Inc., Cargill Meat Solutions and JBS USA LLC. The principal competitive factors in the beef processing industry are price, quality, food safety, product distribution, technological innovations and brand loyalty. Our ability to be an effective competitor will depend on our ability to compete on the basis of these characteristics. Some of our competitors have substantially larger beef operations, greater financial and other resources and wider recognition for their consumer

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branded products than we do. We cannot assure you that we will be able to compete effectively with these companies and our ability to compete could be adversely affected by our significant debt levels.

Extreme weather or other forces beyond our control could negatively impact our business.

Natural disasters, fire, bioterrorism, pandemic or extreme weather, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of livestock or interfere with our operations due to power outages, fuel shortages, water shortages, damage to our production and processing facilities or disruption of transportation channels, among other things.  Any of these factors, as well as disruptions in our information systems, could have an adverse effect on our financial results.

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

The beef industry is characterized by prices that change based on seasonal consumption patterns. The highest period of demand for our products is usually the summer and spring months when weather patterns permit more outdoor activities and there is increased demand for higher value items that are grilled, such as steaks. In addition, because of higher consumption, more favorable growing conditions and the housing of animals in feedlots for the winter months, there are generally more cattle available in the summer and fall. As a result of these seasonal fluctuations, our revenue and profitability tend to be higher for our third and fourth fiscal quarters ended May and August, respectively, than for our first and second fiscal quarters ended November and February, respectively. However these seasonal patterns may vary substantially from year to year.

We depend on the service of key individuals, the loss of whom could materially harm our business.

Our success will depend, in part, on the efforts of our officers and other key employees.  In addition, the market for qualified personnel is competitive and our future success will depend on our ability to attract and retain these personnel. With the exception of our Chief Executive Officer, we do not have long-term employment agreements with our officers or maintain key-person insurance on any officer.  The loss of the services of any of our key employees or the failure to attract and retain employees could have a material adverse effect on our business, results of operations and financial condition.

Our performance depends on favorable labor relations with our employees. Any deterioration of those relations or increase in labor costs could adversely affect our business.

As of August 28, 2010, we had approximately 9,100 employees worldwide. Approximately 2,700 employees at our Liberal, Kansas facility are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement that expires on December 16, 2012. Approximately 1,100 employees at our Brawley, California facility are jointly represented by the United Food and Commercial Workers International Union and Teamsters International Union under a collective bargaining agreement that expires on December 8, 2013. Approximately 80 employees at our St. Joseph, Missouri facility are represented by the United Cereal Workers of the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire on May 18, 2014. In November 2009, the United Food and Commercial Workers Union filed a petition with the Regional Office of the National Labor Relations Board in Kansas City, Missouri seeking to represent employees who work at our Dodge City, Kansas facility. This union withdrew its petition in January 2010.

A labor-related work stoppage by our unionized employees could limit our ability to process and ship our products or increase our costs, which could adversely affect our results of operations and financial condition.  In addition, it is possible that any labor union efforts to organize employees at our non-unionized facilities might be successful and that any labor-related work stoppages at these non-unionized facilities in the future could adversely affect our results of operations and financial condition.  In general, any significant increase in labor costs, deterioration of employee relations, slowdowns or work stoppages at any of our locations, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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The consolidation of our retail and food service customers may put pressures on our operating margins.

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

We may not be able to successfully complete acquisitions, affecting our ability to grow, or integrate completed and future acquisitions, which could result in failure to achieve our expected acquisition benefits, the disruption of our business and an increase in our costs.

We continually explore opportunities to acquire related businesses, some of which could be material to us. Our ability to continue to grow may depend upon identifying and successfully acquiring attractive companies, effectively integrating these companies, achieving cost efficiencies and managing these businesses as part of our Company.

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

Our operations are subject to the general risks of litigation.

We are involved on an ongoing basis in litigation arising in the ordinary course of business or otherwise. Trends in litigation may include class actions involving consumers, stockholders, employees or injured persons, and claims related to commercial, labor, employment, antitrust, securities or environmental matters. These actions could also divert the attention of our management team and expose us to significant liability and adverse publicity, which might adversely affect our brands, reputation and/or customer preference for our products.  Due to the unpredictable nature of litigation, it is not possible to predict the ultimate outcome of any potential lawsuits, and we may be held liable for significant judgments, or other losses, that are not fully covered by our insurance, which could have a material adverse effect on our business.

Deterioration of economic conditions could negatively impact our business.

Our business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges) and the effects of governmental initiatives to manage economic conditions. Any such changes could adversely affect the demand for our products or the cost and availability of our needed raw materials and packaging materials, thereby negatively affecting our financial results.

A downturn in the U.S. economy may result in reduced demand for certain of our products, downward pressure on prices and shifts to less profitable private label products. Moreover, any material reduction in demand for our products in our key export markets (Japan and South Korea) could have an adverse effect on our results of operations.

The recent disruptions and instability in credit and other financial markets and deterioration of national and global economic conditions, could, among other things:

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·                  make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the future;

·                  cause our lenders to depart from prior credit industry practice and make more difficult or expensive the granting of any technical or other waivers under our credit agreements to the extent we may seek them in the future;

·                  impair the financial condition of some of our customers, suppliers or counterparties to our derivative instruments, thereby increasing customer bad debts, non-performance by suppliers or counterparty failures negatively impacting our treasury operations; and

·                  negatively impact global demand for beef products, which could result in a reduction of sales, operating income and cash flows.

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Risks Related to U.S. Premium Beef

USPB has a majority interest in our Company and, through their representative on our Board of Managers, has the ability to significantly influence our business and affairs; USPB’s interests could conflict with other stakeholders.

USPB owns a majority interest in our Company of approximately 69.3% of the Class B interests, as well as Class A and Class A-1 interests, with an aggregate face amount of approximately $150.5 million,.  As a result, USPB has the ability, through the actions of its representative on our Board of Managers, to cast the majority vote on many matters related to the business and affairs of our Company.  However, pursuant to our limited liability company agreement, USPB’s ability to cause us to take certain major corporate actions without the consent of NBPCo Holdings and management is limited.

We purchase a portion of our cattle through USPB and its producer-owners and, because USPB has a majority interest in our Company, we may not be able to resolve conflicts with respect to these purchases on the most favorable terms to us.

USPB and its producer-owners provided us with approximately 20% of our cattle requirements in fiscal year 2010 through the pricing grid process as more fully described in Item 13, Certain Relationships and Related Transactions. Conflicts of interest may arise between USPB and us relating to our cattle purchases. If a dispute arises with USPB, the settlement of the dispute may not be on terms as favorable to us as if we were dealing with an unaffiliated party.

ITEM 1B.               UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.                  PROPERTIES

We own our Liberal, Kansas, Dodge City, Kansas, Brawley, California, Hummels Wharf, Pennsylvania, Moultrie, Georgia, and St. Joseph, Missouri facilities. We lease our headquarters facility in Kansas City, Missouri (which includes approximately 27,200 square feet of office space) and our Kansas City Steak processing facility in Kansas City, Kansas. We also have short-term leases in place for our offices in Chicago, Illinois, Denison, Iowa, Dallas, Texas, Springdale, Arkansas, Tokyo, Japan, Seoul, South Korea, and Beijing, China.  The Credit Facility is secured by a first priority lien on substantially all of our real and personal property.  The table below provides additional information regarding our primary facilities:

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ITEM 3.                  LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 12, Legal Proceedings, to our consolidated financial statements included in Item 8 of this report.  In addition, see Item 1, Business — Regulation for information regarding information requests, investigations and proceedings pertaining to environmental matters.

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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 public trading market for any class of common equity of National Beef Packing Company, LLC.  As of October 29, 2010, there were four record holders of Class A, Class A1 and/or Class B interests.

Cash distributions are paid not later than 30 days after the close of the tax year quarter end to the interest holders of Class A and Class A1 shares on a priority basis, and to the holders of Class B shares to make tax payments, to the extent permitted by our senior lenders and the indenture governing our senior notes.  See Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.  The payment of any other cash distributions would be made only from assets legally available for that purpose and would depend on the Company’s financial condition, results of operations, and other factors then deemed relevant by the Board of Managers.

For a discussion of equity compensation plans, see Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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ITEM 6.                  SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and other data for, and as of the end of, each of the fiscal years in the five-year period ended August 28, 2010.  The selected consolidated financial information for the three fiscal years ended August 28, 2010 (statement of operations data) and as of the fiscal years ended August 28, 2010 and August 29, 2009 (balance sheet data) has been derived from our audited consolidated financial statements included elsewhere in this filing.  The selected consolidated financial information for the two fiscal years ended August 25, 2007 (statements of operations data) and as of the fiscal years ended August 28, 2008, August 25, 2007, and August 26, 2006 (balance sheet data) has been derived from our audited financial statements for those years which are not included in this filing, as adjusted for the presentation requirements of Accounting Standards Codification (“ASC”) 810 — Consolidation,  which was adopted by the Company as of August 30, 2009 with retrospective application to the historical years presented.  Our fiscal year ends on the last Saturday in August.

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

(1) Working capital represents the excess of current assets over current liabilities.

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

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this report.  In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Item 1A, Risk Factors, Item 7, Disclosure Regarding Forward-Looking Statements and elsewhere in this report.

Disclosure Regarding Forward-Looking Statements

This report contains “forward-looking statements,” which are subject to a number of risks and uncertainties, many of which are beyond our control.  Forward-looking statements are typically identified by the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and similar expressions.  Actual results could differ materially from those contemplated by these forward-looking statements as a result of many factors, including economic conditions generally and in our principal markets, the availability and prices of live cattle and commodities, food safety, livestock disease, including the identification of cattle with BSE, competitive practices and consolidation in the cattle production and processing industries, actions of domestic or foreign governments, hedging risk, changes in interest rates and foreign currency exchange rates, consumer demand and preferences, the cost of compliance with environmental and health laws, loss of key customers, loss of key  employees, labor relations, and consolidation among our customers.

In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this report will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors.  Please review Item 1A, Risk Factors, included in this report, for other important factors that could cause actual results to differ materially from those in any such forward-looking statements.

Overview

We are one of the largest beef processing companies in the U.S., accounting for approximately 14% of the federally inspected steer and heifer slaughter during our fiscal year ended August 28, 2010 as reported by the USDA. We process, package and deliver fresh and frozen beef and beef by-products for sale to customers in the United States and international markets. Our products include boxed beef, ground beef, hides, tallow and other beef and beef by-products. In addition, we sell value-added beef and beef by-products, including branded boxed beef, case-ready beef, portion control beef and further processed hides. We market our products to retailers, food service providers, distributors, further processors and the United States military. We believe our relationship with USPB is a competitive advantage within the industry and provides us with a consistent and dependable supply of high-quality cattle, including for processing in value-added and other programs.

In July 1992, John R. Miller, Timothy M. Klein and Scott H. Smith, or the Management Team, in partnership with Farmland Industries, Inc., or Farmland, purchased the assets of Hyplains Dressed Beef, Inc. of Dodge City, Kansas. Upon completion of the purchase, the Management Team formed Hyplains Beef, LLC and commenced a $20.0 million expansion project to add boxed beef processing operations to the Dodge City facility. In December 1992, the management team assumed responsibility for the day-to-day operations of National Beef Packing Company, L.P. and, with Farmland, purchased its assets in April 1993. In 1995, Hyplains Beef, LLC and National Beef Packing Company, L.P. were merged into Farmland National Beef Packing Company, L.P., or FNBPC. In 1997, USPB purchased the interest in FNBPC then owned by the Management Team and became partners with Farmland.

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In December 1997, FNBPC acquired what became a 75% interest in Kansas City Steak Company, LLC (Kansas City Steak), a portion control steak cutting operation.  In March 2003, FNBPC acquired National Carriers, Inc. (National Carriers), a refrigerated and livestock transportation company, from Farmland.  Effective August 6, 2003, USPB acquired a controlling interest in FNBPC and formed NBP.

Effective May 30, 2006, 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, or NBC.  NBC is a limited partnership formed with National Carriers, a wholly-owned subsidiary of NBP, acting as its general partner. Brawley Beef was an alliance of cattle producers in Arizona and California who owned the beef processing facility and supplied it with cattle. The facility commenced operations in December 2001.

National Beef Leathers, LLC, a wholly-owned subsidiary of NBP, purchased certain assets of a wet blue tannery located in St. Joseph, Missouri from Prime Tanning in March 2009.

Financial Statement Accounts

Net Sales.    Our net sales are generated from sales of boxed beef, case-ready beef, chilled and frozen export beef, portion control beef and beef by-products. Our net sales are affected by the volume of animals processed and the value we extract from each animal.  The value we extract from cattle processed, referred to as the cut-out value, is affected by beef prices and product mix, as value-added products and export sales typically generate higher prices and operating margins.  Our value-added products contribute significantly more, in terms of profits, than our traditional boxed beef products and are an important component of our profitability.  Wholesale beef prices fluctuate seasonally because of higher demand during the summer months.  Wholesale beef prices also fluctuate because of changes in supply and demand for competing proteins and other foods, as well as changes in cattle supply, which have typically followed a ten to twelve year cycle, consisting of about six to seven years of expansion followed by one to two years of consolidation and three to four years of contraction.  While we expect the supply of cattle to expand at some point in the next few years, we do not expect any growth in the near term.  In addition, beef and by-product sales are affected by the general economic environment and other factors.

Cost of Sales.    Our cost of sales is comprised of the cost of livestock and plant costs such as labor, packaging and utilities, and other facility expenses.  Total livestock costs are a function of the volume of animals processed and the price paid for each animal. Cattle prices vary over time and are affected by production cycles, weather, feed prices and other factors that affect the supply of and demand for livestock.  Cut-out value is a measure of the sales value of a beef carcass expressed on a per hundred weight basis.  Historically, changes in cut-out values and corresponding livestock costs have been positively correlated.

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

Overall Industry Outlook

Cattle on feed supplies for the fall quarter are expected to be near prior year supplies although, active marketing during the summer months resulted in cattle weights below prior year weights and fewer market ready cattle than in the fall of 2009.  Nationally, beef cow and bull slaughter levels remain above prior year levels resulting in the continuation of herd liquidation.  Meanwhile, rising grain prices have kept expansion of pork and poultry stable and per capita animal protein supplies supportive to cattle and beef values.  Growing global demand for U.S. beef realized over the past 18 months is expected to continue into calendar year 2011.  Barring significant deterioration in current economic conditions, consumer demand is expected to be positive given available supplies and supportive to recent beef and cattle price increases.

Beef Export Markets

Export markets for U.S. beef products remain constrained since the discovery of a single case of BSE in the State of Washington in December 2003, as well as other isolated cases.  In July 2006, Japan agreed to reopen its

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market to U.S. beef from cattle aged 20 months and younger.   South Korea announced a provisional opening of its border to U.S. beef from animals 30 months and younger in September 2006 but subsequently closed its border again in October 2007.  South Korea reopened its border and started inspecting U.S. beef near the end of June 2008.  These constraints and uncertainties have historically had a negative impact on beef demand during the periods in which they occurred.

We cannot presently assess the full economic impact of the consequences of BSE on the U.S. beef packing industry or on our operations.  Existing or new import restrictions or additional regulatory restrictions or disruptions in domestic and foreign consumer demand for beef may have a material adverse effect on our revenues and net income.

Critical Accounting Policies and Estimates

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

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

Inventory Valuation.  Inventories consist primarily of meat products and supplies.  Product inventories are considered commodities and are based on quoted commodity prices, which approximate net realizable value.  Supply and other inventories are valued on the basis of first-in, first-out, specific or average cost methods.  Product inventories are relieved from inventory utilizing the first-in, first-out method.  Management periodically reviews inventory balances and purchase commitments to estimate if inventories will be sold at amounts (net of estimated selling costs) less than their carrying amounts. If actual results differ from management estimates with respect to the selling of inventories at amounts less than their carrying amounts, we would adjust our inventory balances accordingly.

Goodwill and Other Intangible Assets.   We recognize excess cost over the fair value of the net tangible and identifiable intangible assets acquired in a reporting unit, and record this excess as goodwill.  We calculate the fair value of the applicable reporting unit using estimates of future cash flows. All of our goodwill has been allocated to the Core Beef segment.  In accordance with the provisions included within Intangibles — Goodwill and Other under ASC 350, we assess goodwill and other indefinite life intangible assets annually for impairment. If there is impairment, the carrying amount of goodwill and other intangible assets is written down to the implied fair value.  For goodwill, this test involves comparing the fair value of each reporting unit to the unit’s book value to determine if any impairment exists.  Goodwill and other indefinite life intangible assets were tested for impairment, and, as of August 28, 2010, management determined there was no impairment.

Workers’ Compensation Accrual.  We incur certain expenses associated with workers’ compensation. In order to measure the expense associated with these costs, management must make a variety of estimates including employee accidents incurred but not yet reported to us. The estimates used by management are based on our historical experience as well as current facts and circumstances.

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Automobile Liability Accrual.  We incur certain expenses associated with automobile liability.  In order to measure the expense associated with these costs, management must make a variety of estimates to determine the ultimate cost to us related to incurred accidents.  The estimates used by management are based on our historical experience as well as current facts and circumstances.

Valuation of Capital Subject to Redemption.  Historically, NBP has had agreements whereby certain of its members have had the right to require that NBP repurchase their interests.  This has resulted in a portion of its equity being classified as capital subject to redemption.  At any time after certain dates, the earliest being July 31, 2010, the latest being July 31, 2011, affiliates of our President and Chief Executive Officer, Timothy M. Klein, and/or NBPCo Holdings have the right to require that NBP repurchase their interests, the value of which is to be determined by a specified formula or a mutually agreed process.  If NBP is unable to effect the repurchase within a specified time, the requesting member(s) have the right to cause a sale process to commence.  On April 13, 2009, NBP entered into two Unit Redemption Agreements (the “Unit Redemption Agreements”) pursuant to Section 12.5 of NBP’s limited liability company agreement to redeem at agreed upon redemption prices all of the membership interests in NBP that were owned or controlled by NBP’s former Chief Executive Officer, John R. Miller, and an affiliate of its former General Counsel, Scott H. Smith, as well as 25% of the membership interests in NBP that were owned by affiliates of Mr. Klein.  As a result, Mr. Miller and Mr. Smith and their affiliates received approximately $91.3 million and $22.8 million, respectively, for their units and are no longer members of NBP.  Mr. Klein’s affiliates received approximately $11.4 million for their redeemed units.  On June 2, 2010, NBP entered into a Unit Redemption Agreement to redeem at agreed upon redemption prices approximately 5% of the membership interests in NBP that were owned by Mr. Klein’s affiliates.  As a result, Mr. Klein’s affiliates received $8.0 million for their redeemed units.

NBP accounts for changes in the redemption value of these interests by accreting the change in value from the date of change through the earliest redemption date of the respective interests.  At August 28, 2010, the value of the capital subject to redemption was determined to be $297.2 million, which was in excess of its carrying value.  The total value of the capital subject to redemption at August 28, 2010, increased by approximately $56.7 million compared to the value at August 29, 2009.  Accordingly, the carrying value of the capital subject to redemption increased by approximately $82.7 million through accretion during fiscal year 2010, resulting in the $291.7 million carrying value, as reflected in the accompanying consolidated balance sheet as of August 28, 2010.    Offsetting the change in the value of the capital subject to redemption is a corresponding change in the members’ capital.

Generally accepted accounting principles require NBP to determine the fair value of the capital subject to redemption at the end of each reporting period.  To the extent this value increases, this change in fair value is accreted over the redemption period as discussed above.  Management has considered previous redemption prices, valuations of peer companies and other factors in measuring the fair value of the capital subject to redemption for units held by NBPCo Holdings as of August 28, 2010.  The capital subject to redemption held by Mr. Klein’s affiliates as of August 28, 2010 was valued based upon a contractually stipulated valuation formula.

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Results of Operations

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

Our fiscal year is the 52 or 53 week period ending on the last Saturday in August.

Fiscal Year Ended August 28, 2010 Compared to Fiscal Year Ended August 29, 2009

Net Sales.    Net sales increased approximately $358.6 million or 6.6% in fiscal year 2010 compared to fiscal year 2009 primarily due to an approximate 1.8% increase in the volume of cattle processed and an approximate 5.9% increase in the average sales price per head processed.

Cost of Sales.   Cost of sales was approximately $5,438.0 million for fiscal year 2010 compared to $5,187.1 million in fiscal 2009, an increase of approximately $250.9 million, or 4.8%.  The increase in cost of sales for the period resulted primarily from an approximately 1.8% increase in the volume of cattle processed during the fiscal year, and an increase of approximately 3.8% in average live cattle prices as compared to the prior fiscal year.

Selling, General and Administrative Expenses.  Selling, general, and administrative expenses were $49.3 million for fiscal the year ended August 28, 2010 compared to $43.1 million for the fiscal year ended August 29, 2009, an increase of approximately $6.2 million, or 14.4%.  The increase for the period is primarily attributable to an increase in bad debt expense of approximately $1.7 million, increase in consulting of approximately $1.3 million, increase in salaries of approximately $1.3 million, increase in marketing of approximately $1.3 million and an increase in travel related expense of approximately $0.6 million.

Depreciation and Amortization Expense.  Depreciation and amortization expenses were approximately $49.6 million in the 2010 fiscal year compared to $44.4 million in the 2009 fiscal year, an increase of approximately $5.2 million or 11.7%.  Depreciation expense increased primarily due to approximately $36.7 million of assets being placed in service, primarily at our three beef plants and two case ready plants, during fiscal year 2010.

Operating Income.  Operating income was $271.0 million for fiscal year 2010, an increase of $96.3 million, or 55.1%, from $174.7 million in fiscal year 2009.  The increase in operating income for the fiscal year ended

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August 28, 2010, resulted primarily from an approximately 1.5% decrease in operating costs as a percentage of net sales from the fiscal year ended August 29, 2009.

Interest Expense.  Interest expense was $14.8 million for fiscal year 2010 compared to $23.3 million for fiscal year 2010, a decrease of $8.5 million, or 36.5%.  The decrease in interest expense during the 52 week period of fiscal 2010 as compared to the 52 week period of fiscal 2009 was due primarily to the purchase and cancellation of an aggregate principal amount of our Senior Notes of approximately $66.9 million during the second quarter of fiscal 2010.

Other, net.  Other, net non-operating expense was $7.3 million in fiscal year 2010 compared to other, net non-operating expense of $6.5 million in fiscal year 2009, an increase of $0.8 million or 12.3%.

Income Tax Expense.  Income tax expense was $0.9 million for fiscal year 2010 as compared to $0.9 million for fiscal year 2009.  Income tax expense is recorded on taxable income from National Carriers, which is organized as a C Corporation.  The effective tax rate for National Carriers was relatively consistent for both fiscal years 2010 and 2009.

Net Income.  As a result of the factors described above, net income for fiscal year 2010 was approximately $248.0 million compared to net income of approximately $144.2 million for fiscal year 2009, an increase of approximately $103.8 million.

Fiscal Year Ended August 29, 2009 Compared to Fiscal Year Ended August 30, 2008

Net Sales.    Sales were approximately 6.8% lower in fiscal year 2009 compared to fiscal year 2008 due in part to an approximate 2.5% decrease in the average volume of cattle processed per week and in part to the extra week in fiscal year 2008 as compared to fiscal year 2009.  The average beef sales prices per head decreased approximately 2.3% during fiscal year 2009 as the demand for beef products during fiscal year 2009 was not as strong compared to fiscal year 2008.

Cost of Sales.   Cost of sales was $5,187.1 million for fiscal year 2009, a decrease of $425.3 million, or 7.6%, from $5,612.4 million for fiscal year 2008.  The decrease resulted partially from a decrease of approximately 2.5% in the number of live cattle purchased on a per week basis in addition to the additional week in fiscal year 2008.  Also contributing to this decrease was a decrease in live cattle prices of approximately 7.4%.  Partially offsetting these decreases was an increase in the average cattle weights by approximately 0.8% during fiscal year 2009 as compared to fiscal year 2008.  Cost of sales, as a percentage of net sales, was 95.2% and 96.0% for fiscal years 2009 and 2008, respectively.

Selling, General and Administrative Expenses.  Selling, general, and administrative expenses were $43.1 million for fiscal year 2009, a decrease of $0.6 million or 1.4%, from $43.7 million for fiscal year 2008.  The decrease for this period is primarily due to a decrease in legal fees of approximately $1.3 million, a decrease in travel and related expenses of approximately $0.9 million and a decrease in marketing expense of approximately $0.7 million.  Fiscal year 2008 reflects an extra week of expense as compared to fiscal year 2009 which contributed to the decreases in the marketing expenses discussed above as well as the selling, general and administrative expenses in general.  Partially offsetting these decreases was an increase in payroll and benefits of approximately $1.1 million and an increase in the provision for bad debts of approximately $0.4 million.  Selling, general, and administrative expenses, as a percentage of net sales, were 0.8% and 0.7% for the fiscal years 2009 and 2008, respectively.

Depreciation and Amortization Expense.  Depreciation and amortization expense increased $8.0 million, or 22.0%, for fiscal year 2009 as compared to fiscal year 2008.  Depreciation expense increased due to assets being placed into service, primarily at the Dodge City and Liberal beef plants, during fiscal year 2009 and to assets being placed into service at our three beef plants and two case ready plants during fiscal year 2008.  Partially offsetting these increases, fiscal year 2008 reflects an extra week of expense as compared to fiscal year 2009.

Operating Income.  Operating income was $174.7 million for fiscal year 2009, an increase of $19.9 million, or 12.9%, from $154.8 million for fiscal year 2008.  Operating income, as a percentage of net sales, was 3.2% and

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2.6% for fiscal years 2009 and 2008, respectively.  The improvement in operating income during fiscal year 2009 resulted primarily from increased profitability from sales of our commodity beef products, exports and our value-added product offerings during that fiscal year.   The improvement in profitability from sales of our commodity beef products was primarily attributable to the improvement in demand relative to the price of cattle.

Interest Expense.  Interest expense was $23.3 million for fiscal year 2009 compared to $34.0 million for fiscal year 2008, a decrease of $10.7 million, or 31.5%.  The decrease in interest expense during the 52 week period of fiscal 2009 as compared to the 53 week period of fiscal 2008 was due primarily to the purchase and cancellation of an aggregate principal amount of our senior notes of approximately $62.5 million and $30.6 million during fiscal years 2009 and 2008, respectively.  The repayment of approximately $25.7 million of our term note in December 2008 also contributed to the decline in interest expense for fiscal year 2009.  Also contributing to the decrease in interest expense was lower interest rates on our variable rate debt, a decrease of approximately 189 basis points, during the comparable periods and an approximate $13.8 million decrease in the weighted average principal amount of our variable rate debt for fiscal year 2009 as compared to fiscal year 2008.  Also contributing to these decreases was an extra week of interest expense in fiscal year 2008 as compared to fiscal year 2009.

Other, net.  Other non-operating expense, net was $6.5 million in fiscal year 2009 compared to other non-operating income, net of $5.7 million in fiscal year 2008, a decrease of $12.2 million.  The decrease in other, net was primarily related to the write-off of approximately $5.6 million in legal fees which was primarily related to the termination of a purchase agreement in February 2009 and approximately $1.5 million related to the write-off of debt issuance costs.  Also contributing to the decrease was the approximate $0.7 million write-off of obsolete parts at our case ready facilities during the second quarter of fiscal 2009.  Fiscal year 2008 included approximately $3.4 million in income for a settlement of a lawsuit related to corrugated packaging materials and about $1.3 million in income related to proceeds received in redemption of an investment interest in which our basis had previously been written down to zero, both of which did not recur during the comparable period of this year.  Fiscal years 2009 and 2008 also included $1.4 million and $0.4 million, respectively, in expense for the write-off of unamortized loan costs associated with the repurchase and cancellation of our senior notes during fiscal years 2009 and 2008 and amending and restating our credit facility during fiscal year 2009.

Income Tax Expense.  Income tax expense was $0.9 million for fiscal year 2009 as compared to $1.8 million for fiscal year 2008, a decrease of $0.9 million, or 50.0%, primarily related to our subsidiary, National Carriers.  Income tax expense is recorded on income from National Carriers, which is organized as a C Corporation.  The effective tax rate for National Carriers was relatively consistent for both fiscal years 2009 and 2008.

Net Income.  As a result of the factors described above, net income for fiscal year 2009 was approximately $144.2 million compared to net income of approximately $125.2 million for fiscal year 2008, an increase of approximately $19.0 million.

Segment Results

The Company’s operating segments are based on segment profit and evaluated by the Chief Executive Officer, who also serves as the Chief Operating Decision Maker.  Segment profit is measured as operating income for NBP’s two reporting segments, Core Beef and Other, based on the definitions provided in ASC 280, Segment Reporting.

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

Other—the Other segments of NBP consists of the operations of National Carriers, National Elite,a provider of transportation logistics services, and Kansas City Steak.

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

The following table represents segment results for the periods indicated (amounts in thousands):

Fiscal Year Ended August 28, 2010 Compared to Fiscal Year Ended August 29, 2009

Core Beef

Net Sales.  Net sales for Core Beef were approximately $5,927.6 million in fiscal year 2010 compared to approximately $5,494.9 million in fiscal year 2009, an increase of $432.7 million or 7.9%.  Net sales increased primarily due to an approximately 1.8% increase in the volume of cattle processed and an approximately 5.9% increase in the average sales per head processed during fiscal year 2010 as compared to fiscal year 2009.

Depreciation and Amortization.  Depreciation and amortization of Core Beef was approximately $46.5 million in fiscal year 2010 as compared to approximately $42.1 million in fiscal year 2009, an increase of $4.4 million or 10.5%.  Depreciation expense increased due to assets being placed into service at our three beef processing plants and two case ready plants during fiscal year 2010.

Operating Income.  Operating income for Core Beef was approximately $266.8 million in fiscal year 2010 compared to $167.4 million in fiscal year 2009, an increase of $99.4 million or 59.4%.  The improvement in operating income during the 52 week period of fiscal year 2010 resulted primarily from an increase in sales price per

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head processed of beef products of approximately 5.9%, partially offset by an increase in live cattle prices of approximately 3.8%.

Other

Net Sales.  Net sales for Other were $228.1 million in fiscal year 2010 compared to $239.4 million in fiscal year 2009, a decrease of $11.3 million or 4.7%.  The decrease was primarily due to decreased fuel surcharge revenues at our transportation operation, partially offset by a slight increase in sales at our portion control beef facility during fiscal year 2010 as compared to fiscal year 2009.

Depreciation and Amortization.  Depreciation and amortization for Other was $3.1 million in fiscal year 2010 as compared to $2.2 million in fiscal year 2009, an increase of $0.9 million or 40.9%.  Depreciation expense increased due to assets being placed into service, primarily at our transportation company during fiscal year 2010.

Operating Income.  Operating income for Other was $4.2 million in fiscal year 2010 compared to $7.3 million in fiscal year 2009, a decrease of $3.1 million or 42.5%.  The decrease in operating income was primarily due to lower sales and higher depreciation expense from our transportation operation and higher depreciation expense at our portion control beef facility during the fiscal year ended August 28, 2010.

Fiscal Year Ended August 29, 2009 Compared to Fiscal Year Ended August 30, 2008

Core Beef

Net Sales.  Net sales for Core Beef were $5,494.9 million in fiscal year 2009 compared to $5,877.4 million in fiscal year 2008, a decrease of $382.5 million or 6.5%.  The decrease in net sales resulted in part from an approximate 2.5% decrease in the average volume of cattle processed per week and in part to the extra week in fiscal year 2008 as compared to fiscal year 2009.  The average beef sales prices per head decreased approximately 2.3% during fiscal year 2009 as the demand for beef products during fiscal year 2009 was not as strong compared to fiscal year 2008.

Depreciation and Amortization.  Depreciation and amortization of Core Beef was $42.1 million in fiscal year 2009 as compared to $35.1 million in fiscal year 2008, an increase of $7.0 million or 19.9%.  Depreciation expense increased due to assets being placed into service, primarily at the Dodge City and Liberal beef plants, during the fiscal year 2009 and to assets being placed into service at our three beef plants and two case ready plants during fiscal year 2008.  Partially offsetting these increases, fiscal year 2008 reflects an extra week of expense as compared to the fiscal year 2009.

Operating Income.  Operating income for Core Beef was $167.4 million in fiscal year 2009 compared to $148.5 million in fiscal year 2008, an increase of $18.9 million or 12.7%.  The improvement in operating income during the 52 week period of fiscal year 2009 resulted primarily from an overall improved demand for boxed beef across commodity beef, exports and value-added products as well as lower cattle prices as compared to the 53 week period of fiscal year 2008.

Other

Net Sales.  Net sales for Other were $239.4 million in fiscal year 2009 compared to $237.1 million in fiscal year 2008, an increase of $2.3 million or 1.0%.  The slight increase was primarily due to increased sales at our portion control facility which were offset by decreased fuel surcharge revenues at our transportation company during fiscal year 2009 as compared to fiscal year 2008.  In addition, fiscal year 2008 reflects an extra week of sales activity as compared to fiscal year 2009.

Depreciation and Amortization.  Depreciation and amortization for Other was $2.2 million in fiscal year 2009 as compared to $1.3 million in fiscal year 2008, an increase of $0.9 million or 69.2%.  Depreciation expense increased due to assets being placed into service, primarily at our transportation company during fiscal year 2009.  Partially offsetting these increases, fiscal year 2008 reflects an extra week of expense as compared to fiscal year 2009.

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Operating Income.  Operating income for Other was $7.3 million in fiscal year 2009 compared to $6.3 million in fiscal year 2008, an increase of $1.0 million or 15.9%.  The increase was due primarily to improved operating income of our portion control beef facility which was offset by a reduction of operating income of our transportation operations due to lower sales and higher depreciation expense during the 52 week period of fiscal year 2009 as compared to the 53 week period of fiscal year 2008.

Liquidity and Capital Resources

As of August 28, 2010, we had net working capital (the excess of current assets over current liabilities) of approximately $180.2 million, which included cash and cash equivalents of $20.4 million, with $27.4 million in distributions payable.  As of August 29, 2009, we had net working capital of approximately $145.0 million, which included cash and cash equivalents of $17.4 million, with $35.2 million in distributions payable.  Our primary sources of liquidity are cash flow from operations and available borrowings under our amended and restated credit facility (Credit Facility).

As of August 28, 2010, we had $246.5 million of long-term debt, of which $21.4 million was classified as a current liability.  As of August 28, 2010, our Credit Facility consisted of a $375.0 million term loan, of which $200.0 million was outstanding and a $250.0 million revolving line of credit loan, which had outstanding borrowings of $27.0 million, outstanding letters of credit of $26.0 million and available borrowings of $197.0 million, based on the most restrictive financial covenant calculations.  Cash flows from operations and borrowings under our Credit Facility have funded our acquisitions, working capital requirements, capital expenditures and other general corporate purposes.  We were in compliance with all of our financial covenants under our Credit Facility as of August 28, 2010 of which $27.0 million was borrowed and $26.0 million was used to support letters of credit.

Effective June 4, 2010, we amended and restated the Credit Facility to increase the maximum borrowings under the facility by increasing the revolving line of credit to $250 million and the availability under the term loan to $375 million ($200 million of which was outstanding  as of August 28, 2010). During the 52 weeks ended August 28, 2010 and August 29, 2009, we retired all of our previously outstanding 101/2% senior notes. Based on the borrowing base tests in the amended and restated Credit Facility, all of the revolving line of credit was available at August 28, 2010.

In addition to outstanding borrowings under the Credit Facility, we had outstanding borrowings under industrial revenue bonds of $12.2 million and capital lease and other obligations of $7.3 million as of August 28, 2010.

Capital spending through fiscal year 2011 is expected to be approximately $75.0 million. These expenditures are planned primarily for plant expansion (including funding a portion of the expansion costs for our St. Joseph plant), equipment renewals and improvements.  We believe available borrowings under the Credit Facility and cash provided by operating activities will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future. Our ability to generate sufficient cash, however, is subject to certain general economic, financial, industry, legislative, regulatory and other factors beyond our control. For a review of our obligations that affect liquidity, please see the ‘‘Cash Payment Obligations’’ table below.

Operating Activities

Net cash provided by operating activities was $244.5 million in fiscal year 2010 as compared to $264.3 million in fiscal year 2009.  The $19.8 million decrease was primarily due to changes in inventory and accounts receivable of approximately $74.8 million and $55.4 million, respectively, which more than offset the approximately $103.9 million in additional net income in fiscal year 2010 as compared to fiscal year 2009.

Net cash provided by operating activities was $264.3 million in fiscal year 2009 as compared to $159.6 million in fiscal year 2008.  The $104.7 million increase was due partially to an increase of approximately $19.0

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million in net income in fiscal year 2009 as compared to fiscal year 2008.  Also contributing to the improvement was net cash being provided through inventory and accounts receivable reductions during fiscal year 2009.

Investing Activities

Net cash used in investing activities was $48.1 million in fiscal year 2010 as compared to $50.4 million in fiscal year 2009, a decrease of $2.3 million. The decrease was primarily attributable to the acquisition of National Beef Leathers for approximately $11.0 million during 2009, offset by approximately $8.7 million additional capital expenditures during 2010 compared to 2009.

Net cash used in investing activities was $50.4 million in fiscal year 2009 as compared to $58.9 million in fiscal year 2008, a decrease of $8.5 million. The decrease was primarily attributable to more capital spending during fiscal year 2008 than fiscal year 2009.

Financing Activities

Net cash used in financing activities was approximately $193.3 million in fiscal year 2010 compared to net cash used in financing activities of $222.0 million in fiscal 2009.  The decrease in cash used in financing activities was primarily attributable to an approximate $125.5 million redemption of member capital in the prior fiscal year compared to an $8.0 million redemption in the current year, an additional $48.8 million in net borrowings on the term loan, primarily related to the amended and restated Credit Facility on June 4, 2010, and approximately $32.8 million change in overdraft balances at August 28, 2010 as compared to August 29, 2009.  These decreases were partially offset by an approximate $75.5 million member capital contribution during the fiscal year ended August 29, 2009, an approximate $68.7 million increase in member distributions paid in the current year, a $20.0 million reduction in net borrowings under the revolving loan, and the purchase and cancellation of approximately $66.9 million in aggregate principal amount of our Senior Notes compared to the purchase of only $62.5 million of our Senior notes in the prior fiscal year.

Net cash used in financing activities was approximately $222.0 million in fiscal year 2009 compared to net cash used in financing activities of $105.6 million in fiscal 2008.  The change was primarily attributed to an approximate $125.5 million redemption of member capital, an approximate $35.2 million increase in member distributions paid, the purchase and cancellation of an additional $31.9 million of our senior notes, approximately $25.7 million in repayments on our term note, and an $11.6 million increase in overdraft balances at August 29, 2009 as compared to August 30, 2008.  These changes were partially offset by an approximate $44.8 million increase in net revolver credit borrowings and by an approximate $75.5 million member capital contribution during fiscal year 2009.

Credit Facility

Effective as of June 4, 2010, the Credit Facility was amended and restated to: (1) increase the borrowings under the Credit Facility by providing for a term loan facility of up to $375 million and a revolving line of credit of up to $250 million; (2) reduce the applicable margin on the rates of interest of the term loan and revolving line of credit; (3) revise the payment schedule of the term loan; (4) extend the maturity date of the Credit Facility to June 4, 2015; (5) remove limitations on capital expenditures; (6) add new financial covenants regarding adjusted net worth and a fixed charge coverage ratio; and (7) add two wholly owned subsidiaries, National Beef California, LP and National Carriers, Inc., as loan parties and guarantors. The lender financing charges for the amended and restated Credit Facility of approximately $4.2 million are being amortized over the life of the loan.

The borrowings under the Credit Facility bear interest at LIBOR or the Base Rate, plus the applicable margin. The applicable margin for the revolving line of credit and the term loan will be as set forth on a grid based on different ratios of funded debt to EBITDA. As of August 28, 2010, the interest rates for the term loan and revolving loan were approximately 2.79% and 3.66%, respectively.

The borrowings under the revolving loan are available for our working capital requirements, capital expenditures and other general corporate purposes. The advance rates under the borrowing base are 90% on eligible

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accounts and 70% on eligible inventory. The Credit Facility is secured by a first priority lien on substantially all of our assets and the assets of our subsidiaries.

The principal amount outstanding under the term loan is due and payable in equal quarterly installments beginning in October 2010, based on a 10-year level amortization of the remaining amount of the term loan. All outstanding loan amounts are due and payable on June 4, 2015. Prepayment of the loans is allowed at any time.

The Credit Facility contains customary affirmative covenants relating to NBP LLC and its subsidiaries, including, without limitation, conduct of business, maintenance of insurance, compliance with laws, maintenance of properties, keeping of books and records, and the furnishing of financial statements. The facility also contains customary negative covenants relating to NBP LLC and its subsidiaries, including, without limitation, restrictions on: distributions, mergers, asset sales, investments and acquisitions, encumbrances, affiliate transactions, and ERISA matters. The ability of NBP LLC and its subsidiaries to engage in other business, incur debt or grant liens is also restricted.

The Credit Facility contains customary events of default, including, without limitation, failure to make payment when due, materially incorrect representations and warranties, breach of covenants, events of bankruptcy, default of other indebtedness that would permit acceleration of such indebtedness, the occurrence of one or more unstayed or undischarged judgments in excess of $3.0 million, changes in custody or control of NBP LLC’s property, changes in control of National Beef or the Company, failure of any of the loan documents to remain in full force, and the Company’s failure to properly fund its employee benefit plans. The Credit Facility also includes customary provisions protecting the lenders against increased costs 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 and restatement of our credit facility, effective December 30, 2004, we entered into a transaction with the City of Dodge City, Kansas, in order to provide NBP property tax savings.  Under the transaction, the City issued $102.3 million in bonds due in December 2019, used the proceeds to purchase our Dodge City facility (“the facility”) and leased the facility to us for an identical term under a capital lease.  The City’s bonds were purchased by us using proceeds of our term loan under the Credit Facility.  Because the City has assigned the lease to the bond trustee for the benefit of NBP as the sole bondholder, we, in effect, control enforcement of the lease against ourselves.  As a result of the capital lease treatment, the facility will remain a component of property, plant and equipment in NBP’s consolidated balance sheet.  As a result of the legal right of offset, the capital lease obligation and the corresponding bond investments will be eliminated in consolidation.  The transaction provides us with property tax exemptions for the leased facility, which, after netting payments to the City and local school district under payment in lieu of tax agreements, result in an annual property tax savings of approximately 25%.  The facility remains subject to a prior mortgage and security interest in favor of the lenders under the Credit Facility.  Additional revenue bonds may be issued to cover the costs of certain improvements to this facility.  The total amount of revenue bonds authorized for issuance is $120.0 million.

The cities of Liberal and Dodge City, Kansas issued an aggregate of $13.8 million of industrial development revenue bonds on our behalf to fund the purchase of equipment and construction of improvements at our facilities in those cities. These bonds were issued in 1999 and 2000 in four series of $1.0 million, $1.0 million, $6.0 million and $5.9 million and are due on demand or on February 1, 2029, March 1, 2027, March 1, 2015 and October 1, 2009, respectively.  However, because each series of bonds is backed by a letter of credit under our Credit Facility, these due on demand bonds have been presented as non-current obligations until twelve months prior to their maturity.  As of August 28, 2010, the amount outstanding on the $6.0 million series of bonds had been reduced to $3.4 million.  In addition, the $5.9 million series of bonds were paid off during the first quarter of fiscal 2010.  Pursuant to a lease agreement, we lease the facilities, equipment and improvements from the respective cities and make lease payments in the amount of principal and interest due on the bonds.

The bonds issued in 1999 and 2000 are variable rate demand obligations that bear interest at a rate that is adjusted weekly, which rate will not exceed 10% per annum. The average per annum interest rate for each series of bonds was 0.5% in fiscal year 2010. We have the option to redeem a series of bonds at any time for an amount equal

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to the principal plus accrued interest to the date of such redemption. The holders of the bonds have the option to tender the bonds upon seven days’ notice for an amount equal to par plus accrued interest. To the extent the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent will use the letter of credit to fund such tender.

In connection with the Brawley Beef acquisition, we assumed the obligation under a Trust Indenture securing $6.8 million in California Pollution Control Financing Authority Tax-Exempt variable 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 not exceed 12% per annum.  The average per annum interest rate for this series of bonds for fiscal year 2010 was 0.4%.  These bonds have a maturity date of October 1, 2016.  We have the option to redeem all or a portion of the bonds at any time for an amount equal to the principal plus accrued interest to the date of such redemption.  The holders of the bonds have the option to tender the bonds upon seven days’ notice for an amount equal to par plus accrued interest.  To the extent the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent will use the letter of credit to fund such tender.

Utilities Commitment

Effective December 30, 2004, we finalized an agreement with the City of Dodge City, Kansas, whereby in consideration of certain improvements made to the city water and wastewater systems, we have committed to make a series of service charge payments totaling $19.3 million over a 20 year period, of which $1.7, $1.4 and $1.4 million was paid in fiscal years 2010, 2009, and 2008, respectively.  Payments under the commitment will be $0.8 million in each of the fiscal years 2011, 2012, 2013, 2014 and 2015, with the remaining balance of $7.3 million to be paid in subsequent years.

10 ½% Senior Notes

During fiscal year 2010 we purchased and cancelled the remaining approximately $66.9 million of our senior notes.  During fiscal year 2009 we purchased and cancelled approximately $62.5 million of our senior notes.

Cash Payment Obligations

The following table describes our cash payment obligations as of August 28, 2010 (in thousands):

(1)  Computed based on scheduled maturities and current effective interest rates.

(2)  We make a verbal commitment to cattle producers to purchase cattle about one week in advance of delivery of the live animals to our plants, with the actual price paid for the cattle determined after the cattle are delivered and inspected at our facilities.  This amount approximates our outstanding cattle commitments at August 28, 2010.

Off-Balance Sheet Arrangements

As of August 28, 2010 we did not have any significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

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Inflation

We believe our results of operations are not materially affected by moderate changes in the inflation rate. Inflation and changing prices did not have a material effect on our operations in fiscal years 2010, 2009 and 2008. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse affect on our business, financial condition and results of operations.

Seasonality and Fluctuations in Operating Results

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

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ITEM 7A.               QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosures

The principal market risks affecting our business are exposure to changes in prices for commodities, such as livestock and boxed beef, and interest rate risk.

Commodities. We use various raw materials, many of which are commodities. Raw materials are generally available from several different sources, and we presently believe we can obtain them as needed.  Commodities are subject to price fluctuations that may create price risk. From time to time, we may hedge commodities in order to mitigate this price risk. While this may tend to limit our ability to participate in gains from commodity price fluctuations, it also tends to reduce the risk of loss from changes in commodity prices.  To the extent the contracts are not designated as normal purchases, we reflect commodity contract gains and losses as adjustments to the basis of underlying commodities purchased; gains or losses are recognized in the statement of operations as a component of costs of goods sold.

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

We sell commodity beef products in our business. Commodity beef products are subject to price fluctuations that may create price risk. From time to time, we enter into forward sales contracts at prices determined prior to shipment. We may hedge the commodity price risk associated with these activities in order to mitigate this price risk.  While this may tend to limit our ability to participate in gains from commodity price fluctuations, it also tends to reduce the risk of loss from changes in commodity beef prices.  To the extent the contracts are not designated as normal sales, we reflect commodity contract gains and losses as adjustments to the basis of underlying commodities sold; gains or losses are recognized in the statement of operations as a component of net sales.

From time to time, we purchase cattle futures and options contracts.  Our primary use of these contracts is to partially determine our future input costs when we have committed forward sales purchase orders from customers at a specified fixed price.  The longest duration futures contract owned is sixteen months.  In accordance with ASC 815 Derivatives and Hedging, as amended, we account for futures contracts and their related firm purchase commitments at fair value. Certain firm commitments for live cattle purchases and all firm commitments for boxed beef sales are treated as “normal purchases and sales” and not marked to market.  ASC 815 imposes extensive recordkeeping requirements in order to treat a derivative instrument as a hedge for accounting purposes. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the instrument and the related change in fair value of the underlying commitment. For derivatives that qualify as effective hedges, the change in fair value has no net effect on earnings until the hedged transaction affects earnings. For derivatives that are not designated as hedging instruments, or for the ineffective portion of a hedging instrument, the change in fair value does affect current period net earnings.

While management believes each of these instruments help mitigate various market risks, they are not designated and accounted for as hedges under ASC 815 as a result of the extensive recordkeeping requirements of this statement. Accordingly, the gains and losses associated with the change in fair value of the instrument and the offsetting gains and losses associated with changes in the market value of certain of the firm purchase commitments related to the futures contracts are recorded to income and expense in the period of change.

We use a sensitivity analysis to evaluate the effect that changes in the market value of commodities will have on these commodity derivative instruments.  We feel the sensitivity analysis appropriately reflects the potential market value exposure associated with the use of derivative instruments.  As of August 28, 2010 and August 29, 2009, the potential change in the fair value of applicable commodity derivative instruments, assuming a hypothetical 10% decrease in the underlying commodity price in each year, was $0.3 million and $16.4 million, respectively.  This significant change was primarily due to the cattle futures contracts we entered into during the first quarter of fiscal 2009 to offset the risk of fixed-price sales commitments.

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

We have long-term debt with variable interest rates. Short-term debt is primarily comprised of the current portion of long-term debt maturing twelve months from the balance sheet date.  Our variable interest expense is sensitive to changes in the general level of interest rates.   As of August 28, 2010, the weighted average interest rate on our $239.2 million of variable interest debt was approximately 2.77%.  As of August 29, 2009, the weighted average interest rate on our $222.4 million of variable rate debt was approximately 3.36%

We had total interest expense of approximately $14.8, $23.3 and $34.0 million in fiscal years 2010, 2009 and 2008, respectively.  The estimated increase in interest expense from a hypothetical 200 basis point increase in applicable variable interest rates would have been approximately $5.6, $4.9 and $5.2 million in fiscal years 2010, 2009 and 2008, respectively.

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

ITEM 8.                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

ITEM 9A.               CONTROLS AND PROCEDURES

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the consolidated financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in alerting them, in a timely manner, to material information required to be included in our periodic Securities and Exchange Commission filings.  There have been no changes in our internal control over financial reporting during the thirteen weeks ended August 28, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.  The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with GAAP.  Our internal control over financial reporting includes those policies and procedures that:

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·                  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

·                  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and managers of the Company; and

·                  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

Internal control over financial reporting, no matter how well designed, has inherent limitations.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements.  Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of August 28, 2010.  In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control — Integrated Framework.

Based on the Company’s processes and assessment, as described above, management has concluded that, as of August 28, 2010, the Company’s internal control over financial reporting was operating effectively.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

ITEM 9B.               OTHER INFORMATION

None.

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PART III

ITEM 10.               DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Managers and Executive Officers

The following table provides certain information regarding the members of our Board of Managers and our executive officers. Each member of the Board of Managers and executive officer will hold office until a successor is elected or qualified or until the earlier of his death, resignation or removal.

Timothy M. Klein has served as our President and Chief Operating Officer from 1998 through 2009 and currently serves as our President and Chief Executive Officer and has served as a member of our Board of Managers since 2009. Mr. Klein served as the Executive Vice President, Sales and Procurement of the Company from 1992 through 1998. Prior to 1992, Mr. Klein served as Vice President, Planning and Analysis at Cargill Inc. and as Vice President of Operations Analysis at Armour Food Company, a subsidiary of ConAgra Foods, Inc. Mr. Klein also served as Vice President of Sales and Pricing at EA Miller, Inc., a beef slaughter and fabrication business. Mr. Klein began his career in the meat industry at IBP, inc. (a predecessor of Tyson Fresh Meats and was one of the nation’s largest beef processors), where he served as Manager of Scheduling from 1980 through 1983.

Manager Qualifications: Mr. Klein’s day-to-day leadership as the Company’s chief executive officer and his many years of experience in the beef industry, including in finance, operations and sales positions, provide him with deep knowledge of the Company’s operations and the beef industry. This experience provides special insights regarding the Company’s strategic and operational challenges and opportunities.

Jay D. Nielsen has served as our Chief Financial Officer since 1997. Mr. Nielsen joined Hyplains Beef, LLC in 1992. Mr. Nielsen’s previous experience in the meat industry includes positions at ConAgra Foods, Inc., where he served as Controller of Armour Food Company from 1988 to 1991, and at EA Miller, Inc., a beef slaughter and fabrication business, where he served as Transportation Brokerage Manager from 1986 to 1988.

Terry L. Wilkerson has served as our Executive Vice President, Operations of the Company since March 2006. Mr. Wilkerson served as the Executive Vice President, Strategic Business Development of the Company from April 2005 to March 2006. From 1998 to 2005, Mr. Wilkerson served as the Company’s Executive Vice President of Operations. Mr. Wilkerson began his career with Excel Corporation (Cargill Meat Solutions) and held various operational positions within that company from 1974 to 1998. While at Cargill, he served as HR Director,

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Production Superintendent, Slaughter Operations Manager, General Manager/VP, Friona Division, General Manager of the Buena Vista Poultry Complex, VP of Transportation/Logistics, and VP of Logistics/IT.

David L. Grosenheider has served as our Executive Vice President, Business Planning and Analysis since March 2006. Mr. Grosenheider served as the Company’s (i) Executive Vice President, Beef Operations from April 2005 to March 2006, (ii) Executive Vice President of Case-Ready Meats from June 2003 to April 2005, (iii) Executive Vice President of Systems and Planning from 1999 to June 2003, and (iv) Vice President of Operational Affairs of NBP LLC from 1993 to 1998. From 1987 through 1993, Mr. Grosenheider served as Manager of Scheduling and Director of Financial Planning for Swift Independent/Monfort. Mr. Grosenheider served as Controller for North Star Foods, Inc., a poultry processing company, from 1986 to 1987 and served in various accounting positions for IBP, inc. from 1979 to 1986.

Monte E. Lowe has served as our Executive Vice President, Sales and Marketing since 1993. Prior to 1993, Mr. Lowe’s previous experience in the meat industry included Sales Representative positions at Beef America from 1988 to 1993, at Swift/Val-Agri, Inc. from 1986 to 1987, and at IBP, inc. from 1980 to 1986.

Michael J. Eckman has served as our Executive Vice President, Human Resources since November 2001. Prior to joining the Company, Mr. Eckman served as Executive Vice President of Human Resources for Solo Cup Co. from 1999 to 2001. Mr. Eckman held numerous positions within ConAgra Foods, Inc. from 1984 through 1998, including Senior Vice President of Human Resources of ConAgra Refrigerated Foods, Vice President of Human Resources of Armour Swift Eckrich, Vice President of Human Resources of Armour Food Company and Director of Labor Relations and Employee Benefits of Banquet Frozen Foods. Mr. Eckman also served as Banquet Frozen Foods’ Director of Labor Relations and Employee Benefits when it was owned by RCA Corporation from 1978 to 1984, and held various Human Resources management positions within RCA’s Picture Tube Division from 1972 to 1977.

Simon P. McGee has served as our Executive Vice President, Corporate Strategy and Acquisitions since April 2010. Mr. McGee served as our Senior Vice President, Corporate Strategy and Acquisitions from September 2009 to April 2010 and as our Vice President, Corporate Strategy and Acquisitions from 2006 to 2009. Prior to joining the Company, from 1999 to 2006, Mr. McGee served as an investment banker with Christenberry Collet & Company, Inc., an investment banking firm providing strategic corporate finance consulting on merger and acquisition and capital markets projects for middle-market public and private corporate clients. From 1988 to 1999, Mr. McGee was the founder and majority owner of McGee Ranch Company, Inc., a seedstock and commercial cow-calf enterprise.

Bret G. Wilson has served as our Vice President, General Counsel and Secretary since September 2009. From 1994 to 2009, Mr. Wilson held numerous positions with H&R Block, Inc., a tax services and financial services company, and its subsidiaries, including Vice President and Secretary and Vice President, Corporate Development and Risk Management of H&R Block, Inc. and Vice President, Corporate Counsel of Block Financial Corporation.

Steven D. Hunt has served as the Chair of the Board of Managers of the Company since USPB acquired a majority interest in the Company on August 6, 2003. Mr. Hunt served as a member of the Board of Managers of FNBPC from 1997 to 2003. Mr. Hunt was one of the founders of USPB and has served as its Chief Executive Officer since 1996.

Manager Qualifications: Mr. Hunt’s experience as a member and the Chair of the Board of Managers and Chief Executive Officer and founder of USPB provides an extensive knowledge of the beef industry and also the specific strategic challenges and opportunities facing the Company. In addition to this knowledge and experience, Mr. Hunt’s service as the Chief Executive Officer and a founder of USPB also provides the Board of Managers with valuable insight from the perspective of someone who is in contact with a substantial number of the Company’s cattle suppliers.

Richard A. Jochum serves as one of our managers. Since March 2002, he has served as the General Counsel and Corporate Administrator of Beef Products, Inc. (BPI), which is an affiliate of NBPCo Holdings.  From March 2000 to March 2002, Mr. Jochum served as the Assistant Vice President, Legal Affairs for IBP, inc. From 1994 to March 2000, Mr. Jochum served as Assistant Vice President, Personnel Administration for IBP, inc.

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Manager Qualifications:  Mr. Jochum has extensive legal and administrative experience at BPI and IBP, inc., a former Fortune 500 publicly traded food company that was purchased by Tyson Foods. This experience provides our Board of Managers with a broad perspective on operational and strategic aspects of the beef industry.

Audit Committee

The Board of Managers has established an audit committee consisting of Messrs. Hunt and Jochum, even though it is not required to do so. The Board of Managers has determined that Mr. Hunt is an “audit committee financial expert” as defined in Item 401(h)(2) of Regulation S-K promulgated by the Securities and Exchange Commission, but is not independent as defined by NASDAQ.

Code of Ethics

NBP has adopted a corporate code of ethics for its principal executive officer, principal financial officer and principal accounting officer or controller within the meaning of the rules and regulations of the Securities and Exchange Commission.  A copy of the Code may be obtained, without charge, upon written request to Bret G. Wilson, Vice President General Counsel and Secretary, National Beef Packing Company, LLC, P.O. Box 20046, Kansas City, Missouri 64195.

ITEM 11.               EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

This section provides a discussion of the background and objectives of our compensation programs for senior management, including the following officers whom we refer to as our named executive officers:

The descriptions of various employee benefit plans and employment-related agreements in this section are qualified in their entirety by reference to the full text or detailed descriptions of the plans and agreements, which are incorporated by reference into this Annual Report on Form 10-K.

Board of Managers and Role of Management

The Board of Managers of the Company, or the Board, has the overall responsibility for monitoring and approving the compensation programs for our named executive officers and making decisions regarding compensation to be paid or awarded to them.

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Objectives and Design of Our Compensation Program

Our executive compensation program is designed to attract, retain, and reward talented executives who can contribute to our long term success and is based on the following general principles:

·                  compensation must be competitive with that offered by other companies that compete with us for executive talent;

·                  differences in compensation should reflect differing levels of responsibilities; and

·                  performance-based compensation should focus on critical business objectives and align pay through performance-leveraged incentive opportunities.

The Board recognizes that the engagement of strong talent in critical functions may entail recruiting new executives at times and involve negotiations with individual candidates.  As a result, the Board may determine in a particular situation that it is in the best interests of the Company to negotiate compensation packages that deviate from our general compensation philosophy.

The Board generally does not seek input from outside compensation consultants with respect to annual compensation decisions.

Elements of Our Compensation Program

Base Salaries

Base salaries are intended to provide a level of compensation sufficient to attract and retain an effective management team, when considered in combination with the other components of our executive compensation program.  The relative levels of base salary for our named executive officers are designed to reflect each executive officer’s scope of responsibility and accountability with the Company.  Mr. Klein from time to time may have received a substantially greater portion of his total compensation in the form of incentive pay because of the incentive opportunities negotiated as part of his employment agreements described later in this section.

Annual and Long Term Incentives

We maintain an annual incentive plan called the Management Incentive Program for the purpose of providing additional incentive compensation opportunities for our management and professional employees.  With the exception of Mr. Klein, all of our named executive officers participated in the Management Incentive Program for fiscal year 2010.  Bonuses are earned under the plan if the Company attains certain minimum profit objectives in the applicable fiscal year, and paid to participants by November 30 following the end of the applicable fiscal year.  The Management Incentive Program was designed to align the interests of management towards the achievement of a common goal of maximizing net income for the Company.  The common goal upon which awards are based in the Management Incentive Program is “pre-bonus net income”.  “Pre-bonus net income” for the relevant business units is net income as normally calculated under generally accepted accounting principles, but before bonus expenses of the Company.  Generally, no bonuses are paid under the Management Incentive Program unless the Company achieves a threshold “pre-bonus net income” determined by the Board prior to or shortly after the beginning of each fiscal year.  Management may recommend to the Board, however, that bonuses be awarded notwithstanding the fact that the Company did not achieve the threshold “pre-bonus net income” in order to provide competitive compensation to employees.  Under the Management Incentive Program for fiscal year 2010, $20.0 million in “pre-bonus net income” had to be achieved before bonuses could be paid.  The Company believes “pre-bonus net income” is an appropriate measure of Company performance to utilize in making performance-based compensation decisions as senior management uses the same measure to evaluate the day-to-day performance of the business.  According to the terms of the plan, if the pre-bonus net income threshold is met, a bonus pool is established as a percentage of pre-bonus net income and allocated to the named executive officers who are plan participants in proportion with their salaries relative to other salaried employees of the Company.

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We also maintain a long term incentive plan called the Management Long Term Incentive Plan, or LTIP.  Participation is determined by the Chief Executive Officer for each fiscal year and is limited solely to key management employees who have a significant impact on the Company’s long term, strategic results.  With the exception of Mr. Klein, all of our named executive officers participated in this plan for fiscal year 2010.

Prior to or shortly after the beginning of each fiscal year, our Chief Executive Officer establishes the performance goals for the fiscal year and allocates to each participant a specified portion of the total incentive pool available for award under our LTIP.  In determining each participant’s portion of the total pool, the Chief Executive Officer considers the participant’s ability to influence overall performance.  The more senior the employee’s position with the Company, the greater the portion of compensation that varies with performance.  The Chief Executive Officer is not required to allocate the entire LTIP incentive pool for a given fiscal year and may reserve a portion to be used for discretionary awards in recognition of extraordinary individual performance.  Amounts earned for any fiscal year vest in three equal installments, with the first tranche vesting at the end of the third year following the year in which the award is earned.  For example, fiscal year 2010 awards will vest in equal installments of 33-1/3% each following the end of fiscal years 2013, 2014 and 2015.  Until paid, amounts credited under the LTIP accrue interest at the weighted cost of debt capital for the Company.  An executive will receive his incentive payment in cash at the time of vesting unless he elects to defer receipt of payment by making a timely deferral election in accordance with the terms of the plan.

According to the terms of the plan, if the minimum earnings before interest and taxes, or EBIT, return on invested capital threshold is met, a bonus pool is established as a percentage of the Company’s return on invested capital and allocated to the named executive officers who are plan participants in relation to their shares granted in the plan.  No bonuses will be earned under the LTIP unless the Company attains a return on capital of at least 15%.  In fiscal year 2010, $6,325,339 was generated under the formula used to calculate the LTIP.  Of this amount, approximately 5.4%, 8.9%, 8.9% and 8.9% was allocated to Messrs. Nielsen, Wilkerson, Grosenheider and Lowe, respectively.

Mr. Klein did not participate in our annual or long term incentive plans.  Instead, he is eligible for annual and long term incentives set forth with the employment agreement described below. The annual incentive under the employment agreement has been based on the Company’s earnings before taxes and the long-term incentive is based on the Company’s earnings before interest and taxes.

Employee Benefits

Each of our named executive officers is entitled to participate in the Company’s employee benefit plans (including 401(k) retirement savings, medical, dental, and life insurance benefits) on the same basis as other employees.

Employment-Related Agreements

Mr. Klein is the only named executive officer of the Company covered by an employment agreement.  Each of our other named executive officers are parties to supplemental bonus agreements.

Agreement with Timothy M. Klein

On July 27, 2009, in connection with and effective upon his promotion to Chief Executive Officer, the Company entered into an amendment to Mr. Klein’s employment agreement.  Mr. Klein’s employment agreement provided that he would receive an annual salary of $900,000.    The agreement also provided that Mr. Klein would have an annual bonus opportunity based on our earnings before taxes for each year and long term bonus opportunities based on our earnings before interest and taxes.  Pursuant to his employment agreement, Mr. Klein’s annual earnings-based bonus was computed applying the formula described in footnote 1 to the Grants of Plan-Based Awards table set forth below. Mr. Klein’s long-term bonus opportunities include the following:

·                  If Mr. Klein is continuously employed through the last day of fiscal year 2012, he will be entitled to an additional long term bonus equal to: (a) if the Company’s cumulative EBIT during the period from the first day of fiscal year 2010 through the last day of fiscal year 2012 exceeds $115,000,000, 4.0% of such excess,

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up to cumulative EBIT of $150,000,000; plus (b) if such cumulative EBIT exceeds $150,000,000, .75% of such excess.

·                  If Mr. Klein is continuously employed through the last day of fiscal year 2014, he will be entitled to an additional long term bonus equal to: (a) if the Company’s cumulative EBIT during the period from the first day of fiscal year 2013 through the last day of fiscal year 2014 exceeds $76,667,000, 4.0% of such excess, up to cumulative EBIT of $100,000,000; plus (b) if such cumulative EBIT exceeds $100,000,000, .75% of such excess.

Supplemental Bonus Agreements

On October 27, 2010, the Company entered into supplemental bonus agreements with each of Messrs. Nielsen, Wilkerson, Grosenheider and Lowe.  The Company awarded the bonuses provided for by these agreements to (i) reward the executives for the Company’s superior financial performance over the four fiscal years ending with fiscal year 2010 and (ii) serve as additional retention incentives for the executives.  Pursuant to the supplemental bonus payments, the Company will pay the executives supplemental bonuses in the amounts set forth below within 60 days following the end of fiscal years 2011, 2012, 2013 and 2014 if the executive remains continuously employed through the last day of the applicable fiscal year for which the supplemental bonus relates.

The supplemental bonus agreements provide for the acceleration of any unpaid annual supplemental bonus payments if the executive’s employment with the Company ends as a result of death, disability or involuntary termination without cause.

Impact of Tax and Accounting Treatments

We believe the compensation paid to our named executive officers is fully deductible under the Internal Revenue Code at the time it is paid.  We further believe ASC 718, Compensation — Stock Compensation, did not have a material effect on our compensation program because we historically have not awarded stock options, restricted shares or other equity-based compensation.

Timing of Compensation Decisions

Prior to or shortly after the beginning of each fiscal year, the Board and our Chief Executive Officer review prior year performance and authorize the distribution of annual and long term incentives, if any, for the prior year.  Any changes in base salaries may also be considered at this time.  The Board and Chief Executive Officer may deviate from this general practice when appropriate under the circumstances.

Stock Ownership Guidelines

The Company does not impose any minimum equity guidelines for our named executive officers.

Compensation Board Report

The Board has reviewed and discussed the foregoing Compensation Discussion and Analysis with the Company’s senior management.  Based on the Board’s review of and discussions with management, the Board has included this Compensation Discussion and Analysis in this Annual Report on Form 10-K.

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The foregoing report is provided by the following managers, who constitute the Board:

Steven D. Hunt

Richard A. Jochum

Timothy M. Klein

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Summary Compensation Table

The table below sets forth information regarding the fiscal year compensation for our named executive officers.