10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

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

                For the fiscal year ended August 30, 2008

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)

DELAWARE	48-1129505
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)

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 þ

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 þ Noo

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 þ 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.  þ

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.

Large Accelerated Filer o      Accelerated Filer o      Non-Accelerated Filer þ Smaller reporting company o

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

There is no market for the Registrant’s equity.  As of February 23, 2008, there were 127,748,923 Class A units and 19,474,520 Class B units outstanding, all of which was held by affiliates.    

DOCUMENTS INCORPORATED BY REFERENCE

None

	TABLE OF CONTENTS
	PART I.
		Page No.
Item 1.	Business.                                                                                                                                                  .	4
Item 1A.	Risk Factors.	14
Item 1B.	Unresolved Staff Comments.	23
Item 2.	Properties.	23
Item 3.	Legal Proceedings.	23
Item 4.	Submission of Matters to a Vote of Security Holders.	23
	PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	24
Item 6.	Selected Financial Data.	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	40
Item 8.	Financial Statements and Supplementary Data.	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	41
Item 9A(T).	Controls and Procedures.	41
Item 9B.	Other Information.	42
	PART III.
Item 10.	Directors, Executive Officers and Corporate Governance.	43
Item 11.	Executive Compensation.	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	54
Item 13.	Certain Relationships and Related Transactions, and Director Independence .	56
Item 14.	Principal Accountant Fees and Services.	58
	PART IV.
Item 15.	Exhibits and Financial Statement Schedules.	59
	Signatures.	66

2

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.

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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 “U.S. Premium Beef” and “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 the fourth largest beef processing company in the United States, accounting for 13.7% of the United States fed cattle processed in our fiscal year 2008. We process, package and deliver fresh beef for sale to customers in the United States and international markets. Our products include boxed beef and beef by-products, such as hides and offal. In addition, we sell value-added beef products including branded boxed beef, case-ready beef, chilled and frozen export beef and portion control beef. We market our products to retailers, distributors, food service providers, further processors, and the United States military.  We have the ability to process approximately 14,000 head per day in our beef processing facilities and we generated an approximate $5.8 billion in total net sales during fiscal year 2008.  Our relationship with our majority owner, U.S. Premium Beef, facilitates a vertically integrated business model and provides us with a portion of the high-quality cattle used in our boxed beef and value-added products.

U.S. Premium Beef was formed as a Kansas cooperative in July 1996 by shareholders consisting entirely of cattle ranchers and feedlot owners and operators. On August 18, 2004, U.S. Premium Beef’s shareholders approved the merger of the cooperative into a wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation, with the merger effective as of the end of the cooperative’s 2004 fiscal year. The Delaware corporation, in a statutory conversion authorized under Delaware law, was subsequently converted into a Delaware limited liability company.  The business of the cooperative was continued in the limited liability company form of business organization.  U.S. Premium Beef’s unitholders benefit from its supplier alliance with us through (i) premiums received in excess of market prices for higher quality cattle, (ii) allocations of U.S. Premium Beef’s profits and losses and potential distributions, (iii) potential unit price appreciation, and (iv) information that permits unitholders to make informed production decisions. 

Steven D. Hunt, one of our three managers and the Chief Executive Officer of U.S. Premium Beef, has over 27 years of experience in the beef industry. Mr. Hunt has been an integral member of our team and has helped to provide a supply of high-quality cattle.

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

Subsequently, NB Acquisition merged into us, and we then converted into a limited liability company under Delaware law, National Beef Packing Company, LLC (NBP or Successor).  These transactions closed on August 6, 2003.  We continue to hold all of the same assets we held before the consummation of the transactions, including equity in our subsidiaries.  

On February 29, 2008, we, JBS S.A. (JBS), U.S. Premium Beef, and the other holders of our membership interests, including NBPCO Holdings and parties controlled by three executive officers, John R. Miller, Timothy M. Klein and Scott H. Smith (the Sellers), entered into a Membership Interest Purchase Agreement, as amended from time to time (MIPA). Under the MIPA, JBS will acquire all of our outstanding membership interests for a combination of approximately $488.4 million cash and $71.6 million in common stock of JBS.

On October 20, 2008, the United States (U.S.) Department of Justice (DoJ), joined by the attorneys general from seventeen states, filed a civil antitrust suit in U.S. District Court for the Northern District of Illinois to enjoin the MIPA alleging that it would result in lower prices paid to cattle suppliers and higher beef prices for consumers.   A similar suit was filed on November 13, 2008 in the same court by the Ranchers Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF) and the Organization for Competitive Markets (OCM).  These actions are being vigorously contested by us, U.S. Premium Beef and JBS.

4

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 26.0 billion pounds of beef in calendar 2007. Beef production, from the birth of the animal to the delivery of meat products to the end distributor, is comprised of two primary segments: production and processing. The production segment raises cattle for slaughter and the processing segment slaughters cattle and packages beef for delivery to customers.  A typical 1,200 pound animal yields about 580 pounds of saleable meat in addition to by-products.  Cattle supply in the beef industry typically follows a ten to twelve year cycle, consisting of about six to seven years of expansion followed by one to two years of consolidation and three to four years of contraction. This cycle is unique to cattle as other animals can either generate multiple offspring or have shorter incubation periods. 

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

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

During fiscal year 2008, approximately 27.9 million fed cattle were processed in the United States.  In recent periods, per capita demand for beef products in the United States has been relatively stable, with population growth the primary factor in determining increased aggregate demand. 

Beef Export Markets

Export markets for U.S. beef products remain significantly constrained since the discovery of a case of Bovine Spongiform Encephalopathy (BSE) in the State of Washington in December 2003, as well as other isolated cases.  In July 2006, Japan agreed to reopen its market to U.S. beef from cattle aged 20 months and younger.  Our Brawley facility was suspended from shipping beef to Japan in April 2008 following the discovery of a short loin which included a portion of a spinal column, a specified risk material, prohibited by Japan.  Our Brawley facility was subsequently cleared to resume shipments to Japan on September 19, 2008.  South Korea announced a provisional opening of its border to U.S. beef from animals 30 months and younger in September 2006, however, its border was subsequently closed on October 5, 2007.  South Korea reopened its border and started inspecting U.S. beef on June 27, 2008.  These constraints and uncertainties have had a negative impact on beef margins.

These challenges resulted in tremendous volatility in U.S. livestock market prices since fiscal year ended 2004.  Where pre-BSE export sales were approximately 17% of total net sales in fiscal year 2003, NBP’s total export sales were approximately 10%, 7%, 7%, 10% and 12% of total net sales in fiscal years 2004, 2005, 2006, 2007, and 2008, respectively.  With the age restrictions placed on cattle that qualify for export to Japan, it is anticipated that between 5% and 20% of U.S. fed cattle will be able to meet the criteria.

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

5

Business Strategy

Increase our Supplier Alliances.     We intend to continue to increase the number of high-quality cattle that we purchase from supplier alliances to increase revenue and improve profitability. The cattle we purchase through supplier alliances, such as our relationship with U.S. Premium Beef, are purchased on either a value-based formula, which sets the price for carcasses according to both quality and yield, or a secondary-market basis, whereby we purchase cattle from suppliers outside of our primary supply territory. The percent of cattle we purchase pursuant to each of these methods fluctuates from period to period; the number of cattle we purchased on either a value-based formula or a secondary market basis was approximately 59.1% of our total cattle purchased in fiscal year 2008. 

Based on our experience and on actual results, we believe that these purchasing methods allow us to increase the percentage of high-quality cattle that we process relative to our total cattle processed.  We have focused on building relationships with and educating our suppliers on the mutual benefits of these purchasing methods and believe that we will be able to increase our high-quality cattle purchases utilizing these methods in the future.

Continue to Improve Operating Efficiencies.     We plan to continue to focus on increasing our profit margins by improving operating efficiencies and increasing our processing yields. Since fiscal year 2001, we have invested over $311.9 million and successfully expanded our processing facilities, creating an efficient and high volume business.

Pursue Strategic Acquisitions.     Our management team has a history of successfully executing and integrating acquisitions in core or complementary businesses. We intend to continue to evaluate and selectively pursue acquisitions, particularly of underperforming processing facilities, which we believe are strategically important based on their potential to: (i) meet our customers’ needs, (ii) diversify our product offerings and customer base, (iii) broaden our geographic production and distribution platform and (iv) increase cash flow.  We may pursue any such acquisitions subject to the covenants contained in our debt agreements. As an example, we acquired substantially all of the assets of Brawley Beef effective May 30, 2006, which resulted in our ownership of its beef processing facility in Brawley, California, and entered into a long-term supply agreement for approximately 275,000 head of cattle per year to this facility.  Additionally, NBP acquired Vintage Foods, L.P., including the Vintage™ Natural Beef brand, during fiscal year 2006.  The Vintage brand is marketed as natural beef that is antibiotic- and hormone-free, and uses cattle that are 20 months of age and younger. 

Competitive Strengths

Vertically Integrated Business Model.   U.S. Premium Beef owns the right, and is subject to the obligation, if requested, to deliver cattle annually to National Beef relative to: (i) U.S. Premium Beef’s ownership in National Beef and (ii) the number of cattle processed annually by National Beef.  U.S. Premium Beef’s ownership of and contractual supply relationship with us enhances our ability to deliver a consistent, high-quality, value-added product to our customers. U.S. Premium Beef is a limited liability company and its owners and associates consist of cattle ranchers and feedlot owners and operators. During fiscal year 2008, U.S. Premium Beef and its producer-owners provided us with approximately 19.1% of our total cattle requirements through the pricing grid process as more fully described in Item 13, Certain Relationships and Related Transactions. We believe this supply relationship with U.S. Premium Beef provides us with significant competitive advantages; including: (i) consistently supplying high-quality cattle, and (ii) an ability to consistently provide our customers with higher margin, value-added products.

Modern and Efficient Facilities.    We have invested more than $311.9 million since fiscal year 2001 to modernize our facilities, expand capacity and increase the rate at which our cattle are processed. These facility upgrades and expansions have enabled us to significantly increase the number of cattle we process. We believe that our beef processing facilities in Liberal, Kansas and Dodge City, Kansas are among the largest, most modern and efficient processing facilities in the United States.  With the acquisition of the Brawley, California plant in June 2006, these three facilities combined are capable of processing about 14,000 cattle per day. We believe that our efficiency improvements at these facilities have allowed us to achieve higher capacity utilization rates, lower operating costs and higher operating margins than those of our major competitors.  Furthermore, these efficiencies have helped us increase our market share of the U.S. supply of fed cattle processed by more than 6% since fiscal year 1997. 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 customers, such as Wal-Mart, in this growing niche market. In addition, our facilities are strategically located to enable us to source cattle and beef products efficiently and to effectively serve our customers.

6

Significant Value-Added Product Portfolio.    Our value-added product portfolio consists of branded boxed beef, case-ready beef, chilled and frozen export beef and portion-control beef. Our total value-added sales were approximately $1,619.0 million in fiscal year 2008, comprising approximately 27.7% of our total net sales. Our value-added products contribute significantly more, in terms of gross margin, than our traditional boxed beef products and are an important component of our profitability.  Prior to the discovery of a single dairy cow in Washington state infected with BSE on December 23, 2003, our chilled and frozen export beef products, which primarily consist of premium cuts, had been our primary export to the international beef market, particularly to Japan.

Focus on Food Safety.    We have continually focused on food safety. Our processing facilities utilize our proprietary BioLogic® Food Safety System to facilitate the production of clean, fresh, safe and high-quality beef products. Each of our processing facilities is divided into five zones that separate different stages of the production process and minimize the risk of contamination. We continually test our products and facilities to track and trend our process effectiveness.

Supplier, Customer and Channel Diversification.    Two of our beef processing facilities are located in southwest Kansas, and our primary market area for the purchase of cattle for those facilities includes Kansas, Texas and Oklahoma.  According to information from the United States Department of Agriculture (USDA), cattle on feed in the Kansas, Texas and Oklahoma area represented approximately 41.7% of the cattle on feed in the U.S. during fiscal 2008.  Our third beef processing facility is located in southern California.  Our source of cattle for this facility is an alliance of cattle producers in Arizona and California with whom we have long-term 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.  Additionally, the close proximity of our facilities to large supplies of cattle encourages our suppliers to tailor their production decisions to efficiently meet the demands of our customers, reduces our reliance on any one cattle supplier and lowers our transportation costs. During fiscal year 2008, excluding our supply arrangement with U.S. Premium Beef, our largest supplier accounted for 6.5% of our total purchases and our top 25 suppliers accounted for 41.7% of our total purchases.

We also 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, distributors, food service providers, further processors, the U.S. military and through other channels.   During fiscal year 2008, approximately 55.0% of our total net sales were to retailers and 25.1% to food service providers. Across these channels, we serve over 900 customers, which represent most major retailers and food service providers in the U.S.  In fiscal year 2008, no one customer represented more than 3.8% of total net sales, other than Wal-Mart and its affiliate Sam’s Club, which together represented 7.8% of our total net sales. Our top 10 customers represented 31.6% of total net sales in fiscal year 2008.

Experienced Management.    We are led by an experienced management team with, on average, over 23 years of experience in the beef processing industry. John R. Miller, our Chief Executive Officer, has over 27 years of experience in the beef processing industry. Mr. Miller has been recognized by Forbes magazine for his achievements and leadership within our industry. He has assembled a team of professionals, including our President, Timothy M. Klein, who have worked together over the past 17 years in developing our Company into a profitable and premium supplier of beef products.

7

Description of 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. The boxed beef and case-ready products accounted for approximately 82.2% of our revenues in fiscal year 2008.  In addition, we sell beef by-products to the variety meat, feed processing, fertilizer and pet food industries. We also sell cattle hides to tanners who primarily supply the automotive, shoe, leather goods, and clothing industries for both domestic and international use. 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.  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®, a registered trademark (used with permission) of Certified Hereford Beef, LLC.

Our focus continues to be 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 adding value to the beef we process. Our case-ready operations further process our boxed beef products by trimming and cutting our products into individual portions, and in some instances injecting with a solution to tenderize and moisturize the products. These portions are then packaged and oxygenated to increase the shelf-life of these products by up to five times versus traditional packaging methods.

During fiscal year 2008, we sold our beef products to more than 900 customers located in the United States and 27 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;

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

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

• international markets, including China, Mexico, Japan, South Korea, Canada, Hong Kong, Egypt and Taiwan. Subsequent to the December 23, 2003 discovery of a single case of BSE in Washington state, export beef products have been limited to boxed beef products from cattle younger than 30 months to Mexico and other limited, smaller foreign markets.  Many international importers, such as Japan and South Korea (who were two of our largest export markets for edible beef products in fiscal year ended 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 that 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 12, Business Segments of the notes to the consolidated financial statements in Item 8, which is included in this report. 

8

The sales office for domestic sales 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 48.5 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 sales 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 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. During fiscal year 2008, we obtained approximately 19.1% of our cattle requirements from U.S. Premium Beef and its producer-owners through the pricing grid process.  We obtained approximately 17% and 18% of our cattle requirements from U.S. Premium Beef during fiscal years 2007 and 2006, respectively. Our arrangement with U.S. Premium Beef provides us with a supply of high-quality cattle. For information regarding this agreement, see Item 13, Certain Relationships and Related Transactions and Note 10, Related Party Transactions to our consolidated financial statements in Item 8, both of which are included in this report.  We also purchase cattle on a cash bid basis from our primary and secondary markets. We further sponsor other, non-affiliated supplier alliances that provide us with high-quality cattle. We believe that 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 vertically integrated business model, which emphasizes building relationships and cooperating with suppliers and paying a premium for high-quality cattle.  During fiscal year 2008, we had approximately 1,300 suppliers that provided us with cattle.

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

Processing Facilities and Operations

We operate a total of five beef processing facilities in the United States. Our Liberal, Kansas and Dodge City, Kansas facilities are geographically positioned near our suppliers to efficiently source raw materials by reducing transportation costs.  Our Brawley, California facility is geographically positioned to give us greater access to customers on the west coast.  Our case-ready facilities are located in close proximity to key customer markets resulting in decreased delivery times. Our case-ready facilities are also located in areas with a highly-skilled and cost-effective labor force.   See Item 2, Properties in this report for further information about these facilities.

9

Cattle delivered to our facilities are generally processed into beef products within 36 hours after arrival. Approximately 75 to 80% of the cattle we process in any week are committed to sale before the cattle are delivered to our facilities. We processed in excess of 3.8 million fed cattle at our facilities during fiscal year 2008. Our facilities utilize modern, highly automated equipment to process and package beef products. We strive to maintain and enhance our facilities and have invested more than $311.9 million since fiscal year 2001 to expand capacity and increase efficiency at our facilities. 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 designed 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 our beef products through our portion control business, Kansas City Steak Company, LLC (Kansas City Steak), in which we have 75% interest.  Kansas City Steak provides trimmed and cut individual portions both directly to consumers on a branded basis through television outlets (such as the QVC Channel) and direct mail catalogs; and directly to restaurants (such as Outback Steakhouse) and the food service industry on an unbranded basis.  On March 28, 2003, Farmland National Beef Packing Company, L.P. (FNBPC or Predecessor) acquired National Carriers, Inc. (National Carriers), a refrigerated and livestock contract carrier service with terminals in Liberal, Kansas, Dallas, Texas and Denison, Iowa.  National Carriers currently operates approximately 1,200 refrigerated and livestock units.  NBP contracts a significant portion of its freight services from National Carriers.  In February 2008, National Elite Transportation, LLC (National Elite) began providing third-party logistics services to the transportation industry.  Logistics services involve arranging for another company to transport freight for our customers while we retain the billing, collection and customer management responsibilities. 

Raw Materials and Procurement

Our primary raw material for our portion control processing facility is boxed beef.  Approximately 35.0% of our boxed beef purchases are made through contractual agreements predetermined by the customer for whom the product is produced.  These contractual agreements are typically one year in duration and stipulate from whom the boxed beef can be purchased. The balance of our 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.   We periodically conduct comprehensive cutting tests of our potential suppliers’ boxed beef to determine composition and quality.

Processing Facilities and Operations

Kansas City Steak processes trimmed and cut individual portions.  See Item 2, Properties in this report 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 by 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.

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Food Safety

Our food safety efforts incorporate a comprehensive network of leading technology that minimizes the risks involved in beef processing. Our proprietary BioLogic® Food Safety System promotes the production of clean, fresh, safe, high-quality beef products. The BioLogic® Food Safety System is an integrated company philosophy that helps to establish new principles in food safety. The BioLogic® Food Safety System divides our production facilities into five zones based on the potential for microbial contamination during the processing procedures that take place in each zone. Within each of the five zones, we employ our “Test, Track and Treat” approach, which provides on-going testing in each of the zones, effective tracking of the results of such tests and continuous treatments throughout the facilities. The Test, Track and Treat approach includes preventative measures such as equipment sterilization, hygiene, temperature control and ongoing testing to greatly reduce contamination risks.

Intellectual Property

We hold a number of trademarks and domain names that 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, and Leading the Way in Quality Beef™. 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 United States 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.

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 - Swift & Company.  Management believes that the principal competitive factors in the beef processing industry are price, quality, food safety, customer service, product distribution, technological innovations and brand loyalty. Some of our competitors have greater financial and other resources and enjoy wider recognition for their consumer branded products.

Employees

As of August 30, 2008, we had approximately 8,900 employees, of which approximately 42.7% are represented by collective bargaining agreements.  Approximately 2,800 of our 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 1,000 of our 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 December 8, 2013.  We consider our relations with our employees and the United Food and Commercial Workers International Union and Teamsters International Union to be good.

Government Regulation and Environmental Matters  

Our operations are subject to extensive regulation by the USDA, the Grain Inspection Packers and Stockyards Administration (GIPSA), the FDA, the 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 (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. The rule dealt with three Interim Regulations that prohibit 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 have historically and will continue to work closely with the USDA and any regulatory agencies to ensure that our operations comply with all applicable food safety laws and regulations.

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            Air emissions and wastewater and storm water discharges from our operations are subject to extensive regulation by the EPA and state and local authorities.  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 were renewed on January 11, 2005, and will expire on January 25, 2010.  Our Brawley, California facility is subject to air permitting and holds a Conditions for Authority to Construct and Permit to Operate, issued August 22, 2008, which is automatically renewed annually with payment of a permit fee unless revoked for cause.  Our Dodge City, Kansas, Liberal, Kansas, Hummels Wharf, Pennsylvania, Moultrie, Georgia, and Brawley, California facilities are also subject to risk management planning pursuant to the federal Clean Air Act.

            We have an Environmental Compliance Management System in place for the Dodge City and Liberal plants that requires periodic and systematic self-auditing of compliance with all environmental requirements applicable to our operations.  We work closely with the Kansas Department of Health and Environment (KDHE) to assure environmental compliance.  Within this process, KDHE has made inquiries regarding the permitting of equipment that is the source of air emissions and which existed at the Liberal plant when we acquired the plant in 1993.  Specifically at issue is whether the equipment installed prior to our acquisition of the plant required prevention of significant deterioration permits under the Clean Air Act new source review program.  We are unable to predict the outcome of these inquiries at this time.  We have a Compliance Calendar System in place at our Hummels Wharf, Pennsylvania and Moultrie, Georgia facilities and are developing a Compliance Calendar System for our Brawley, California facility. 

            All of our facilities are indirect dischargers of wastewater to publicly-owned treatment works and are subject to requirements under the federal Clean Water Act and corresponding state laws and agreements or permits with municipal or county authorities.  An agreement is in effect for our Dodge City, Kansas plant that will continue unless amended or revoked pursuant to its terms.  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 and the terms of the renewal of the City’s discharge permit.  We expect 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 City of Moultrie for treatment of wastewater from the Moultrie plant.  We are in the process of revising the terms under which wastewater from our Moultrie plant is treated including discussions with the Joint Development Authority regarding our potential lease and operation of an off-site wastewater treatment facility that will allow us to respond to requests from the City of Moultrie that we treat phosphorus in our wastewater.  Estimated expenditures associated with the treatment of phosphorus in our wastewater whether through lease and operation of the Joint Development Authority facilities or other means by which we might address phosphorus have been included in our capital expenditure budget.  We have upgraded our treatment facilities at the Brawley plant to provide treatment that consistently meets the requirements of the Brawley City Ordinance and we are cooperating with the City as it responds to EPA Region 9 requirements for upgrades to the City’s publicly-owned treatment works needed in order for the City to comply with its direct discharge permit including requirements for ammonia and nutrient controls.  We hold a permit for our Hummels Wharf, Pennsylvania facility from the Eastern Snyder County Regional Authority that automatically renews each year unless suspended or revoked pursuant to its terms.  The Eastern Snyder County Regional Authority has requested pursuant to our Hummels Wharf permit that we reduce biological oxygen demand loadings in our wastewater and that we reduce nutrients in our wastewater.  We may need to construct additional wastewater treatment facilities to respond to these requirements and if that is the case, expenditures associated with these requirements will be included in our capital expenditure budget.

            Storm water discharges from our plants are regulated pursuant to general permits issued by the respective states.  In the states in which we have operations, we are in various stages of renewing our coverage under the respective general permits.

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            Our Dodge City, Kansas, Liberal, Kansas and Hummels Wharf, Pennsylvania facilities are supplied by water from our wells.  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.

            We also are subject to laws that provide for strict, and in certain circumstances joint and several, liability for remediation of hazardous substances at contaminated sites that could include current or former facilities or other sites where wastes we generated have been disposed.  Our Dodge City, Kansas, Liberal, Kansas, Hummels Wharf, Pennsylvania, Moultrie, Georgia and Brawley, California facilities are small quantity or conditionally exempt generators of hazardous waste and are subject to recordkeeping, but not permit requirements.  Solid waste generated at our Dodge City, Kansas and Liberal, Kansas facilities is disposed of or composted.  A special waste permit is maintained by our Dodge City, Kansas facility for the disposal of certain animal parts for which no market currently exists.  The solid waste generated at our Hummels Wharf, Pennsylvania and Moultrie, Georgia facilities is disposed of in a municipal landfill if it is general plant trash and is taken to renderers if it is usable waste.  Solid waste from the Brawley, California plant is composted except that general plant trash is landfilled and usable waste is taken to renderers.  We are not aware that we have any liability under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund).  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 2008, we incurred expenses of approximately $4.5 million primarily related to the maintenance and improvement of wastewater treatment facilities and air pollution control.  We also incurred approximately $3.4 million in capital expenditures related to our wastewater treatment facilities and air pollution control in fiscal 2008 and anticipate capital expenditures of approximately $11.4 million in fiscal 2009 for environmental projects related to the wastewater treatment facilities and air pollution control.

Our domestic operations are subject to the Packers and Stockyards Act of 1921 (PSA). This statute generally prohibits meat packers in the livestock industry from engaging in certain anti-competitive practices. In addition, this statute requires us to make payment for our livestock purchases before the close of the next business day following the purchase and transfer of possession of the livestock we purchase, unless otherwise agreed to by our livestock suppliers. Any delay or attempt to delay payment will be deemed an unfair practice in violation of the statute. Under the PSA, we must hold our cash livestock purchases in trust for our livestock suppliers until they have received full payment of the cash purchase price. As of August 30, 2008, NBP has secured a bond of $35.4 million to satisfy these requirements.  The bond is supported by a $10.6 million letter of credit.

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.  We are currently in receipt of one such notice, from the Bureau of Immigration and Customs Enforcement (BICE) that we do not believe will result in material liability, if any.  In May 2003, we received a request for information from BICE regarding the immigration status of our employees, and we have provided BICE with all requested information.  No fines or penalties have been suggested or discussed. 

We believe that we currently are in substantial compliance with all governmental laws and regulations and maintain all material permits and licenses relating to our operations.  Other than as discussed above, we are not aware of any violations of environmental or other laws and regulations that are likely to result in material penalties or pending changes in such laws or regulations that are likely to result in material cost increases.

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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 that 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 the Proposed Acquisition

JBS and NBP may be unable to obtain the regulatory approvals required to complete the proposed transaction or, in order to do so, JBS and NBP may be required to comply with material restrictions or conditions, which they may be unable or unwilling to do.

    The proposed transaction is subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), and the rules and regulations promulgated thereunder, which provide that some acquisition transactions may not be completed until required information has been furnished to the Federal Trade Commission (FTC) and the Antitrust Division of the DoJ, and until the waiting period has been terminated or has expired.  JBS and NBP filed the required HSR Act notifications with the Antitrust Division, the FTC and applicable foreign jurisdictions as soon as practicable following approval of the proposed transaction by the members of U.S. Premium Beef and the shareholders of JBS.  The DoJ, joined by the state attorneys general from seventeen states, filed a civil antitrust suit on October 20, 2008 in the U.S. District Court for the Northern District of Illinois seeking a permanent injunction against the proposed acquisition of NBP by JBS.  A similar suit was filed on November 13, 2008 in the same court by R-CALF and OCM.  While NBP intends to vigorously contest these attempts to block the acquisition, there can be no assurance that NBP will be successful.
 

The purchase agreement limits NBP’s ability to pursue alternatives to the proposed transaction.

    The transaction agreement contains terms and conditions that make it more difficult for NBP to sell its business to a party other than JBS.  These “no shop” provisions impose restrictions on NBP and the Sellers that, subject to certain exceptions, limit the ability of NBP and the Sellers to discuss, facilitate or commit to competing third party proposals to acquire all or a significant part of NBP. 
 

The businesses of NBP may be adversely affected if the proposed transaction is not completed.

            Completion of the proposed transaction is subject to several closing conditions.  NBP’s future operations may be harmed to the extent that potential customers and suppliers are uncertain about its future direction.  NBP and the Sellers will also be required to pay significant costs incurred in connection with the proposed transaction, including legal and accounting fees, whether or not the proposed transaction is completed.  Moreover, under specified circumstances, NBP could be required to pay JBS a termination fee of up to $25 million plus reimbursement of certain JBS expenses in connection with the termination of the MIPA.  Under other circumstances, JBS could be required to pay the Sellers in connection with the termination of the MIPA a termination fee of up to $25 million plus reimbursement of certain expenses incurred by NBP and the Sellers.
 

Although it is expected that the proposed transaction will result in benefits to JBS, which will include NBP, JBS may not realize those benefits because of integration and other challenges.

            The failure of JBS to meet the challenges involved in integrating the operations of JBS and NBP successfully or otherwise to realize any of the anticipated benefits of the proposed transaction could seriously harm the results of operations of JBS and NBP.  Realizing the benefits of the proposed transaction will depend in part on the integration of operations and personnel. The integration of companies is a complex and time-consuming process that, without proper planning and implementation, could significantly disrupt the businesses of JBS and NBP.  The challenges involved in integration include the following:

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• difficulties in integrating operations, existing contracts, accounting processes and employees and realizing the anticipated synergies of the combined businesses;

• diversion of financial and management resources from existing operations;

• the price JBS pays or other resources that it devotes may exceed the value it realizes, or the value it could have realized if it had allocated the purchase price or other resources to another opportunity;

• potential loss of key employees, customers and strategic alliances from either JBS’s current business or the business of NBP;

• assumption of unanticipated problems or latent liabilities; and

• minimizing the diversion of management attention from ongoing business concerns.

            JBS may not successfully integrate the operations of JBS and NBP in a timely manner, or at all, and as a result JBS and NBP may not realize the anticipated benefits or synergies of the proposed transaction to the extent, or in the timeframe, anticipated. The anticipated benefits and synergies are based on projections and assumptions, not actual experience, and assume a successful integration. In addition to the integration risks discussed above, the ability of JBS and NBP to realize these benefits and synergies could be adversely impacted by practical constraints on its ability to combine operations. 
 

JBS will continue to be controlled by its current controlling shareholders, whose interests may differ from those of NBP.

            As of the date of this report, JBS’s controlling shareholders hold a majority of the voting share capital.  After the closing of the proposed transaction, JBS’s current controlling shareholders are anticipated to hold or control shares representing a majority of JBS’s voting share capital.  As long as JBS’s current controlling shareholders continue to hold or control a significant block of voting rights, they will control JBS and NBP, and this will enable them, without the consent of the other JBS shareholders, to:

• elect and remove from office the majority of JBS’s board of directors;

• control JBS’s management and policies; and

• determine the outcome of most corporate transactions or other matters submitted to JBS’s shareholders for approval, including mergers, acquisitions, and the sale of all or substantially all of JBS’s assets or the delisting of JBS common shares from the Novo Mercado.

            JBS’s current controlling shareholders may also have their own interests, which may not be the same as those of NBP.
 

Risks Related to Our Operations

Outbreaks of disease affecting livestock can adversely affect our business.

An outbreak of disease affecting livestock, such as BSE 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 concerns of such disease, whether or not resulting in regulatory action, can lead to cancellation of orders by our customers and create adverse publicity that 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.

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

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

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

Our substantial debt could adversely affect our business.

We have a significant amount of debt.  As of August 30, 2008, we had $377.8 million of long-term debt, $3.6 million of which was classified as a current liability.  As of August 30, 2008, our amended and restated credit facility consists of a $202.6 million term loan, all of which was outstanding, and a $200.0 million revolving line of credit loan, which had outstanding borrowings of $11.4 million, outstanding letters of credit of $45.2 million and available borrowings of $143.4 million, based on the most restrictive financial covenant calculations.  In addition to outstanding borrowings on our amended and restated credit facility, we had outstanding borrowings under industrial revenue bonds of $20.7 million, senior notes of $129.4 million and capital leases and other obligations of $13.7 million as of August 30, 2008.  See  Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our substantial debt could:

• 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 working capital, capital expenditures 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; 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.

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

Despite our current levels of debt, we may still incur significantly more debt, which could intensify the risks described above.

We may incur significant additional debt in the future. The terms of the indenture governing our senior notes permit us to incur additional debt in the future and our sixth amended and restated credit facility permits additional borrowings under certain circumstances.  As of August 30, 2008, we had approximately $143.4 million of availability under the most restrictive financial covenant calculations in our amended and restated credit facility.  We may borrow to fund our capital expenditures and working capital needs.  We also may incur additional debt to finance future acquisitions.
 

Restrictive covenants under our amended and restated credit facility and the indenture may limit our ability to operate our business.

Our amended and restated credit facility and the indenture governing our senior notes, contain, 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 indenture and our amended and restated credit facility restrict, 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 or acquisitions;
   

• make restricted payments;
   

• create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to us;
   

• issue or distribute capital stock of our subsidiaries;
   

• enter into transactions with affiliates;
   

• enter into sale and leaseback transactions;
   

• engage in unrelated business activities;
   

• transfer or sell assets; and
   

• engage in mergers, consolidations or sell substantially all of our assets.

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

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

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

To service our debt, we will require a significant amount of cash. 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, make scheduled payments or to refinance our obligations depends on our successful financial and operating performance. Our financial and operating performance, cash flow and capital resources depend upon prevailing economic conditions and certain financial, business and other factors, many of which are beyond our control. These factors include among others:

• economic, industry and competitive conditions;

• operating difficulties, increased operating costs or pricing pressures we may experience; and

• delays in implementing any strategic projects.
   

Our margins may be negatively impacted by fluctuating raw material costs and selling prices 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 SRMs, have been banned from use in feedstocks and the human food chain.  Some of these products previously enjoyed a market in foreign countries.

The supply and market price of the livestock that constitute 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, 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 fed 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.

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.

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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.

Other than our existing arrangements with APC, Inc., Imperial Valley Biodiesel, Gelita USA, and the United States military, 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, which does not cover our sales to Wal-Mart’s affiliate, Sam’s Club, represented approximately 4.9% of our total net sales in fiscal year 2008.  Our agreement with Wal-Mart expired on January 31, 2004, and we have not entered into a new agreement.  If Wal-Mart does 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.

Our operations are subject to extensive regulation and oversight by the USDA, the GIPSA, the FDA, and other state, local and foreign authorities regarding the processing, packaging, storage, distribution, advertising and labeling of our products, including food safety standards. Recently, the food safety practices and procedures in the meat processing industry have been subject to more intense scrutiny and oversight by the USDA. We are also subject to a variety of environmental laws and regulations, including those relating to wastewater and stormwater discharges, air emissions, waste handling and disposal, and remediation of soil and groundwater contamination that are administered by the EPA, state, local and other authorities. In addition, we are subject to a variety of immigration 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.
 

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

Our operations are subject to extensive and increasingly stringent regulations pertaining to the discharge of materials into the environment and the handling and disposition of wastes. Failure to comply with these regulations can have serious consequences for 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 avoid violations of these laws and regulations. Additional environmental requirements imposed in the future could require currently unanticipated investigations, assessments or expenditures, and may require 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.

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Our international operations expose us to political and economic risks in foreign countries, as well as to risks related to currency fluctuations.

In fiscal year 2008, exports, primarily to Mexico, China, Japan, South Korea, Canada, Hong Kong, Egypt, and Taiwan accounted for approximately 11.5% of our total net sales. 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 hyperinflation or deflation in the foreign countries in which we operate;

• exchange controls;

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

• potentially negative consequences from changes in regulatory requirements; and

• international conflict, including terrorist acts, which could significantly impact 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.
 

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.

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The beef processing industry is highly competitive and our customers may not continue to purchase our products.

The beef processing industry is highly competitive. Competition exists both in the purchase of live cattle and in the sale of beef products. In addition, 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, JBS - Swift & Company and Smithfield Foods, Inc. The principal competitive factors in the beef processing industry are price, quality, food safety, product distribution, technological innovations and brand loyalty. 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 greater financial and other resources and enjoy wider recognition for their consumer branded products. 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.
 

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 barbecue season. As a result of these seasonal fluctuations, our operating results may vary substantially between fiscal quarters.
 

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

Our success will depend, in part, on the efforts of our executive 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. We do not have long-term employment agreements with some of our executive officers, and we do not maintain key-person insurance for some of our other officers, employees or members of our board of managers. We may not be able to negotiate the terms of renewals of any existing long-term employment agreements on terms favorable to us or at all. 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.

We have approximately 8,900 employees worldwide.  Approximately 2,800 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 1,000 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.  A labor-related work stoppage by these 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 foodservice customers may put pressures on our operating margins.

In recent years, the trend among our retail and foodservice customers, such as supermarkets, warehouse clubs and foodservice distributors, has been towards consolidation. These consolidations, along with the entry of mass merchants into the grocery industry, have resulted in customers with increasing negotiating strength who tend to exert pressure on 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 integrate existing and future acquisitions, which could result in our not achieving the expected benefits of the acquisition, 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.  For example, effective May 30, 2006, we, along with our majority owner, U.S. Premium Beef, acquired substantially all the assets of Brawley Beef, LLC (Brawley Beef).  Brawley Beef operated a beef processing facility in Brawley, California, producing upscale custom cuts for sale to retail customers.  Additionally, NBP acquired Vintage Foods, L.P., including the Vintage™ Natural Beef brand, during fiscal year 2006.  The Vintage brand is marketed as natural beef that is antibiotic- and hormone-free, and uses cattle that are 20 months of age and younger. 

We may not be able to effectively 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 could negatively impact our business and results of operations. Further, the benefits that we anticipate from acquisitions may not develop.
 

Risks Related to U.S. Premium Beef

U.S. Premium Beef 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; U.S. Premium Beef’s interests could conflict with other stakeholders.

U.S. Premium Beef owns a majority interest in our Company of approximately 54.8%.  As a result, U.S. Premium Beef 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, U.S. Premium Beef’s ability to cause us to take certain major corporate actions without the consent of NBPCo Holdings and management is limited.  The interests of U.S. Premium Beef, NBPCo Holdings or management could conflict with the interests of other stakeholders of the Company.
 

We purchase a portion of our cattle through U.S. Premium Beef and its producer-owners and, because U.S. Premium Beef 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.

U.S. Premium Beef and its producer-owners provided us with approximately 19.1% of our cattle requirements in fiscal year 2008 through the pricing grid process as more fully described in Item 13, Certain Relationships and Related Transactions. Conflicts of interest may arise between U.S. Premium Beef and us relating to our cattle purchases. If a dispute arises with U.S. Premium Beef, the settlement of the dispute may not be on terms as favorable as if we were dealing with an unaffiliated party.

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ITEM IB.      UNRESOLVED STAFF COMMENTS

            Not applicable.
 

ITEM 2.      PROPERTIES

We own our Dodge City, Kansas, Liberal, Kansas, Brawley, California and Hummels Wharf, Pennsylvania facilities. We lease our headquarters facility in Kansas City, Missouri, our Kansas City Steak processing facility in Kansas City, Kansas and our case-ready facility in Moultrie, Georgia. We also lease our offices in Chicago, Illinois, Salt Lake City, Utah, Denison, Iowa, Dallas, Texas, Springdale, Arkansas, Tokyo, Japan, Seoul, South Korea, and Beijing, China.  Our amended and restated credit facility is secured by a first priority lien on substantially all of our assets.  The facility locations and approximate daily processing levels are shown in the table below:

Location	Daily Processing
Processing Facilities (Core Beef):
Liberal, Kansas	6,000 head
Dodge City, Kansas	6,000 head
Brawley, California	2,000 head
Case-Ready Facilities (Core Beef):
Hummels Wharf, Pennsylvania	97,400 pounds
Moultrie, Georgia	169,500 pounds
Portion Control Facility (Other):
Kansas City, Kansas	54,000 pounds

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.
 

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

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

 

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PART II

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

            There is no established public trading market for any class of common equity of National Beef Packing Company, LLC.  As of October 31, 2008, there were five record holders of Class A 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 on a priority basis, and to 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.

            On August 6, 2008, the Company issued an aggregate of 9,085,714 Class A interests and 914,286 Class C interests to our Chief Executive Officer and Chief Operating Officer, Messrs. Miller and Klein, respectively, in lieu of approximately $10 million in deferred compensation pursuant to Deferred Equity Incentive Compensation Agreements dated August 6, 2003.  We believe that the issuance of these interests were exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2).

 

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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 years in the five-year period ended August 30, 2008.  The selected Statement of Operations Data and Selected Balance Sheet Data for the five fiscal years ended August 30, 2008 were derived from our audited consolidated financial statements.  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.

		53 weeks  ended		52 weeks  ended		52 weeks  ended		52 weeks   ended		52 weeks    ended
		August 30, 2008		August 25, 2007		August 26, 2006		August 27, 2005		August 28, 2004
Statements of Operations Data
Net sales	$	5,847.3	$	5,578.5	$	4,636.0	$	4,338.9	$	4,093.5
Costs and expenses:
Cost of sales		5,612.4		5,443.9		4,503.8		4,229.9		3,973.7
Selling, general and administrative		43.7		42.5		34.0		30.5		29.6
Depreciation and amortization		36.4		32.4		28.7		24.4		21.2
Operating income		154.8		59.7		69.5		54.1		69.0
Other income (expense):
Interest income		0.5		0.6		0.4		0.4		0.6
Interest expense		(34.0)		(39.4)		(32.0)		(28.6)		(25.9)
Other, net		3.2		(0.9)		1.5		(5.1)		0.3
Total other expense, net		(30.3)		(39.7)		(30.1)		(33.3)		(25.0)
Net income	$	124.5	$	20.0	$	39.4	$	20.8	$	44.0
Selected Balance Sheet Data
Working capital	$	209.6	$	249.3	$	196.7	$	157.4	$	157.6
Total assets	$	875.9	$	815.5	$	757.9	$	634.7	$	646.5
Long-term debt, including current maturities	$	377.8	$	438.8	$	378.7	$	308.8	$	335.1
Capital subject to redemption	$	186.5	$	76.9	$	72.2	$	64.2	$	62.5
Other Financial Data
Beef sold (pounds in billions)		4.0		4.1		3.7		3.4		3.1
Capital expenditures	$	59.9	$	41.7	$	34.5	$	18.2	$	32.5
Member distributions	$	79.7	$	17.2	$	24.3	$	17.2	$	24.4

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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 the status of our proposed sale to JBS S.A. (JBS) in light of the civil antitrust suits filed by the United States (U.S.) Department of Justice (DoJ), state attorneys general from seventeen states, the Ranchers Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF) and the Organization for Competitive Markets (OCM) to block it, 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

In July 1992, John R. Miller, Timothy M. Klein and Scott H. Smith, in partnership with Farmland Industries, Inc. (Farmland), purchased the assets of Hyplains Dressed Beef, Inc., Dodge City, Kansas. Upon completion of the purchase, Hyplains Beef, LLC began a $20.0 million expansion project to add a boxed beef processing operation to the Dodge City facility. In December 1992, Mr. Miller and his 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. (FNBPC).  In 1997, U.S. Premium Beef purchased the interest of Mr. Miller and his management team and became partners with Farmland.  As described above in Item 1, Business - General, effective August 7, 2003, U.S. Premium Beef, Ltd. acquired a controlling interest in FNBPC and formed National Beef Packing Company, LLC (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 (NBC) (the Agreement). NBC is a limited partnership formed with National Carriers, Inc. (National Carriers), a wholly-owned subsidiary of the Company, acting as its general partner. Brawley Beef was an alliance of cattle producers in Arizona and California who supplied the beef processing facility. The facility commenced operations in December 2001.

On February 29, 2008, we, JBS, U.S. Premium Beef, and the other holders of our membership interests, including NBPCO Holdings, LLC (NBPCO) and parties controlled by three executive officers, John R. Miller, Timothy M. Klein and Scott H. Smith (the Sellers), entered into a Membership Interest Purchase Agreement (the MIPA). Under the MIPA, JBS will acquire all of our outstanding membership interests for a combination of approximately $488.4 million cash and $71.6 million in common stock of JBS (the Purchase Price).

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Pursuant to the MIPA, at closing U.S. Premium Beef and certain other members of ours will receive their proportionate share of the Purchase Price with (i) 80.0% to be paid in cash and 20.0% to be paid in shares of common stock of JBS (JBS Stock) or (ii) 100% to be paid in shares of JBS Stock, which will be freely transferable on the Novo Mercado segment of the BOVESPA stock exchange in Brazil. The number of shares of JBS Stock will be determined based on its volume weighted average closing price during the 20 trading days prior to closing, subject to certain adjustments. Certain of our members have elected to receive or, under certain circumstances, have the right to receive their portion of the Purchase Price entirely in cash. If JBS is unable to deliver JBS Stock on an unencumbered and freely transferable basis at closing, the Sellers may still demand to close, but be paid entirely in cash.

Consummation of the MIPA is subject to customary conditions, including approval of the MIPA by the members of U.S. Premium Beef and the shareholders of JBS and the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and possible approvals by certain foreign jurisdictions.  The members of U.S. Premium Beef approved the MIPA on March 14, 2008 and the shareholders of JBS approved the MIPA on April 11, 2008.  On October 20, 2008, the U.S. DoJ, joined by the state attorneys general from seventeen states, filed a civil antitrust suit in U.S. District Court for the Northern District of Illinois seeking a permanent injunction against the MIPA alleging that it would result in lower prices paid to cattle suppliers and higher beef prices for consumers.  A similar suit was filed on November 13, 2008 in the same court by R-CALF and OCM.  These actions are being vigorously contested by us, U.S. Premium Beef and JBS.

The MIPA contains certain termination rights and provides that under certain circumstances, JBS or we may be required to pay our members or the members of JBS, respectively, a termination fee of $25 million plus certain costs.  The parties have agreed on the payment of certain fees and expenses, including those related to antitrust filings and compliance.

In calendar year 2007, we were the fourth largest beef processing company in the United States.  In fiscal year 2008, we accounted for approximately 13.7% of the United States fed cattle processed.  We process, package and deliver fresh beef for sale to customers in the United States and international markets.  Our products include boxed beef and beef by-products, such as hides and offal. In addition, we sell value-added beef products including branded boxed beef, case-ready beef, chilled and frozen export beef and portion control beef.  We market our products to retailers, distributors, food service providers and the United States military.  Our relationship with U.S. Premium Beef facilitates a vertically integrated business model and provides us with a significant portion of the high-quality cattle used in our boxed beef and value-added products.

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 that we extract from each animal.  The value that we extract from cattle processed, the cut-out value, is affected by beef prices and product mix, as premium products and further processed products generate higher prices and operating margins.  Our value-added products contribute significantly more, in terms of gross margin, 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.  The expansion phase that began three years ago stalled and contracted over the past thirty months.  While we expect a return to expansion over the next few years, all indicators are pointing at no growth at the present time.  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, 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. Historically, changes in cut-out values, a representation normally expressed on a per hundred weight basis, of the sales value of a beef carcass, for our beef products and corresponding livestock costs have been positively correlated. As a result, our profitability is primarily affected by the difference between cut-out value and livestock cost, the volume of livestock processed and our processing yields, the amount of saleable product, typically expressed as a percentage of a total carcass weight.

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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.

Outlook

            The extreme price volatility experienced in both input costs and cattle prices continues to keep the liquidation of the U.S. heard ongoing, and resulting in smaller fed-cattle supplies over the next two to three years at a minimum.  Cattle continue to be placed onto feed at near record heavy in-weights which will keep the carcass weights historically heavy and the feedlot turnover rates active.  The current weak global economic status will restrict consumer buying power and challenge the beef industry’s ability to obtain higher beef prices and to sustain export growth.  The key to supporting cattle and beef prices over the coming months will be improved consumer confidence and the stabilization of the financial markets.

 Beef Export Markets

             Export markets for U.S. beef products remain significantly constrained since the discovery of a case of Bovine Spongiform Encephalopathy (BSE) in the State of Washington in December 2003, as well as other isolated cases.  In July 2006, Japan agreed to reopen its market to U.S. beef from cattle aged 20 months and younger.  Our Brawley facility was suspended from shipping beef to Japan in April 2008 following the discovery of a short loin which included a portion of a spinal column, a specified risk material, prohibited by Japan.  Our Brawley facility was subsequently cleared to resume shipments to Japan on September 19, 2008.  South Korea announced a provisional opening of its border to U.S. beef from animals 30 months and younger in September 2006, however, its border was subsequently closed on October 5, 2007.  South Korea reopened its border and started inspecting U.S. beef on June 27, 2008.  These constraints and uncertainties have had a negative impact on beef margins.

These challenges resulted in tremendous volatility in U.S. livestock market prices since fiscal year ended 2004.  Where pre-BSE export sales were approximately 17% of total net sales in fiscal year 2003, NBP’s total export sales were approximately 7%, 10% and 12% of total net sales in fiscal years 2006, 2007, and 2008, respectively.  With the age restrictions placed on cattle that qualify for export to Japan, it is anticipated that between 5% and 20% of U.S. fed cattle will be able to meet the criteria.

            We cannot presently assess the full economic impact of the consequences of BSE on the U.S. beef packing industry or on its operations.  Existing or new import restrictions or additional regulatory restrictions or disruptions in domestic consumer demand for beef may continue to have a material adverse affect on the Company’s 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 that we believe are reasonable under the circumstances. Actual results may differ from those estimates. Changes in our estimates could materially affect our results of operations and financial condition for any particular period. Our fiscal year ends on the last Saturday in August. We believe that our most critical accounting policies are as follows:

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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 Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets, 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.  In connection with the acquisition of Vintage Foods, L.P. during the fourth quarter of fiscal year 2006 and subsequent adjustments, we recognized excess cost over the fair value of the net tangible and identifiable intangible assets acquired, and recorded approximately $1.8 million as goodwill, which has also been allocated to the Core Beef segment.  Goodwill and other indefinite life intangible assets were tested for impairment, and, as of August 30, 2008, 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.

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.  Capital subject to redemption represents Class A, B and C interests held by management and NBPCo Holdings, which include repurchase rights of the holders.  At any time after certain dates, the earliest being July 31, 2008, the latest being July 31, 2011, members with redemptive rights may request that NBP repurchase their interests, the value of which to be determined by a mutually agreed appraisal process. If NBP is unable to effect the repurchase within a specified time, the requesting member(s) have the right to cause a sale process to commence.  NBP accounts for changes in the redemption value of these interests by accreting the change in value from the date of change through the earliest redemption date of the respective interests.  

The Company uses Stern Brothers Valuation Advisors to assist management in measuring fair value of the capital subject to redemption.  Key assumptions in determining the fair value include the value offered by JBS under the MIPA, management’s estimate of the probability of the MIPA reaching a successful conclusion, valuation multiples of publicly traded companies in the same or similar industries, management’s projections of future cash flows, and the discount rate applied to the projected future cash flows.

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            The value of the capital subject to redemption at August 30, 2008, increased by approximately $148.2 million compared to the value at August 25, 2007 primarily as a result of the indication of fair value from the MIPA that was entered into on February 29, 2008 with JBS.  Under the MIPA, JBS will acquire all of the outstanding membership interests in the Company for an aggregate value of $560.0 million.  The value also significantly increased as a result of the increased operating results of the company in 2008 as compared to 2007 and an associated increase in management’s projections of future cash flows.  

The U.S. DoJ, state attorneys general from seventeen states, R-CALF, and OCM have filed civil antitrust suits seeking a permanent injunction of the MIPA.  Although these suits are being vigorously contested by the Company, U.S. Premium Beef and JBS, the fair value of the capital subject to redemption could be significantly impacted if the MIPA is unable to be successfully completed.  The valuation could also be significantly impacted if management’s projections of future cash flows change or valuation multiples of publicly traded companies in the same or similar industries change.  Offsetting the change in the value of the capital subject to redemption is a corresponding change in members’ capital. 

Results of Operations

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

		53 weeks ended		52 weeks ended		52 weeks ended
		August 30, 2008		August 25, 2007		August 26, 2006
Net sales	$	5,847.3	$	5,578.5	$	4,636.0
Costs and expenses:
Cost of sales		5,612.4		5,443.9		4,503.8
Selling, general and        administrative		43.7		42.5		34.0
Depreciation and        amortization		36.4		32.4		28.7
Operating income		154.8		59.7		69.5
Other income (expense):
Interest income		0 .5		0.6		0.4
Interest expense		(34.0)		(39.4)		(32.0)
Other, net		5.0		1.0		3.0
Total other expense, net		(28.5)		(37.8)		(28.6)
Income tax expense		(1.8)		(1.9)		(1.5)
Net income	$	124.5	$	20.0	$	39.4

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

Fiscal Year Ended August 30, 2008 Compared to Fiscal Year Ended August 25, 2007

Net Sales.    Net sales were $5,847.3 million for fiscal year 2008, an increase of $268.8 million, or 4.8%, compared to $5,578.5 million for fiscal year 2007.  The moderate increase in net sales resulted primarily from an average increase in beef sales prices per head of 8.5% in the fifty-three week period ended August 30, 2008 as compared to the fifty-two week period in the prior year.  Also contributing to the increase in net sales was an approximate 20.2% increase in export sales during fiscal year 2008 as compared to fiscal year 2007.   In addition, the current reporting period reflects an extra week of sales activity as compared to the same period of last year.  Partially offsetting these increases in net sales was an approximate 2.6% decrease in the volume of cattle processed during fiscal 2008 as compared to fiscal 2007.

Cost of Sales.    Cost of sales was $5,612.4 million for fiscal year 2008, an increase of $168.5 million, or 3.1%, from $5,443.9 million for fiscal year 2007. The increase was primarily a result of an extra week of costs in the current reporting period as compared to the same period of last year.  Also contributing to the increase in cost of sales was increased live cattle prices that were approximately 2.7% higher due to the continued tight supply of market-ready cattle and to the cattle being heavier, at average weights 1.2% more, during the fifty-three week period of fiscal 2008 than the fifty-two week period of last year.  Partially offsetting these increases was a decrease in the volume of cattle processed by approximately 2.6% during fiscal 2008 as compared to fiscal 2007.  Cost of sales, as a percentage of net sales, was 96.0% and 97.6% for fiscal years 2008 and 2007, respectively.

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Selling, General and Administrative Expenses.    Selling, general, and administrative expenses were $43.7 million for fiscal year 2008, an increase of $1.2 million or 2.8%, from $42.5 million for fiscal year 2007.  The increase for this period is primarily due to an increase in payroll and benefit expenses of approximately $1.7 million and an increase in marketing expense of approximately $0.8 million.  The current reporting period reflects an extra week of expense as compared to the same period of last year which contributed to the increases in the payroll and benefit and marketing expenses discussed above as well as the selling, general and administrative expenses in general.  Offsetting these increases in selling, general and administrative expenses were decreases of approximately $0.8 million in the provision for bad debts and approximately $0.4 million in repairs and maintenance costs during fiscal year 2008 as compared to fiscal year 2007.  Selling, general, and administrative expenses, as a percentage of net sales, were 0.7% and 0.8% for the fiscal years 2008 and 2007, respectively. 

Depreciation and Amortization Expense.    Depreciation and amortization expense increased $4.0 million, or 12.3%, for fiscal year 2008 as compared to fiscal year 2007.  Depreciation expense increased due to assets being placed into service, primarily at the Dodge City and Brawley beef plants, during the fiscal year 2007 and to assets being placed into service at our three beef plants and at the two Case Ready plants during fiscal year 2008.  In addition, the current reporting period reflects an extra week of expense as compared to the same period of last year.

Operating Income.    Operating income was $154.8 million for fiscal year 2008, a significant increase of $95.1 million, or 159.3%, from $59.7 million for fiscal year 2007.  Operating income, as a percentage of net sales, was 2.6% and 1.1% for fiscal years 2008 and 2007, respectively.  The significant improvement in operating income during fiscal year 2008 was related primarily to a more favorable market environment in the current year as compared to last year as well as the past several years.  Improved customer demand allowed for increased selling prices and improved conditions with the Asian markets allowed for increased export sales during the fifty-three week period of fiscal year 2008 as compared to the fifty-two week period of fiscal year 2007.

Interest Expense.    Interest expense was $34.0 million for fiscal year 2008 compared to $39.4 million for fiscal year 2007, a decrease of $5.4 million, or 13.7%.  The decrease in interest expense during the fifty-three week period of fiscal 2008 as compared to the fifty-two week period of fiscal 2007 was due primarily to lower interest rates on our variable rate debt, a decrease of approximately 242 basis points.  Offsetting this decrease in interest rates was an increase in the weighted average of variable rate debt of approximately $8.7 million at August 30, 2008 as compared to August 25, 2007.  Also contributing to the offset, was an extra week of interest expense in the current reporting period as compared to the same period of last year.

Other, net.    Other non-operating income, net was $5.0 million in fiscal year 2008 compared to other non-operating income, net of $1.0 million in fiscal year 2007, an increase of $4.0 million.  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.  Fiscal year 2007 included an approximate $0.2 million gain on the sale of land.  Fiscal years 2008 and 2007 also included $0.4 million and $0.7 million, respectively, in expense for the write-off of unamortized loan costs associated with the repurchase and cancellation of our Senior Notes during fiscal year 2008 and amending and restating our credit facility during fiscal year 2007. 

                Income Tax Expense.  Income tax expense was $1.8 million for fiscal year 2008 as compared to $1.9 million for fiscal year 2007, a decrease of $0.1 million, or 5.3%.  Beginning in calendar year 2008, some states in which we conduct business, modified their business taxes, using net income, or a modification of net income, as the basis.  The modification of these state taxes necessitated the inclusion of approximately $0.6 million of these business taxes in income tax expense during fiscal 2008 as compared to fiscal 2007.  The decrease in income taxes for the period of approximately $0.7 million is 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 2008 and 2007.

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Fiscal Year Ended August 25, 2007 Compared to Fiscal Year Ended August 26, 2006

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

Cost of Sales.    Cost of sales was $5,443.9 million for fiscal year 2007, an increase of $940.1 million, or 20.9%, from $4,503.8 million for fiscal year 2006. The majority of the increase came as a result of an increase of approximately 15.1% in the number of cattle processed, of which 11.3% came as a result of the Brawley Beef acquisition, at average weights about 0.7% higher than the prior year and at average live cattle prices of approximately 5.1% higher than fiscal year 2006.  The tightened supply of market-ready cattle and increased corn prices raised live cattle costs during fiscal year 2007.  Cost of sales, as a percentage of net sales, was 97.6% and 97.1% for fiscal years 2007 and 2006, respectively.

Selling, General and Administrative Expenses.    Selling, general, and administrative expenses were $42.5 million for fiscal year 2007, an increase of $8.5 million or 25.0%, from $34.0 million for fiscal year 2006. The increase resulted primarily from an approximate $2.9 million increase in bad debt expense resulting from significant net bad debt recoveries in fiscal year 2006 and an increase in payroll and benefit expenses of approximately $2.7 million.  Also contributing to the increase in selling, general and administrative expenses was an increase in legal fees of approximately $1.2 million associated mostly with acquisition due diligence costs, approximately $0.6 million more in repairs and maintenance and $0.4 million more in advertising expense as compared to the same period of last year.  Selling, general, and administrative expenses, as a percentage of net sales, were 0.8% and 0.7% for the fiscal years 2007 and 2006, respectively.  The acquisition of Brawley Beef on May 30, 2006 has contributed to the increased selling, general and administrative expenses incurred during the current fifty-two week period as compared to the same period of last year.

Depreciation and Amortization Expense.    Depreciation and amortization expense increased $3.7 million, or 12.9%, for fiscal year 2007 as compared to fiscal year 2006.  The increase was primarily due to a full year of depreciation expense at our Brawley plant in fiscal year 2007 compared to thirteen weeks in fiscal year 2006 as well as additional assets being placed into service, mostly at our two Kansas beef processing plants, during fiscal years 2006 and 2007.

Operating Income.    Operating income was $59.7 million for fiscal year 2007, a decrease of $9.8 million, or 14.1%, from $69.5 million for fiscal year 2006. Operating income, as a percentage of net sales, was 1.1% and 1.5% for fiscal years 2007 and 2006, respectively.  The tightened supply of market-ready cattle and the related high live cattle prices put significant pressure on and negatively impacted our gross margin for fiscal year 2007 as compared to fiscal year 2006, despite the resumption of shipments to Asian markets late in the fourth quarter of fiscal year 2006.

Interest Expense.    Interest expense was $39.4 million for fiscal year 2007 compared to $32.0 million for fiscal year 2006, an increase of $7.4 million, or 23.1%. The increase was due primarily to an increase in the weighted average amounts outstanding of variable rate debt of approximately $81.3 million, mostly as a result of the Brawley Beef acquisition, for fiscal year 2007 as compared to fiscal year 2006.  Interest expense also increased due to higher interest rates on our variable rate debt, an increase of approximately 67 basis points, during the fifty-two weeks of fiscal 2007 as compared to the same period of last year.

Other, net.    Other non-operating income, net was $1.0 million in fiscal year 2007 compared to other non-operating income, net of $3.0 million in fiscal year 2006, a decrease of $2.0 million.  Fiscal year 2006 included an approximate $1.4 million reduction in postretirement benefit obligation necessitated by a significant reduction of participants and premiums because of changes in Medicare, and an approximate $0.6 million in income for a settlement of a lawsuit related to corrugated packaging materials.  Fiscal year 2007 includes an approximate $0.2 million gain on the sale of land.  Fiscal years 2007 and 2006, respectively, include $0.7 million and $0.6 million in expense for the write-off of unamortized loan costs associated with amending and restating our credit facility. 

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            Income Tax Expense.  Income tax expense was $1.9 million for fiscal year 2007 as compared to $1.5 million for fiscal year 2006, an increase of $0.4 million, or 26.7%.  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 2007 and 2006.

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 SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. 

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

Other—the Other segments of NBP consists of the operations of National Carriers, a refrigerated and livestock contract carrier company, National Elite Transportation, LLC, a provider of transportation logistics services, and Kansas City Steak Company, LLC, a portion control steak cutting operation.

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

		53 weeks ended August 30, 2008		52 weeks ended August 25, 2007		52 weeks ended August 26, 2006
Net sales:
Core beef	$	5,877,374	$	5,562,958	$	4,622,146
Other		237,100		225,687		211,111
Eliminations		(267,182)		(210,112)		(197,227)
Total net sales	$	5,847,292	$	5,578,533	$	4,636,030
Depreciation and amortization:
Core beef	$	35,119	$	31,126	$	27,250
Other		1,289		1,312		1,400
Total depreciation and amortization	$	36,408	$	32,438	$	28,650
Operating income:
Core beef	$	148,478	$	51,970	$	64,664
Other		6,303		7,688		4,868
Total operating income		154,781		59,658		69,532
Interest income		460		669		403
Interest expense		(33,996)		(39,426)		(32,009)
Other income		5,723		1,334		3,181
Minority interest		(704)		(313)		(160)
Total income before taxes	$	126,264	$	21,922	$	40,947
		August 30, 2008		August 25, 2007
Assets:
Core beef	$	838,594	$	779,483
Other		37,934		36,632
Eliminations		(626)		(612)
Total assets	$	875,902	$	815,503

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Fiscal Year Ended August 30, 2008 Compared to Fiscal Year Ended August 25, 2007

            Core Beef

            Net Sales.  Net sales for Core Beef were $5,877.4 million in fiscal year 2008 compared to $5,563.0 million in fiscal year 2007, an increase of $314.4 or 5.7%.  The moderate increase in net sales resulted primarily from an average increase in beef sales prices per head of 8.5% during the fifty-three week period ended August 30, 2008 as compared to the fifty-two week period ended August 25, 2007.    Also contributing to the increase in net sales was an approximate 20.2% increase in export sales during fiscal year 2008 as compared to fiscal year 2007.  In addition, the current reporting period reflects an extra week of sales activity as compared to the same period of last year.  Partially offsetting these increases in net sales was an approximate 2.6% decrease in the volume of cattle processed during fiscal 2008 as compared to fiscal 2007.

Depreciation and Amortization.  Depreciation and amortization of Core Beef was $35.1 million in fiscal year 2008 as compared to $31.1 million in fiscal year 2007, an increase of $4.0 million or 12.9%.   Depreciation expense increased due to assets being placed into service, primarily at the Dodge City and Brawley beef plants, during the fiscal year 2007 and to assets being placed into service at our three beef plants and our two Case Ready plants during fiscal year 2008.  In addition, the current reporting period reflects an extra week of expense as compared to the same period of last year.

Operating Income.  Operating income for Core Beef was $148.5 million in fiscal year 2008 compared to $52.0 million in fiscal year 2007, an increase of $96.5 million or 185.6%.  The improvement in operating income during the fifty-three week period ended August 30, 2008 resulted primarily from increased demand and selling prices of beef products as compared to the fifty-two week period ended August 25, 2007.

            Other

Net Sales.  Net sales for Other were $237.1 million in fiscal year 2008 compared to $225.7 million in fiscal year 2007, an increase of $11.4 million or 5.1%.  The increase was primarily due to increased fuel surcharge revenues at our transportation company and increased sales at our portion control beef facility during the fifty-three week period of fiscal 2008 as compared to the fifty-two week period of fiscal 2007.  In addition, the current reporting period reflects an extra week of sales activity as compared to the same period of last year.

Depreciation and Amortization.  Depreciation and amortization for Other was $1.3 million for fiscal years 2008 and 2007.

Operating Income.  Operating income for Other was $6.3 million in fiscal year 2008 compared to $7.7 million in fiscal year 2007, a decrease of $1.4 million or 18.2%.  The decrease was due primarily to higher fuel costs and increased repair and maintenance expense experienced by our transportation company which was offset by improved operating income in our portion control beef facility resulting from improved inventory management and marketing initiatives.
 

Fiscal Year Ended August 25, 2007 Compared to Fiscal Year Ended August 26, 2006

            Core Beef

Net Sales.  Net sales for Core Beef were $5,563.0 million in fiscal year 2007 compared to $4,622.1 million in fiscal year 2006, an increase of 20.4%. The increase of $940.9 million resulted primarily from an increase of approximately 15.1% in the number of cattle processed, of which 11.3% came as a result of the acquisition of Brawley Beef on May 30, 2006, and from average cattle weights about 0.7% higher than the prior year.  Also contributing to the increase in sales was the resumption of shipments to Asian markets late in the fourth quarter of fiscal 2006.

Depreciation and Amortization.  Depreciation and amortization of Core Beef was $31.1 million in fiscal year 2007 as compared to $27.2 million in fiscal year 2006, an increase of $3.9 million or 14.3%. The increase was primarily due to a full year of depreciation expense at our Brawley plant in fiscal year 2007 compared to thirteen weeks in fiscal year 2006 as well as additional assets being placed into service, mostly at our two Kansas beef processing plants, during fiscal years 2006 and 2007.

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Operating Income.  Operating income for Core Beef was $52.0 million in fiscal year 2007 compared to $64.7 million in fiscal year 2006, a decrease of $12.7 million or 19.6%.  The tightened supply of market-ready cattle and the related high live cattle prices put significant pressure on and negatively impacted our gross margin for fiscal year 2007 as compared to fiscal year 2006, despite the resumption of limited shipments to Asian markets late in the fourth quarter of fiscal year 2006.

            Other

Net Sales.  Net sales for Other were $225.7 million in fiscal year 2007 compared to $211.1 million in fiscal year 2006, an increase of $14.6 million or 6.9%. The increase was primarily attributable to increases in sales at our portion control beef facility.

Depreciation and Amortization.  Depreciation and amortization for Other was $1.3 million for fiscal year 2007 compared to $1.4 million in fiscal year 2006, a decrease of $0.1 million or 7.1%. The decrease was due primarily to National Carriers continuing the transition from owning trucks to leasing them under operating lease agreements throughout fiscal years 2006 and 2007.

            Operating Income.  Operating income for Other was $7.7 million in fiscal year 2007 compared to $4.9 million in fiscal year 2006, an increase of $2.8 million or 57.1%.  The increase was due primarily to increased sales with improved margins at our portion control beef facility.
 

Liquidity and Capital Resources

As of August 30, 2008, we had net working capital of $209.6 million, which included $43.0 million in distributions payable, and cash and cash equivalents of $25.5 million.  As of August 25, 2007, we had net working capital of $249.3 million, which included $6.4 million in distributions payable, and cash and cash equivalents of $30.4 million.  Our primary sources of liquidity are cash flow from operations and available borrowings under our sixth amended and restated credit facility (Credit Facility).

As of August 30, 2008, we had $377.8 million of long-term debt, $3.6 million of which was classified as a current liability.  As of August 30, 2008, our Credit Facility consisted of a $202.6 million term loan, all of which was outstanding, and a $200.0 million revolving line of credit loan, which had outstanding borrowings of $11.4 million, outstanding letters of credit of $45.2 million and available borrowings of $143.4 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 30, 2008 except for the capital expenditure limitation for which we subsequently received a waiver as described below.

In addition to outstanding borrowings under our Credit Facility, we had outstanding borrowings under industrial revenue bonds of $20.7 million, senior notes of $129.4 million and capital lease and other obligations of $13.7 million as of August 30, 2008.

Capital spending through fiscal year 2009 is expected to approximate $50.0 million. These expenditures are primarily for plant expansion, equipment renewals and improvements, including $11.4 million for environmental and air pollution control.

We believe that available borrowings under our 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.

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Operating Activities

Net cash provided by operating activities was $159.4 million in fiscal year 2008 as compared to net cash used in operating activities of $4.2 million in fiscal year 2007.  The $163.6 million change was due primarily to a significant increase of approximately $104.5 million in net income in fiscal year 2008 as compared to fiscal year 2007.  Also contributing to the improvement was net cash being provided primarily in operating activities through inventory, accounts payable and accrued compensation and benefits during the fifty-three week period of the current year while net cash was used primarily in operating activities through accounts receivable during the fifty-two week period of last year.

Net cash used in operating activities was $4.2 million in fiscal year 2007 as compared to net cash provided of $47.7 million in fiscal year 2006. The $51.9 million change was due primarily to a net increase in working capital requirements in the current period resulting from higher beef inventory volumes and higher accounts receivable balances which were driven by larger production volumes and generally higher prices.  Also contributing to the change in operating activities were lower accrued insurance and accrued compensation and benefits balances as well as a lower net income in fiscal year 2007.

Investing Activities

Net cash used in investing activities was $58.9 million in fiscal year 2008 as compared to $41.4 million for fiscal year 2007, an increase of $17.5 million. The increase was primarily attributable to more capital spending during fiscal year 2008 and included the purchase of approximately $10.0 million of equipment that we had initially planned to lease.

Net cash used in investing activities was $41.4 million in fiscal year 2007 as compared to $32.9 million for fiscal year 2006, an increase of $8.5 million. The increase was primarily attributable to more capital spending during fiscal year 2007.

Financing Activities

            Net cash used in financing activities was $105.4 million in fiscal year 2008 compared to net cash provided by financing activities of $47.4 million in fiscal 2007.  The change was primarily attributed to a $46.5 million difference in net revolving credit borrowings, the borrowing of $40.0 million on our term note in the 2007 period that did not recur in the 2008 period, the $30.6 million purchase and cancellation of Senior Notes, a $21.0 million increase in member distributions paid during fiscal year 2008 as compared to fiscal year 2007, a $11.1 million change in the impact of overdraft balances, and $10.5 million of proceeds from a sale leaseback transaction in fiscal year 2007 that did not recur in fiscal year 2008.   These changes were partially offset by $7.4 million in repayments on our term note that were made in the 2007 period that did not recur in the 2008 period.

Net cash provided by financing activities was $47.4 million in fiscal year 2007 as compared to net cash used of $16.1 million for fiscal year 2006. The $63.5 million change was primarily attributable to a $52.9 million difference in repayment of Brawley Beef, LLC debt, associated with the Brawley Beef acquisition, a $15.6 million difference in revolving credit borrowings, the acquisition of indebtedness through capital lease, and an $8.0 million change in overdraft balances, partially offset by a $10.0 million decrease in borrowings under our term note and $7.4 million in repayments of our term note during fiscal year 2007 as compared to fiscal year 2006.

Credit Facility

            Effective July 25, 2007, we amended and restated our existing senior credit facility with a consortium of banks.  The Credit Facility now consists of a $202.6 million term loan that matures in May 2016 and a $200.0 million revolving line of credit loan that matures in July 2012 that is subject to certain borrowing base limitations.  This sixth amendment and restatement is within the scope of the Emerging Issues Task Force (EITF) 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments as well as EITF 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements.  In accordance with that guidance, a portion of the unamortized loan costs of approximately $0.7 million from the fifth amended and restated credit facility as well as additional finance and legal charges associated with the sixth amended and restated credit facility of less than $0.1 million were expensed in Other, net in the Statement of Operations during the fiscal year ended August 25, 2007.  On June 27, 2008, the Company amended its credit facility to increase the allowable amount of net capital expenditures during fiscal year 2008.  At the end of fiscal year 2008, it was determined that we exceeded the capital expenditure limitation within our Credit Facility by approximately $0.4 million and a waiver was subsequently obtained from our banks for this violation.

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            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 will be based on borrowing base availability with grids greater than $150.0 million, $50.0 to $150.0 million and less than $50.0 million.  As of August 30, 2008, the interest rate for the revolving loan was equal to 3.87%.   The applicable margin for the Company’s term loan was also revised to a grid basis with different margins for Funded Debt to EBITDA Ratios greater than 3.50 to 1.00 and less than 3.50 to 1.00.  As of August 30, 2008, the interest rate for the term loan was equal to 4.22%.

            The revolving line of credit and the term loan have no financial covenants unless the borrowing base availability is less than $50.0 million for five consecutive business days or less than $35.0 million on any single business day during any fiscal quarter.  If the borrowing base availability falls below these amounts, a fixed charge ratio of 1:15 to 1:00 must be maintained at the end of each subsequent fiscal quarter until the borrowing base availability has been greater than or equal to $50.0 million for 90 consecutive days.  The advance rates under the borrowing base are 90% on eligible accounts and 70% on eligible inventory.  As of August 30, 2008, the Company had met the borrowing base availability requirements under its senior credit facilities and was not subject to any financial covenants.

            The borrowings under the revolving loan are available for the Company’s working capital requirements, capital expenditures and other general corporate purposes, including the purchase of a portion of its outstanding Senior Notes from time to time in accordance with the limits imposed under the Credit Facility.  The Credit Facility is secured by a first priority lien on substantially all of the Company’s assets.  The principal amount outstanding under the term loan is due and payable in equal installments of approximately $3.5 million on the last business day of each June and December commencing on June 30, 2011.  All outstanding amounts of the term loan are due and payable on May 30, 2016.  Prepayment is allowed at any time.

            The Credit Facility contains customary affirmative covenants, including, without limitation, conduct of business, the 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, including without limitation, restrictions on the following:  distributions, mergers, sale of assets, investments and acquisitions, encumbrances, indebtedness, affiliate transactions, and ERISA matters.

            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 the Company’s property, changes in control of the Company, the 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 facility also includes customary provisions protecting the lenders against increased cost or loss of yield resulting from changes in tax, reserve, capital adequacy and other requirements of law.

Industrial Revenue Bonds

In conjunction with the fourth amendment 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 purchased our Dodge City facility (the “facility”) by issuing $102.3 million in bonds due in December 2014, 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 fourth amended and restated 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.

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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 $5.8 million and are due on demand or on February 1, 2029, March 1, 2027, March 1, 2015 and October 1, 2009. However, because each series of bonds is backed by a letter of credit under our Credit Facility, these bonds have been presented as non-current obligations.  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 2.7% in fiscal year 2008. We have the option to redeem a series of bonds at any time for an amount equal to the principal plus accrued interest to the date of such redemption. The holders of the bonds have the option to tender the bonds upon seven days’ notice for an amount equal to par plus accrued interest. To the extent that the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent will use the letter of credit to fund such tender.

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 2008 was 2.7%.  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 that the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent will use the letter of credit to fund such tender.

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 $1.4 million, $1.4 million and $1.2 million was paid in fiscal years 2008, 2007 and 2006, respectively.  Payments under the commitment will be $1.4 million in fiscal year 2009, $1.7 million in fiscal year 2010, and $0.8 million in each of the fiscal years 2011, 2012 and 2013, with the remaining balance of $8.9 million to be paid in subsequent years. 

10 ½% Senior Notes

The 10 ½% Senior Notes will mature on August 1, 2011.  Interest on the Senior Notes is payable semi-annually in arrears on August 1 and February 1 of each year, which commenced on February 1, 2004.  The Senior Notes are senior unsecured obligations, ranking equal in right of payment with all of our other senior unsecured obligations.  During the 12 month period commencing August 1, 2008, the Senior Notes are redeemable at 102.625%.  Thereafter, the Senior Notes may be redeemed at 100% of face value.  The Indenture governing the Senior Notes contains certain covenants that restrict our ability to:

• incur additional indebtedness;
   

• make restricted payments;
   

• make distributions on or redeem our equity interests;
   

• sell our assets;

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• create liens;
   

• merge or consolidate with another entity; and
   

• enter into transactions with affiliates.

During fiscal year 2008, we purchased and cancelled approximately $30.6 million of our Senior Notes.

Cash Payment Obligations

    The following table describes our cash payment obligations as of August 30, 2008 (in thousands):

	Total	Year 1 FY09	Year 2 FY10	Year 3 FY11	Year 4 FY12	Year 5 FY13	After   Year 5
Term loan facility	$202,616	$         —	$       —	$    3,500	$        7,000	$    7,000	$185,116
Interest on long-term debt (1)	106,860	22,988	22,881	21,540	8,977	8,278	22,196
Revolving credit facility	11,367	—	—	—	11,367	—	—
Senior notes	129,397	—	—	129,397	—	—	—
Industrial Revenue Bonds	20,665	—	5,850	—	—	—	14,815
Capital leases (including interest)	15,595	4,117	3,411	1,672	1,659	1,659	3,077
City of Brawley loan	200	40	40	40	40	40	—
Operating leases	40,237	14,672	11,835	7,015	4,744	1,516	455
Purchase commitments	10,843	10,843	—	—	—	—	—
Cattle commitments (2)	91,794	91,794	—	—	—	—	—
Utilities commitment	14,504	1,379	1,734	818	820	818	8,935
Total	$644,078	$145,833	$45,751	$163,982	$34,607	$19,311	$234,594

___________________________________________

(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 30, 2008.

Off-Balance Sheet Arrangements

As of August 30, 2008 we did not have any significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Inflation

We believe that our results of operations are not materially affected by moderate changes in the inflation rate. Inflation and changing prices did not have a material affect on our operations in fiscal years 2008, 2007 and 2006. 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 that 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 fall months as weather patterns permit more outdoor activities and there is an increased demand for higher value items that are grilled, such as steaks. Both live cattle prices and boxed beef prices tend to be at seasonal highs during the summer and fall. Because of higher consumption, more favorable growing conditions and the housing of animals in feedlots for the winter months, there are generally more cattle available in the summer and fall.

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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 that we can obtain them as needed.  Commodities are subject to price fluctuations that may create price risk. When appropriate, 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. When appropriate, we enter into forward purchase contracts at prices determined prior to the delivery of the cattle. The commodity price risk associated with these activities can be hedged by selling (or buying) the underlying commodity, or by using an appropriate commodity derivative instrument. The particular hedging 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. When appropriate, 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.

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

            While management believes each of these instruments help mitigate various market risks, they are not designated and accounted for as hedges under SFAS No. 133 as a result of the extensive recordkeeping requirements of this statement. Accordingly, the gains and losses associated with the change in fair value of the instrument and the offsetting gains and losses associated with changes in the market value of certain of the firm 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 that sensitivity analysis more appropriately reflects the potential market value exposure associated with the use of derivative instruments.  As of August 30, 2008, and August 25, 2007, the potential change in the fair value of applicable commodity prices, assuming a hypothetical 10% decrease in the underlying commodity price in each year, was $1.2 million and $5.2 million, respectively.

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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.

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. Our variable interest expense is sensitive to changes in the general level of interest rates.  As of August 30, 2008, most of our debt is borrowed at LIBOR plus a weighted average margin rate of 1.25%. As of August 30, 2008, the weighted average interest rate on our $234.6 million of variable interest debt was approximately 4.0%.

We had total interest expense of approximately $34.0 million in fiscal year 2008 and approximately $39.4 million in fiscal year 2007. The estimated increase in interest expense from a hypothetical 200 basis point increase in applicable variable interest rates would have been approximately $5.2 million in fiscal year 2008 and approximately $5.0 million in fiscal year 2007.
 

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(T).          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 30, 2008 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:

 41

• 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 30, 2008.  In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.

Based on the Company’s processes and assessment, as described above, management has concluded that, as of August 30, 2008, 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 temporary 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.

	Age as of
Name	August 30, 2008	Positions
John R. Miller	55	Chief Executive Officer and Manager
Timothy M. Klein	51	President and Chief Operating Officer
Jay D. Nielsen	53	Chief Financial Officer
Terry L. Wilkerson	57	Executive Vice President, Operations
David L. Grosenheider	51	Executive Vice President, Business Planning and Analysis
Monte E. Lowe	50	Executive Vice President, Sales and Marketing
Scott H. Smith	55	General Counsel and Secretary
Steven D. Hunt	49	Chairman of Board of Managers
Richard A. Jochum	48	Manager

John R. Miller serves as a manager and has been our Chief Executive Officer since 1992.  Since 1992, Mr. Miller has served as the Chief Executive Officer of National Carriers, Inc., and since 2001, he has served as the Chief Executive Officer of aLF Ventures, LLC.

Timothy M. Klein has been our President and Chief Operating Officer since 1998. Mr. Klein served as our Executive Vice President from 1992 through 1998.

Jay D. Nielsen has been our Chief Financial Officer since 1997 and has worked at National Beef since 1992.

Terry L. Wilkerson has been our Executive Vice President, Operations since March 2006.  Prior to this appointment, Mr. Wilkerson served as our Executive Vice President, Strategic Business Development from April 2005 to March 2006.  From 1998 to 2005, Mr. Wilkerson served as our Executive Vice President of Operations.

David L. Grosenheider became our Executive Vice President, Business Planning and Analysis in March 2006.  Prior to this appointment, Mr. Grosenheider served as our Executive Vice President, Beef Operations from April 2005 to March 2006, as our Executive Vice President of Case-Ready Meats from June 2003 to April 2005, as our Executive Vice President of Systems and Planning from 1999 to June 2003, and from 1993 to 1998 as our Vice President of Operational Affairs.

Monte E. Lowe has served as our Executive Vice President of Sales and Marketing since 1993.

Scott H. Smith has served as our General Counsel since 1992 and has served as our Secretary since 2003.

Steven D. Hunt has served as the Chairman of our Board of Managers since U.S. Premium Beef acquired majority interest in us on August 6, 2003. Mr. Hunt was one of the founders of U.S. Premium Beef and has served as its Chief Executive Officer since 1996.  

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Richard A. Jochum serves as one of our managers. He has served as the General Counsel and Corporate Administrator of BPI since March 2002. 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.

Audit Committee

The board of managers of NBP 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 Jay Nielsen, Chief Financial Officer, 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:

Name	Title
John R. Miller	Chief Executive Officer
Jay D. Nielsen	Chief Financial Officer
Timothy M. Klein	President and Chief Operating Officer
Terry L. Wilkerson	Executive Vice President, Operations
David L. Grosenheider	Executive Vice President, Business Planning and Analysis
Monte E. Lowe	Executive Vice President, Sales and Marketing

            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 (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.  The Board makes all compensation-related decisions that affect Messrs. Miller and Klein.  Messrs. Miller and Klein, with input from the Board, make compensation-related decisions for all other senior management. 

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: 

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• compensation must be competitive with that offered by other companies that compete with us;
   

• 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.  Messrs. Miller and Klein from time to time may receive a substantially greater portion of their total compensation in the form of incentive pay because of the incentive opportunities negotiated as part of their 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 Messrs. Miller and Klein, all of our named executive officers participated in the Management Incentive Program for fiscal year 2008.  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 2008, $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.  A bonus pool is established and allocated to the plan participants according to the formula in the plan document.

            We also maintain a long term incentive plan called the Management Long Term Incentive Plan (“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 Messrs. Miller and Klein, all of our named executive officers participated in this plan for fiscal year 2008. 

            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, we consider 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 2008 awards will vest in equal installments of 33-1/3% each following the end of fiscal years 2011, 2012 and 2013.  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.

 45

            No bonuses will be earned under the LTIP unless the Company attains a return on capital of at least 15%.  In fiscal year 2008, $2,085,516 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. 

            Messrs. Miller and Klein do not participate in our annual or long term incentive plans.  Instead, each officer is eligible for annual and long term incentives set forth in their respective employment agreements described below.

Employee Benefits

            Each of our named executive officers is entitled to participate in 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

            Messrs. Miller and Klein are the only two named executive officers of the Company covered by an employment agreement. 

Agreement with John R. Miller

            On August 6, 2003, we negotiated an agreement with Mr. Miller to continue to serve as our Chief Executive Officer for a term of five years at an initial annual salary of $900,000.  In addition to his salary, Mr. Miller receives a quarterly bonus of approximately $75,000 per fiscal quarter (so long as we are permitted to make restricted payments pursuant to our existing credit facility), an annual bonus based on our earnings before taxes for each year and a long term bonus based on our earnings before interest and taxes.  Mr. Miller also is entitled to receive certain benefits described in his employment agreement and other customary benefits in accordance with our Company policies.

            Mr. Miller’s annual “earnings-based” bonus is computed applying the following formula:  (a) if the Company’s cumulative earnings before taxes (“EBT”) during the fiscal year exceeds $20,000,000, 2.75% of such excess, up to EBT of $80,000,000; plus (b) if such cumulative EBT exceeds $80,000,000, 1.0% of such excess.  Mr. Miller’s long term bonus is based on the following formula and is subject to Mr. Miller continuous employment through the last day of fiscal year 2008:  (a)  if the Company’s cumulative earnings before interest and taxes (“EBIT”) during the period from the first day of fiscal year 2006 through the last day of fiscal year 2008 exceeds $76,667,000, 7.0% of such excess, up to cumulative EBIT of $100,000,000; plus (b) if such cumulative EBIT exceeds $100,000,000, 2.0% of such excess, up to cumulative EBIT of $116,667,000; plus (c) if such cumulative EBIT exceeds $116,667,000, 1.0% of such excess. 

            If we terminate Mr. Miller’s employment without cause or if he terminates his employment with good reason, he will continue to receive his then-current salary and specified bonuses and we will maintain certain fringe benefits on his behalf for the remainder of the five-year term specified in his employment agreement.  Mr. Miller’s employment agreement also contains a covenant not to compete, subject to certain conditions.

 46

            On August 6, 2003, we also entered into a deferred equity incentive compensation agreement with Mr. Miller in recognition of his past services to the Company.  Pursuant to this agreement, Mr. Miller received 6,057,143 Class A interests and 609,524 Class C interests on August 6, 2008.

            During the first quarter of fiscal 2009, the employment agreement of Mr. Miller was extended to the earlier of the closing of the MIPA or November 30, 2008.  The extension applies to all provisions of the Employment Agreement, except the provisions providing for a quarterly bonus, annual bonus and long-term incentive plan. 

Agreement with Timothy M. Klein

            On August 6, 2003, we negotiated an agreement with Mr. Klein to continue to serve as our President and Chief Operating Officer for a term of eight years at an initial annual salary of $500,000.  In addition to his salary, Mr. Klein receives a quarterly bonus of approximately $37,500 per fiscal quarter (so long as we are permitted to make restricted payments pursuant to our existing credit facility) through August 30, 2008, an annual bonus based on our earnings before taxes for each year and long term bonuses based on our earnings before interest and taxes.  Mr. Klein also is entitled to receive certain benefits described in his employment agreement and other customary benefits in accordance with our Company policies.

            Mr. Klein’s annual earnings-based bonus is computed applying the formula described in footnote (3) 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 2009, he will be entitled to a bonus equal to:  (a) if the Company’s cumulative earnings before interest and taxes (“EBIT”) during the period from the first day of fiscal year 2006 through the last day of fiscal year 2009 exceeds $115,000,000, 3.9% of such excess, up to cumulative EBIT of $150,000,000; plus (b) if such cumulative EBIT exceeds $150,000,000, 1.1% of such excess, up to cumulative EBIT of $175,000,000; plus (c) if such cumulative EBIT exceeds $175,000,000, .6% of such excess. 
   
• If Mr. Klein is continuously employed through the last day of fiscal year 2011, he will be entitled to an additional long term bonus equal to:  (a) if the Company’s cumulative earnings before interest and taxes (“EBIT”) during the period from the first day of fiscal year 2009 through the last day of fiscal year 2011 exceeds $76,667,000, 3.9% of such excess, up to cumulative EBIT of $100,000,000; plus (b) if such cumulative EBIT exceeds $100,000,000, 1.1% of such excess, up to cumulative EBIT of $116,667,000; plus (c) if such cumulative EBIT exceeds $116,667,000, .6% of such excess. 

            If we terminate Mr. Klein without cause or if he terminates his employment with good reason, he will continue to receive his then-current salary and specified bonuses and we will maintain certain fringe benefits on his behalf for the remainder of the eight-year term specified in his employment agreement.  Mr. Klein’s employment agreement also contains a covenant not to compete, subject to certain conditions.

            On August 6, 2003, we also entered into a deferred equity incentive compensation agreement with Mr. Klein in recognition of his past services to the Company.  Pursuant to this agreement, Mr. Klein received 3,028,571 Class A interests and 304,762 Class C interests on August 6, 2008.

Impact of Tax and Accounting Treatments

            We believe that 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 that Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (“SFAS 123(R)”) does not have a material effect on our compensation program because we do not award stock options, restricted shares or other equity-based compensation. 

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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.

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

Steven D. Hunt

Richard A. Jochum

John R. Miller

 

 48

Summary Compensation Table

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

Name and Principal Position	Fiscal Year	Salary (1)	Bonus	Option Awards	Non-Equity Incentive Plan Compensation	Change in Pension Value	All Other Compensation	Total
John R. Miller, Chief Executive Officer	2008 2007	$917,308 $900,000	- -	- -	$5,428,699 $352,854 (2)	- -	$5,061 $4,772 (3)	$6,351,068 $1,257,626
Jay D. Nielsen, Chief Financial Officer	2008 2007	$184,519 $165,000	- $9,037 (4)	- -	$234,458 $55,812 (5)	- -	$4,694 $4,274 (6)	$423,672 $234,123
Timothy M. Klein, President and Chief Operating Officer	2008 2007	$509,615 $500,000	- -	- -	$1,206,320 $176,427 (7)	- -	$5,591 $5,074 (8)	$1,721,527 $681,501
Terry L. Wilkerson, Executive Vice President, Operations	2008 2007	$280,289 $260,577	- $14,271 (4)	- -	$373,709 $91,872 (9)	- -	$11,228 $10,644 (10)	$665,226 $377,364
David L. Grosenheider, Executive Vice President, Business Planning and Analysis	2008 2007	$254,808 $242,789	- $13,297 (4)	- -	$358,254 $91,872 (11)	- -	$5,917 $5,420 (12)	$618,979 $353,378
Monte E. Lowe, Executive Vice President, Sales and Marketing	2008	$254,808	-	-	$358,254 (13)	-	$5,917 (14)	$618,979

(1)	Salaries are paid on a weekly basis.  Fiscal year 2008 consisted of 53 weeks while fiscal year 2007 consisted of 52 weeks.
(2)	These amounts were earned pursuant to the terms of Mr. Miller’s employment agreement dated August 6, 2003, and are comprised of aggregate quarterly bonuses of $300,000 in fiscal years 2007 and 2008, an annual earnings-based bonus of $52,854 and $2,112,640 in fiscal years 2007 and 2008, respectively, and a long-term bonus of $3,016,059 earned at the conclusion of fiscal year 2008.
(3)	These amounts are comprised of a company matching payment toward a 401(k) retirement plan of $3,798 and $4,240 in fiscal years 2007 and 2008, respectively, as well as a premium payment of life insurance benefit of $974 and $821 in fiscal years 2007 and 2008, respectively.
(4)	This amount represents the executive’s portion of the $1.8 million aggregate discretionary bonus approved for management employees in fiscal year 2007.
(5)	These amounts are comprised of $38,596 and $111,724 earned under the Management Long Term Incentive Plan for fiscal years 2007 and 2008, respectively, plus $17,216 and $10,818 of accrued interest with respect to fiscal years 2007 and 2008, respectively, attributable to amounts credited on the executive’s behalf under the Management Long Term Incentive Plan for prior fiscal years.  The 2008 amount also includes $111,917 earned in fiscal year 2008 under our Management Incentive Program.
(6)	These amounts are comprised of a company matching payment toward a 401(k) retirement plan of $3,300 and $3,873 for fiscal years 2007 and 2008, respectively, as well as a premium payment of life insurance benefit of $974 and $821 in fiscal years 2007 and 2008, respectively.

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(7)	These amounts were earned pursuant to the terms of Mr. Klein’s employment agreement dated August 6, 2003, and are comprised of aggregate quarterly bonuses of $150,000 in fiscal years 2007 and 2008 and annual earnings-based bonuses of $26,427 and $1,056,320 in fiscal years 2007 and 2008, respectively.
(8)	These amounts are comprised of a company matching payment toward a 401(k) retirement plan of $4,100 and $4,770 in fiscal years 2007 and 2008, respectively, as well as a premium payment of life insurance benefit of $974 and $821 in fiscal years 2007 and 2008, respectively.
(9)	These amounts are comprised of $64,326 and $186,207 earned under the Management Long Term Incentive Plan in fiscal years 2007 and 2008, respectively, plus $27,546 and $17,498 of accrued interest with respect to fiscal years 2007 and 2008, respectively, attributable to amounts credited on the executive’s behalf under the Management Long Term Incentive Plan for prior fiscal years.  The 2008 amount also includes $170,004 earned in fiscal year 2008 under our Management Incentive Program.
(10)	These amounts are comprised of a company matching payment toward a 401(k) retirement plan of $4,869 and $5,606 in fiscal years 2007 and 2008, respectively, as well as a premium payment of life insurance benefit of $5,775 and $5,622 in fiscal years 2007 and 2008, respectively.
(11)	These amounts are comprised of $64,326 and $186,207 earned under the Management Long Term Incentive Plan in fiscal years 2007 and 2008, respectively, plus $27,546 and $17,498 of accrued interest with respect to fiscal years 2007 and 2008, respectively, attributable to amounts credited on the executive’s behalf under the Management Long Term Incentive Plan for prior fiscal years.  The 2008 amount also includes $154,549 earned in fiscal year 2008 under our Management Incentive Program.
(12)	These amounts are comprised of a company matching payment toward a 401(k) retirement plan of $4,446 and $5,096 in fiscal years 2007 and 2008, respectively, as well as a premium payment of life insurance benefit of $974 and $821 in fiscal years 2007 and 2008, respectively.
(13)	This amount is comprised of $186,207 earned under the Management Long Term Incentive Plan plus $17,498 of accrued interest with respect to fiscal year 2008 attributable to amounts credited on the executive’s behalf under the Management Long Term Incentive Plan for prior fiscal years.  This amount also includes $154,549 earned in fiscal year 2008 under our Management Incentive Program.
(14)	This amount is comprised of a company matching payment toward a 401(k) retirement plan of $5,096 in fiscal year 2008 as well as a premium payment of life insurance benefit of $821 in fiscal year 2008.

 

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Grants of Plan-Based Awards

            The table below sets forth information regarding grants of non-equity plan-based awards made to our named executive officers during fiscal year 2008.  The Summary Compensation Table above reflects the actual dollar amounts earned under our annual and long term incentive plans.   

Name and Principal Position	Grant Date	Estimated Future Payouts Under Non- Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock and Option Awards
		Threshold ($)	Target ($)	Maximum ($)
John R. Miller, Chief Executive Officer	-	-	N/A (1)	-	-	-	-	-
Jay D. Nielsen, Chief Financial Officer	-	-	40,138  (2)	-	-	-	-	-
Timothy M. Klein, President and Chief Operating Officer	-	-	N/A (3)	-	-	-	-	-
Terry L. Wilkerson,  Executive Vice President, Operations	-	-	66,897 (2)	-	-	-	-	-
David L. Grosenheider, Executive Vice President, Business Planning and Analysis	-	-	66,897 (2)	-	-	-	-	-
Monte E. Lowe, Executive Vice President, Sales and Marketing	-	-	66,897 (2)	-	-	-	-	-

(1)	Pursuant to Mr. Miller’s employment agreement, he is entitled to an annual bonus based on the following formula:  (a) if the Company’s cumulative earnings before taxes (“EBT”) during the fiscal year exceeds $20,000,000, 2.75% of such excess, up to EBT of $80,000,000; plus (b) if such cumulative EBT exceeds $80,000,000, 1.0% of such excess.  The actual bonus amount for fiscal year 2008 is shown in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.  There is no threshold or maximum amount.
(2)	This amount represents the executive’s share of the aggregate incentive pool for fiscal year 2008 under the Management Long Term Incentive Plan applying the plan’s formula and assuming the 15% target threshold is achieved.  The actual bonus amount for fiscal year 2008 is shown in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.  There is no threshold or maximum amount.
(3)	Pursuant to Mr. Klein’s employment agreement, he is entitled to an annual bonus based on the following formula:  (a) if the Company’s cumulative earnings before taxes (“EBT”) during the fiscal year exceeds $20,000,000, 1.375% of such excess, up to EBT of $80,000,000; plus (b) if such cumulative EBT exceeds $80,000,000 .50% of such excess.  The actual bonus amount for fiscal year 2008 is shown in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.  There is no threshold or maximum amount.

Option Exercises and Stock Vested

            The Company does not utilize stock options, restricted shares or similar equity-based awards for our named executive officers and there were no such awards exercised or vested during fiscal year 2008.

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Retirement Plans

            We do not maintain a qualified or non-qualified defined benefit pension plan covering any of our employees.  Our named executive officers are eligible to participate in our tax-qualified Profit Sharing and Savings Plan on the same basis as other employees under the plan.  The Company makes a matching contribution to this plan equal to 50% of each participant’s own elective contributions up to 4% of salary.  The Company also has the discretion to make annual profit sharing contributions that are allocated among all eligible participants in proportion to their respective compensation.  The Summary Compensation Table above reflects the actual dollar amounts contributed to our Profit Sharing and Savings Plan on each named executive officer’s behalf.

Nonqualified Deferred Compensation

            The following table reflects the amounts credited under our Management Long Term Incentive Plan on behalf of our named executive officers.  We do not maintain any other non-qualified deferred compensation plans.

Name and Principal Position	Executive contributions in last fiscal year ($)	Registrant contributions in last fiscal year ($)	Aggregate earnings in last fiscal year ($)	Aggregate withdrawals/ Distributions ($)	Aggregate balance at fiscal year end ($)
John R. Miller, Chief Executive Officer	-	-	-	-	(1)
Jay D. Nielsen, Chief Financial Officer	-	111,724 (2)	10,818 (3)	95,392 (4)	253,800 (5)
Timothy M. Klein, President and Chief Operating Officer	-	-	-	-	(6)
Terry L. Wilkerson, Executive Vice President, Operations	-	186,207 (2)	17,498 (3)	152,628 (4)	416,291 (5)
David L. Grosenheider, Executive Vice President, Business Planning and Analysis	-	186,207 (2)	17,498 (3)	152,628 (4)	416,291 (5)
Monte E. Lowe, Executive Vice President, Sales and Marketing	-	186,207 (2)	17,498 (3)	152,628 (4)	416,291 (5)

(1)	Pursuant to Mr. Miller’s Deferred Equity Incentive Compensation Agreement dated August 6, 2003, 6,057,143 Class A interests and 609,524 Class C interests were earned by Mr. Miller for services performed prior to August 6, 2003.  The Class A and Class C interests were issued on August 6, 2008.  The value of the Class A and Class C interests was $6,666,667.
(2)	This amount represents the amount awarded to the executive under our Management Long Term Incentive Plan for fiscal year 2008.  This amount is also included in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.
(3)	This amount represents accrued interest on the incentive bonuses credited on the executive’s behalf under our Management Long Term Incentive Plan for fiscal year 2007 and earlier years.
(4)	This amount represents the vested incentive payments paid to executive during 2008 under our Management Long Term Incentive Plan attributable to fiscal year 2007 and earlier years.
(5)	This amount represents the aggregate unpaid incentive bonuses (both vested and non-vested) credited on executive’s behalf under our Management Long Term Incentive Plan for all fiscal years.
(6)	Pursuant to Mr. Klein’s Deferred Equity Incentive Compensation Agreement dated August 6, 2003, 3,028,571 Class A interests and 304,762 Class C interests were earned by Mr. Klein for services performed prior to August 6, 2003.  The Class A and Class C interests were issued on August 6, 2008.  The value of the Class A and Class C interests was $3,333,333.

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Potential Payments upon Termination or Change in Control

            The following table provides an estimate of the payments and benefits that would be paid to Messrs. Miller and Klein, at August 30, 2008, upon voluntary or involuntary termination of employment.  The table does not reflect any payments or benefits that would be paid to our officers generally, including for example accrued salary and vacation pay or normal distribution of account balances under our qualified defined contribution plan.  Messrs. Nielsen, Wilkerson, Grosenheider, and Lowe are not shown below as the Company does not have any obligation to pay them any severance related compensation pursuant to a change in control, severance or similar agreement, plan or policy.

Name and Principal Position	Termination by executive for good reason ($)	Termination by us without cause ($)	Death or disability ($)
John R. Miller, Chief Executive Officer (1)
•    Base Salary	225,000	225,000	225,000
•    Incentive Pay	_	_	_
•    Fringe Benefits	2,532	2,532	2,532	(3)
•    Total	227,532	227,532	227,532
Timothy M. Klein, President and Chief Operating Officer (2)
•    Base Salary	1,500,000	1,500,000	500,000
•    Incentive Pay	7,687,091	7,687,091	3,604,930
•    Fringe Benefits	31,971	31,971	10,657	(3)
•    Total	9,219,062	9,219,062	4,115,587

(1)	The items shown in this table reflect the Company’s estimated obligations through the term of Mr. Miller’s employment agreement.  The term of his agreement expired August 30, 2008 and was subsequently extended to the earlier of the closing of the MIPA or November 30, 2008.
(2)	The items shown in this table reflect the Company’s estimated obligations through the term of Mr. Klein’s employment agreement.  The term of his agreement expires August 27, 2011.
(3)	Not payable in the event of death.

Manager Compensation

            The members of our Board of Managers do not receive any separate compensation for serving in such capacity other than reimbursement of their out-of-pocket business expenses.

Compensation Committee Interlocks and Insider Participation

            The Board makes all compensation-related decisions that affect Mr. Miller, our Chief Executive Officer, and Mr. Klein, our President and Chief Operating Officer.  Messrs. Miller and Klein, with input from the Board, make compensation-related decisions for all other senior management.  Other than as disclosed under Item 13. Transactions with Related Persons, and Director Independence below, none of our executive officers served as:

• a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Board; or

• a director of another entity, one of whose executive officers served on our Board.

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

The following table provides certain information as of August 30, 2008 with respect to the beneficial ownership of the membership interests of National Beef by (i) each holder known by us who beneficially owns 5% or more of the outstanding voting interests of National Beef, (ii) each of the members of our board of managers, (iii) each of our named executive officers, (iv) other executive officers who beneficially own membership interests in National Beef, and (v) all of the members of our board of managers and our executive officers as a group. Unless otherwise indicated in a footnote, the business address of each person is our corporate address.

Beneficial Owner	Class B Interest	Percentage of Class
U.S. Premium Beef, LLC	10,664,475	54.76%
NBPCo Holdings, LLC (1)	3,810,044	19.56%
David L. Grosenheider	—	—
Steven D. Hunt	—	—
Richard A. Jochum	—	—
Timothy M. Klein (2)	1,428,571	7.34%
John R. Miller (3)	2,857,143	14.67%
Jay D. Nielsen	—	—
Scott H. Smith (4)	714,286	3.67%
Terry L. Wilkerson	—	—
Monte E. Lowe	—	—
All managers and executive officers as a group (9 persons)	5,000,000	25.68%

(1)	Eldon N. Roth is the controlling stockholder of NBPCo Holdings, LLC and is deemed to beneficially own the interests held by NBPCo Holdings, LLC.
(2)	Mr. Klein holds some of his interests through TKK Investments, LLC, and TMKCo., LLC, both of which are Missouri limited liability companies that are beneficially owned by Mr. Klein.
(3)	Mr. Miller holds some of his interests through French Basin Land & Cattle Co., LLC, a Utah limited liability company that is beneficially owned by Mr. Miller.  Pursuant to Section 6.6 of the National Beef Limited Liability Agreement, Mr. Miller is entitled to vote the Class B interests of Messrs. Klein and Smith under certain circumstances so long as the Class B interests controlled by Messrs. Miller, Klein and Smith exceed 10% of the outstanding Class B interests.
(4)	Mr. Smith holds his interests through S-B Enterprises V, LLC, a Utah limited liability company that is beneficially owned by Mr. Smith.

Equity Interests

U.S. Premium Beef, NBPCo Holdings and Messrs. Miller, Klein and Smith hold Class A and/or Class B interests in us.  In addition, in connection with U.S. Premium Beef’s August 2003 purchase of a majority interest in us, Messrs. Miller and Klein would be issued, after the earlier of the occurrence of a specified major liquidity transaction, change of control or August 2008, an aggregate of up to 9,085,714 Class A interests and up to 914,286 Class C interests in us in lieu of approximately $10 million in cash payments owed under existing employment arrangements.  These interests were issued to Messrs. Miller and Klein on August 6, 2008.

Class A Interests. Class A interests are non-voting and are entitled to a priority distribution of 5% per year on the face amount of the Class A interests, payable not later than 30 days after the close of our tax year quarters in cash to the extent permitted by our senior lenders and the indenture governing the senior notes. The face amount of the Class A interests, together with all unpaid priority distributions, will be distributed on a priority basis upon liquidation.

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

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

U.S. Premium Beef holds approximately 54.8% of the Class B interests, as well as approximately 69.2% of the outstanding Class A interests, with an aggregate face amount of approximately $94.7 million.  NBPCo Holdings owns approximately 19.5% of the Class B interests, as well as approximately 23.1% of the outstanding Class A interests, with an aggregate face amount of approximately $31.5 million. Messrs. Miller, Klein and Smith own approximately 25.7% of the Class B interests, and Mr. Smith owns approximately 1.1% of the outstanding Class A interests with an aggregate face amount of approximately $1.5 million.  On August 6, 2008, Messrs. Miller and Klein were issued an aggregate of 9,085,714 Class A interests with an aggregate face amount of approximately $9.1 million and 914,286 Class C interests with an aggregate face amount of approximately $0.9 million in lieu of approximately $10 million in cash payments owed under prior or existing employment arrangements pursuant to deferred compensation agreements entered into in connection with the ownership changes that occurred on August 6, 2003. See Item 1, Business—General, and Item 11, Executive Compensation—Employment Arrangements. These amounts were previously expensed as compensation expense in our financial statements.

We do not have any equity compensation plans under which equity securities of National Beef are authorized for issuance. 

 

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ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Certain Arrangements with Members

            In August 2003, Messrs. Miller and Klein were granted the right to receive up to 6,057,143 and 3,028,571 Class A interests, respectively, and up to 609,524 and 304,762 Class C interests, respectively, in lieu of approximately $10 million in cash payments owed under existing employment arrangements. These interests were issued to Messrs. Miller and Klein on August 6, 2008.

            Simultaneous with the ownership changes on August 6, 2003, all of the holders of our membership interests entered into a limited liability company agreement that provides for, among other things, election of our Board, the powers of our Board and our officers, approval rights for certain of our equity holders, restrictions and rights related to the transfer, sale or purchase of our membership interests, and preemptive and repurchase rights.

            The limited liability company agreement provides that NBPCo Holdings and the members of management who hold membership interests in us have the right to request that we purchase their membership interests under certain circumstances.  At any time after July 31, 2008, the members of management have the right to request that we repurchase their membership interests, except Mr. Klein will only be permitted to make this request with respect to 25% of his interests before July 31, 2011. The value of the management interests will be determined by a mutually agreed appraisal process. We will have the ability to delay any purchase of membership interests for four months twice in any two year period if the Board determines that it would not be financially advisable for us to complete the repurchase. If we do not, or are not able to, delay a requested repurchase and are not able to effect the repurchase within six months, the members of management have the right to cause the Board to commence a sale process of us. NBPCo Holdings will have the right to participate in any transaction undertaken by us to satisfy the rights of management.

            At any time after July 31, 2010, NBPCo Holdings will have the right to request that we repurchase its membership interests if it still holds 10% of our Class B interests. The value of the NBPCo Holdings interests will be determined by a mutually agreed appraisal process. We will have the ability to delay any repurchase of membership interests for four months twice in any two year period if the Board determines that it would not be financially advisable to complete the repurchase. If we do not, or are not able to, delay a requested repurchase and are not able to effect the repurchase within six months, NBPCo Holdings has the right to cause the Board to commence a sale process of us. Management will have the right to participate in any transaction undertaken by us to satisfy the rights of NBPCo Holdings.

Transactions with U.S. Premium Beef

            In December 1997, we entered into a contract with U.S. Premium Beef to purchase a portion of our annual cattle requirements.  In connection with U.S. Premium Beef's purchase of its interest in Farmland National Beef, U.S. Premium Beef obtained the right, and became subject to the obligation, if requested, to deliver cattle annually to National Beef relative to: (i) U.S. Premium Beef's ownership in National Beef and (ii) the number of cattle processed annually by National Beef.  U.S. Premium Beef now facilitates the delivery of cattle annually to us through its individual producer-owners.  The purchase price for the cattle is determined by our pricing grid, which, under the terms of our agreement with U.S. Premium Beef, must be competitive with the formula pricing of our competitors and may not be less favorable than formula pricing we offer to other suppliers. During fiscal year 2008, we obtained approximately 19.1% of our cattle requirements from U.S. Premium Beef and its producer-owners.  Any new purchase agreements and payment formulas with U.S. Premium Beef must be consistent with our agreement existing at the time U.S. Premium Beef acquired majority interest in us on August 6, 2003. 

Transactions with Beef Products, Inc.

            Since 1994, we have had a business relationship with Beef Products, Inc. (BPI), which is an affiliate of NBPCo Holdings, whereby we sell beef trimmings, referred to as trim, to BPI, and we purchase processed lean beef from BPI for use in our ground beef operations.  Our aggregate sales of trim to BPI totaled approximately $132.4 million in fiscal year 2008.  Our aggregate purchases of processed lean beef from BPI totaled approximately $15.6  million in fiscal year 2008.

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            In January 2007, we entered into an agreement with BPI for BPI to manufacture and install a grinding system in one of our plants.  In accordance with the agreement with BPI, we are to pay BPI a technology and support fee based on the number of pounds of product produced using the grinding system.  The installation of the grinding system was completed in fiscal year 2008.  During fiscal year 2008, we paid approximately $0.7 million to BPI in technology and support fees.      

Transactions with John R. Miller

            In October 2003, we entered into an aircraft lease agreement under which we lease a business jet aircraft from John R. Miller Enterprises III, L.L.C., a Utah limited liability company of which Mr. Miller is the beneficial owner. The term of the lease is 81 months. The monthly lease payments will range from $25,400 in the first year of the lease to $45,380 in the fourth year of the lease and thereafter, and are adjusted quarterly based on the change in the three month LIBOR interest rate.  During fiscal year 2008, we paid $0.7 million to lease the aircraft and $0.1 million into an engine replacement reserve account.  The funds in the reserve account are to be used to finance new engines installed on the aircraft.

            In December 2004, we entered into an aircraft lease agreement under which we lease a business jet aircraft from John R. Miller Enterprises III, L.L.C., a Utah limited liability company of which Mr. Miller is the beneficial owner. The term of the lease is 72 months. This aircraft replaces an aircraft leased from John R. Miller Enterprises, L.L.C. in March 2001.  The base monthly lease payments will range from $35,400 in the first year of the lease to $45,380 in the fourth year of the lease and thereafter, and are adjusted quarterly based on the change in the three month LIBOR interest rate.  During fiscal year 2008, we paid $0.7 million to lease the aircraft and $0.1 million into an engine replacement reserve account.  The funds in the reserve account are to be used to finance new engines installed on the aircraft.   

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

See Item 10.  “Directors And Executive Officers of the Registrant” for additional information regarding the independence of our audit committee financial expert.  None of our managers is an “independent director” as defined by NASDAQ.

The Company’s Limited Liability Company Agreement requires consent of certain members for any contract with a member or its affiliates other than (i) arms-length, ordinary course contracts whose terms and conditions are disclosed to the Board of Managers prior to commencement, and (ii) transactions specified in the employment agreement with Mr. Miller.  In addition, no contract or transaction between the Company and a Manager or its affiliate (or in which they have a material financial interest) is void if the material facts are disclosed to the Board of Managers when the contract is authorized and the contract is approved in accordance with the Limited Liability Company Agreement.

 

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ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

            KPMG LLP, an independent registered public accounting firm, served as our auditors for the fiscal years ended August 30, 2008 and August 25, 2007.

Type of Service	53 Weeks Ended August 30, 2008		52 Weeks Ended August 25, 2007
	(amounts in thousands)
Audit Fees	$	394	$	337
Audit-Related Fees	5		9
Tax Fees	—		—
All Other Fees	—		—
Total	$	399	$		346

Audit Fees

            Audit fees relate to the audit of our consolidated financial statements, the reviews of quarterly reports on Form 10-Q and the review of the annual report on Form 10-K. 

Audit-Related Fees

            Audit-related fees in fiscal years 2008 and 2007 primarily relate to consultations on accounting related matters.

Tax Fees

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

All Other Fees

            We did not pay any other type of fee and did not receive any other services from KPMG LLP during fiscal years 2008 and 2007.

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

 

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PART IV

Item 15.      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Financial Statements and Financial Statement Schedules

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

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

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

2.1+	Contribution Agreement dated as of May 19, 2006 between Brawley Beef, LLC, National Beef California, L.P. and National Beef Packing Company, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006, filed with the SEC on July 10, 2006).
2.2+	Contribution Agreement dated as of May 30, 2006 between U.S. Premium Beef, LLC and Brawley Beef, LLC (incorporated by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006, filed with the SEC on July 10, 2006).
2.3+	Contribution Agreement dated as of May 30, 2006 between National Beef Packing Company, LLC and U.S. Premium Beef, LLC (incorporated by reference to Exhibit 2.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006, filed with the SEC on July 10, 2006).
2.4(a)	Member Interest Purchase Agreement dated as of February 29, 2008, among JBS S.A.; National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin Land and Cattle Co., LLC; TKK Investments, LLC; S-B Enterprises V, LLC; TMKCO, LLC: John R. Miller; Timothy M. Klein; and NBPCO Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 5, 2008).
2.4(b)	First Amendment of Membership Interest Purchase Agreement dated as of March 24, 2008, among JBS, S.A.; National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin Land and Cattle Co., LLC; TKK Investments, LLC; S-B Enterprises V, LLC; TMKCO, LLC; John R. Miller; Timothy M. Klein; and NBPCO Holdings, LLC (incorporated by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 23, 2008, filed with the SEC on April 4, 2008).
2.4(c)	Second Amendment of Membership Interest Purchase Agreement dated as of April 3, 2008, among JBS, S.A.; National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin Land and Cattle Co., LLC; TKK Investments, LLC; S-B Enterprises V, LLC; TMKCO, LLC; John R. Miller; Timothy M. Klein; and NBPCO Holdings, LLC (incorporated by reference to Exhibit 2.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 23, 2008, filed with the SEC on April 4, 2008).
2.4(d)	Third Amendment of Membership Interest Purchase Agreement effective as of October 31, 2008, among JBS, S.A.; National Beef Packing Company, LLC; U.S. Premium Beef, LLC; French Basin Land and Cattle Co., LLC; TKK Investments, LLC; S-B Enterprises V, LLC; TMKCO, LLC; John R. Miller, Timothy M. Klein; and NBPCO Holdings, LLC (filed herewith).

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3.1(a)	Limited Liability Company Agreement of National Beef Packing Company, LLC, dated as of August 6, 2003 (incorporated herein by reference to Exhibit 3.1(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006, filed with the SEC on July 10, 2006).
3.1(b)	Amendment to the Limited Liability Company Agreement of National Beef Packing Company, LLC, dated as of July 7, 2005 (incorporated by reference to Exhibit 3.1(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2006, filed with the SEC on July 10, 2006).
3.1(c)	Revised Exhibit 3.1 to the Limited Liability Company Agreement of National Beef Packing Company, LLC, effective as of August 6, 2008 (filed herewith).
3.2(a)	Certificate of Incorporation of NB Finance Corp.  (incorporated herein by reference to Exhibit 3.2 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
3.2(b)	Bylaws of NB Finance Corp.  (incorporated herein by reference to Exhibit 3.3 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
4.1(a)	Indenture dated as of August 6, 2003 by and among National Beef Packing Company, L.P., NB Finance Corp and U.S. Bank National Association  (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
4.1(b)	Form of Series B Senior Note due 2011 (incorporated herein by reference to Exhibit 4.1 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
4.1(c)	Registration Rights Agreement dated as of August 6, 2003 by and among National Beef Packing Company, L.P., NB Finance Corp., Deutsche Bank Securities Inc., U.S. Bancorp Piper Jaffray Inc. and Rabo Securities USA, Inc.  (incorporated herein by reference to Exhibit 4.3 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.1	Purchase Agreement dated July 31, 2003 by and among NB Acquisition, LLC, National Beef Packing Company, L.P., NB Finance Corp., Deutsche Bank Securities Inc., U.S. Bancorp Piper Jaffray Inc. and Rabo Securities USA, Inc.  (incorporated herein by reference to Exhibit 10.1 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.2(a)*	Employment Agreement dated as of August 6, 2003 by and between National Beef Packing Company, LLC and John R. Miller (incorporated herein by reference to Exhibit 10.2 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.2(b)*	Deferred Equity Incentive Compensation Agreement dated August 6, 2003 by and between National Beef Packing Company, LLC and John R. Miller (incorporated herein by reference to Exhibit 10.3 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).

60

10.2(c)*	Employment Agreement Extension dated as of August 28, 2008 by and between National Beef Packing Company, LLC and John R. Miller (filed herewith).
10.2(d)*	Employment Agreement Extension dated as of October 28, 2008 by and between National Beef Packing Company, LLC and John R. Miller (filed herewith).
10.3(a)*	Employment Agreement dated as of August 6, 2003 by and between National Beef Packing Company, LLC and Timothy M. Klein (incorporated herein by reference to Exhibit 10.4 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.3(b)*	Deferred Equity Incentive Compensation Agreement dated August 6, 2003 by and between National Beef Packing Company, LLC and Timothy M. Klein (incorporated herein by reference to Exhibit 10.5 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.4(a)	Sixth Amended and Restated Credit Agreement dated as of July 25, 2007 (“Credit Agreement”) by and among National Beef Packing Company, LLC and certain agents, lenders and issuers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 31, 2007).
10.4(b)	First Amendment to Sixth Amended and Restated Credit Agreement dated as of June 27, 2008 by and among the Company and certain agents, lenders and issuers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2008).
10.4(c)	Waiver and Consent dated as of November 21, 2008 by and among the Company and certain agents, lenders and issuers (filed herewith).
10.5	Cattle Purchase and Sale Agreement dated as of December 1, 1997 by and among Farmland National Beef Packing Company, L.P. and U.S. Premium Beef, Ltd.  (incorporated herein by reference to Exhibit 10.7 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.6(a)	Lease Agreement dated as of February 1, 1999 between City of Dodge City, Kansas and Farmland National Beef Packing Company, L.P. securing $1,000,000 City of Dodge City, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.8 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.6(b)	Indenture of Trust dated as of February 1, 1999 between City of Dodge City, Kansas and Commerce Bank, N.A., as trustee, securing $1,000,000 City of Dodge City, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.9 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.7(a)	Amended and Restated Lease Agreement dated as of January 1, 1999 between City of Liberal, Kansas and Farmland National Beef Packing Company, L.P. securing $1,000,000 City of Liberal, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.10 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).

61

10.7(b)	Indenture of Trust dated as of January 1, 1999 between City of Liberal, Kansas and Commerce Bank, N.A., as trustee, securing $1,000,000 City of Liberal, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 1999 (incorporated herein by reference to Exhibit 10.11 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.8(a)	Lease Agreement dated as of March 1, 2000 between City of Dodge City, Kansas and Farmland National Beef Packing Company, L.P. securing $6,000,000 City of Dodge City, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.12 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.8(b)	Indenture of Trust dated as of March 1, 2000 between City of Dodge City, Kansas and Commerce Bank, N.A., as trustee, securing $6,000,000 City of Dodge City, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.13 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.9(a)	Lease Agreement dated as of March 1, 2000 between City of Liberal, Kansas and Farmland National Beef Packing Company, L.P. securing $5,850,000 City of Liberal, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.14 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.9(b)	Indenture of Trust dated as of March 1, 2000 between City of Liberal, Kansas and Commerce Bank, N.A., as trustee, securing $5,850,000 City of Liberal, Kansas Industrial Development Revenue Bonds (Farmland National Beef Packing Company, L.P. Project), Series 2000 (incorporated herein by reference to Exhibit 10.15 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.10(a)	Lease dated as of December 1, 2004 between City of Dodge City, Kansas and National Beef Packing Company, LLC securing $102,300,000 City of Dodge City, Kansas Industrial Development Revenue Bonds, Series 2004 (National Beef Packing Company, LLC Project) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on January 6, 2005).
10.10(b)	Trust Indenture dated as of December 1, 2004 between City of Dodge City, Kansas and Commerce Bank, N.A., as trustee, securing $102,300,000 City of Dodge City, Kansas Industrial Development Revenue Bonds, Series 2004 (National Beef Packing Company, LLC Project) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on January 6, 2005).
10.11	Amended and restated lease agreement dated as of April 1, 2006 between Joint Development Authority of Brooks, Colquitt, Grady, Mitchell and Thomas counties and National Beef Packing Company, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 23, 2008 filed with the SEC on April 4, 2008).

62

10.12	Aircraft Lease dated October 15, 2003 by and among John R. Miller Enterprises III, LLC and National Beef Packing Company, LLC (incorporated herein by reference to Exhibit 10.22 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.13	Aircraft Lease dated as of December 9, 2004 by and among John R. Miller Enterprises, L.L.C. and National Beef Packing Company, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 9, 2004).
10.14*	National Beef Packing Company, LLC Management Incentive Program (incorporated herein by reference to Exhibit 10.23 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.15*	National Beef Packing Company, LLC Management Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.24 to Registration Statement on Form S-4 (File No. 333-111407) filed with the SEC on December 19, 2003).
10.16	FMI Grinding System Lease Agreement by and between Beef Products, Inc. and National Beef Packing Company, LLC (filed herewith). (1)
21.1	Subsidiaries of National Beef Packing Company, LLC (filed herewith).
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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

*  Management contract or compensatory plan or arrangement.

(1)  Portions of this exhibit are omitted and were filed separately with the Secretary of the SEC pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

63

(c) Financial Statement Schedules:

 The following table represents the rollforward of the allowance for returns and doubtful accounts for the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006.

National Beef Packing Company, LLC and subsidiaries

Allowance for Returns and Doubtful Accounts Rollforward

Period Ending	Beginning Balance		Provision		Charge Off	Other		Ending Balance
August 30, 2008	(4,641,658	)	(5,399,252	)	8,375,944	—		(1,664,966	)
August 25, 2007	(2,411,676	)	(8,688,782	)	6,458,800	—		(4,641,658	)
August 26, 2006	(3,902,549	)	(1,615,548	)	3,380,259	(273,838	)  (1)	(2,411,676	)

(1) Represents the acquisition of Brawley Beef, LLC.

 

64

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Managers and Members

National Beef Packing Company, LLC:

Under date of November 24, 2008, we reported on the consolidated balance sheets of National Beef Packing Company, LLC and subsidiaries (the Company) as of August 30, 2008 and August 25, 2007, and the related consolidated statements of operations, cash flows, members’ capital, and comprehensive income for each of the fiscal years in the three-year period ended August 30, 2008, as contained in the Annual Report on Form 10-K for the fiscal year 2008. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in the Form 10-K. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

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

/s/ KPMG LLP

Kansas City, Missouri

November 24, 2008

 

65

SIGNATURES

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

National Beef Packing Company, LLC

By:                    /s/ John R. Miller                                     

                Name: John R. Miller

                Chief Executive Officer and Manager

                (Principal Executive Officer)

Date: November 24, 2008

* * * *

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

Signature	Title	Date
/s/ John R. Miller   John R. Miller	Chief Executive Officer and Manager (Principal Executive Officer)	November 24, 2008
/s/ Jay D. Nielsen Jay D. Nielsen	Chief Financial Officer (Principal Financial and Accounting Officer)	November 24, 2008
/s/ Steven D. Hunt   Steven D. Hunt	Chairman of the Board of Managers	November 24, 2008
/s/ Richard A. Jochum Richard A. Jochum	Manager	November 24, 2008

 

66

NATIONAL BEEF PACKING COMPANY, LLC AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Audited Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at August 30, 2008 and August 25, 2007	F-3
Consolidated Statements of Operations for the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006	F-4
Consolidated Statements of Cash Flows for the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006	F-5
Consolidated Statements of Members’ Capital for the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006	F-6
Consolidated Statements of Comprehensive Income for the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006	F-7
Notes to Consolidated Financial Statements	F-8

F-1
 

Report of Independent Registered Public Accounting Firm

The Board of Managers and Members

National Beef Packing Company, LLC:

We have audited the accompanying consolidated balance sheets of National Beef Packing Company, LLC and subsidiaries (the Company) as of August 30, 2008 and August 25, 2007, and the related consolidated statements of operations, cash flows, members’ capital, and comprehensive income for the each of the fiscal years in the three-year period ended August 30, 2008.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Beef Packing Company, LLC and subsidiaries as of August 30, 2008 and August 25, 2007, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended August 30, 2008, in conformity with U.S. generally accepted accounting principles.   

/s/ KPMG LLP

Kansas City, Missouri

November 24, 2008

 

F-2

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

	August 30, 2008		August 25, 2007
Assets
Current assets:
Cash and cash equivalents	$	25,466	$	30,444
Accounts receivable, less allowance for returns and         doubtful accounts of $1,665 and         $4,642, respectively	218,022		189,725
Due from affiliates	7,071		4,394
Other receivables	5,392		8,389
Inventories	192,480		177,244
Other current assets	12,765		14,144
Total current assets	461,196		424,340
Property, plant and equipment, at cost:
Land and improvements	17,678		16,889
Buildings and improvements	93,970		90,648
Machinery and equipment	247,992		222,177
Trailers and automotive equipment	1,541		1,336
Furniture and fixtures	5,578		4,695
Construction in progress	64,601		36,403
	431,360		372,148
Less accumulated depreciation	133,238		99,358
Net property, plant and equipment	298,122		272,790
Goodwill	80,642		80,042
Other intangibles, net of accumulated amortization of               $9,347 and $7,214, respectively	26,690		28,659
Other assets	9,252		9,672
	$	875,902	$		815,503
Liabilities and Members’ Capital
Current liabilities:
Current installments of long-term debt	$	3,590	$		3,391
Cattle purchases payable	65,378		62,995
Accounts payable – trade	71,280		60,187
Due to affiliates	878		355
Accrued compensation and benefits	44,455		16,088
Accrued insurance	12,918		14,550
Other accrued expenses and liabilities	10,036		11,027
Distributions payable	43,011		6,405
Total current liabilities	251,546		174,998
Long-term debt, excluding current installments	374,239		435,455
Other liabilities	2,327		2,559
Total liabilities	628,112		613,012
Minority interest	1,464		952
Capital subject to redemption	186,533		76,938
Members’ capital:
Members’ capital	59,770		124,541
Accumulated other comprehensive income	23		60
Total Members’ capital	247,790		124,601
Commitments and contingencies	-		-
	$	875,902	$		815,503
See accompanying notes to consolidated financial statements.

F-3

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands)

	53 weeks ended				52 weeks ended			52 weeks ended
	August 30, 2008				August 25, 2007			August 26, 2006
Net sales	$	5,847,292			$	5,578,533		$		4,636,030
Costs and expenses:
Cost of sales	5,612,411				5,443,964			4,503,814
Selling, general and administrative	43,692				42,473			34,034
Depreciation and amortization	36,408				32,438			28,650
Total costs and expenses	5,692,511				5,518,875			4,566,498
Operating income	154,781				59,658			69,532
Other income (expense):
Interest income	460				669			403
Interest expense	(33,996			)	(39,426		)	(32,009			)
Minority owners' interest in net     income of  Kansas City Steak     Company, LLC	(704			)	(313		)	(160			)
Equity in loss of aLF Ventures, LLC	(101			)	(102		)	(143			)
Other, net	5,824				1,436			3,324
Income before taxes	126,264				21,922			40,947
Income tax expense	(1,751			)	(1,918		)	(1,536			)
Net income	$		124,513		$	20,004		$	39,411
See accompanying notes to consolidated financial statements.

F-4

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

	53 weeks ended				52 weeks ended			52 weeks ended
	August 30, 2008				August 25, 2007			August 26, 2006
Cash flows from operating activities:
Net income	$	124,513			$	20,004		$	39,411
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	36,408				32,438			28,650
Loss (gain) on disposal of property, plant and equipment	24				(369		)	(64		)
Gain on disposal of investment	(1,342			)	—			—
Minority interest	512				175			24
Write-off of debt issuance costs	372				702			527
Change in assets and liabilities (net of acquisitions):
Accounts receivable	(28,297			)	(16,492		)	25,649
Due from affiliates	(2,677			)	(1,691		)	(228		)
Other receivables	2,997				(2,446		)	1,007
Inventories	(15,236			)	(32,235		)	(53,271		)
Other assets	1,264				6,095			(2,844		)
Cattle purchases payable	(453			)	41			3,870
Accounts payable	15,275				647			884
Due to affiliates	523				(16		)	(28		)
Accrued compensation and benefits	28,367				(7,718		)	4,104
Accrued insurance	(1,632			)	(3,101		)	(317		)
Other accrued expenses and liabilities	(1,223			)	(229		)	310
Net cash provided by (used in) operating activities	159,395				(4,195		)	47,684
Cash flows from investing activities:
Capital expenditures, including interest capitalized	(59,877			)	(41,722		)	(34,492		)
Acquisition of businesses, net of cash acquired	(600			)	(500		)	648
Proceeds from sale of property, plant and equipment	245				802			939
Proceeds from redemption of investment	1,342				—			—
Net cash used in investing activities	(58,890			)	(41,420		)	(32,905		)
Cash flows from financing activities:
Net (payments) receipts under revolving credit lines	(27,001			)	19,505			3,863
Repayments of term note payable	—				(7,384		)	—
Repayment of Brawley Beef, LLC debt	—				—			(52,850		)
Borrowings under term note payable	—				40,000			50,000
Cash paid for financing costs	—				(395		)	(126		)
Change in overdraft balances	(1,346			)	9,781			1,763
Purchase and cancellation of Senior Notes	(30,603			)	—			—
Repayments of other indebtedness/capital leases	(3,413			)	(2,496		)	(1,067		)
Proceeds from sale leaseback transaction	—				10,474			—
Member distributions	(43,083			)	(22,097		)	(17,708		)
Net cash (used in) provided by financing activities	(105,446			)	47,388			(16,125		)
Effect of exchange rate changes on cash	(37			)	7			18
Net (decrease) increase in cash	(4,978			)	1,780			(1,328		)
Cash and cash equivalents at beginning of period	30,444				28,664			29,992
Cash and cash equivalents at end of period	$		25,466		$	30,444		$	28,664
Supplemental disclosures:
Cash paid during the period for interest	$		34,793		$	39,912		$	29,157
Cash paid during the period for taxes	$		2,054		$	736		$	140
Supplemental non-cash disclosures of investing and financing    activities:
Assets acquired through capital lease	$		98		$	49		$	8,697
Issuance of equity for the acquisition of Brawley Beef, LLC	$		—		$	—		$	7,631
See accompanying notes to consolidated financial statements.

F-5

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

Consolidated Statements of Members’ Capital
(in thousands)

	Capital Subject to Redemption
	Class A			Class B-1			Class B-2 and C (a)			Total
Balance at August 27, 2005	$	42,026		$	19,870		$	2,322		$	64,218
Allocation of net income	1,649			13,428			1,555			16,632
Class A 5% priority distributions	(1,521		)	—			—			(1,521		)
Class B distributions	—			(7,619		)	(882		)	(8,501		)
Appraisal valuation adjustment		—			1,210			140			1,350
Balance at August 26, 2006	$	42,154		$	26,889		$	3,135		$	72,178
Allocation of net income	1,649			5,528			640			7,817
Class A 5% priority distributions	(1,649		)	—			—			(1,649		)
Class B distributions	—			(4,408		)	(510		)	(4,918		)
Appraisal valuation adjustment	—			3,146			364			3,510
Balance at August 25, 2007	$	42,154		$	31,155		$	3,629		$	76,938
Allocation of net income	1,681			47,850			5,541			55,072
Class A 5% priority distributions	(1,681		)	—			—			(1,681		)
Class B distributions	—			(29,677		)	(3,436		)	(33,113		)
Appraisal valuation adjustment	—			80,048			9,269			89,317
Balance at August 30, 2008	$	42,154		$	129,376		$	15,003		$	186,533

	Members’ Capital
	Class A			Class B-1			Accumulated Other Comprehensive Income			Total
Balance at August 27, 2005	$	86,103		$	25,701		$	35		$	111,839
Allocation of net income	4,501			18,278			—			22,779
Additional equity contribution	5,899			1,732			—			7,631
Class A 5% priority distributions	(4,156		)	—			—			(4,156		)
Class B distributions	—			(10,168		)	—			(10,168		)
Appraisal valuation adjustments	—			(1,350		)	—			(1,350		)
Foreign currency translation adjustments	—			—			18			18
Balance at August 26, 2006	$	92,347		$	34,193		$	53		$	126,593
Allocation of net income	4,721			7,466			—			12,187
Class A 5% priority distributions	(4,722		)	—			—			(4,722		)
Class B distributions	—			(5,954		)	—			(5,954		)
Appraisal valuation adjustment	—			(3,510		)	—			(3,510		)
Foreign currency translation adjustments	—			—			7			7
Balance at August 25, 2007	$	92,346		$	32,195		$	60		$	124,601
Allocation of net income	4,812			64,629			—			69,441
Class A 5% priority distributions	(4,812		)	—			—			(4,812		)
Class B distributions	—			(40,083		)	—			(40,083		)
Appraisal valuation adjustment	—			(89,317		)	—			(89,317		)
Foreign currency translation adjustments	—			—			(37		)	(37		)
Balance at August 30, 2008	$	92,346		$	(32,576	)	$	23		$	59,793

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

See accompanying notes to consolidated financial statements.

 

F-6

NATIONAL BEEF PACKING COMPANY, LLC

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

	53 weeks ended		52 weeks ended		52 weeks ended
	August 30, 2008		August 25, 2007		August 26, 2006
Net income	$	124,513	$	20,004	$	39,411
Other comprehensive income:
Foreign currency translation adjustments	(37)		7		18
Comprehensive income	$	124,476	$	20,011	$	39,429
See accompanying notes to consolidated financial statements.

 

F-7

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  DESCRIPTION OF BUSINESS

National Beef Packing Company, LLC (the Company) is a Delaware limited liability company.  The Company and its subsidiaries sell meat products to customers in the foodservice, international, further processor and retail distribution channels. The Company also produces and sells by-products that are derived from its meat processing operations and variety meats to customers in various industries.

The Company operates beef slaughter and fabrication facilities in Liberal and Dodge City, Kansas, and Brawley, California, case-ready beef processing facilities in Hummels Wharf, Pennsylvania and Moultrie, Georgia and holds a 75% interest in Kansas City Steak Company, LLC (Kansas City Steak), a portion control processing facility in Kansas City, Kansas.  National Carriers, Inc. (National Carriers), a wholly-owned subsidiary located in Liberal, Kansas, provides trucking services to the Company and third parties and National Elite Transportation, LLC (National Elite), a wholly-owned subsidiary located in Springdale, Arkansas, provides third-party logistics services to the transportation industry.

As of August 30, 2008, we had approximately 8,900 employees, of which approximately 42.7% are represented by collective bargaining agreements.  Approximately 2,800 employees at the Liberal, Kansas facility are represented under a collective bargaining agreement scheduled to expire December 16, 2012.  Approximately 1,000 employees at the 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 December 8, 2013.  The Company makes certain contributions for the benefit of employees (see Note 7). 

U.S. Premium Beef, LLC (U.S. Premium Beef), NBPCo Holdings, LLC (NBPCo Holdings) and management each hold Class A and Class B interests in the Company. In addition, members of management were issued a fixed number of additional Class A and Class C interests in the Company in lieu of cash payments owed under existing employment arrangements on August 6, 2008.

Class A Interests. Class A interests are non-voting and are entitled to a priority distribution of 5% per year on the face amount of the Class A interests, payable not later than 30 days after the close of the Company’s tax year quarters in cash to the extent permitted by the Company’s senior lenders and the indenture governing the Senior Notes. The face amount of the Class A interests, together with all unpaid priority distributions, will be distributed on a priority basis upon liquidation.

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

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

U.S. Premium Beef holds approximately 54.8% of the Class B interests, as well as Class A interests with an aggregate face amount of approximately $94.7 million, NBPCo Holdings owns approximately 19.5% of the Class B interests, as well as Class A interests with an aggregate face amount of approximately $31.5 million, and members of management own approximately 25.7% of the Class B interests, as well as Class A interests with an aggregate face amount of approximately $10.6 million. On August 6, 2008, certain members of management were issued a fixed number of additional Class A interests with an aggregate face amount of approximately $9.1 million and Class C interests with an aggregate face amount of approximately $0.9 million in lieu of cash payments owed under existing employment arrangements pursuant to deferred compensation agreements. These amounts were previously expensed as compensation expense.

F-8

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capital subject to redemption represents Class A, B and C interests held by management and NBPCo Holdings, which include repurchase rights of the holders (see Note 11).
 

NOTE 2.  BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation and Consolidation

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

Fiscal Year

The Company’s fiscal year consists of 52 or 53 weeks, ending on the last Saturday in August. Fiscal 2008 was a 53 week fiscal year while fiscal 2007 and 2006 were 52 week fiscal years. All references to years in these notes to consolidated financial statements represent fiscal years unless otherwise noted.

Use of Estimates

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

Cash and Cash Equivalents

            The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of August 30, 2008 and August 25, 2007, the Company had cash and cash equivalents of $25.5 and $30.4 million, respectively, as presented in the consolidated statements of cash flows.  Included in non-current other assets at August 30, 2008 and August 25, 2007 were $4.3 million and $4.2 million, respectively, of cash restricted to Industrial Revenue Bond approved expenditures.  

Allowance for Returns and Doubtful Accounts

The allowance for returns and doubtful accounts is the Company’s best estimate of the amount of probable returns and credit losses in the Company’s existing accounts receivable.  The Company determines these allowances based on historical experience, customer conditions and management’s judgments. Management considers factors such as changes in the economy and industry.  Specific accounts are reviewed individually for collectability.

Inventories

            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.

F-9
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of inventories are as follows (amounts in thousands):

	August 30, 2008		August 25, 2007
Product inventories:
Dressed and boxed meat products	$	144,885	$	138,867
Beef by-products		20,886		19,540
Supplies and other		26,709		18,837
	$	192,480	$	177,244

Property, plant and equipment

Property, plant and equipment are recorded at cost. Property, plant and equipment are depreciated principally on a straight-line basis over the estimated useful life (based upon original acquisition date) of the individual asset by major asset class as follows:

Buildings and improvements	15 to 25 years
Machinery and equipment	2 to 8 years
Trailers and automotive equipment	2 to 4 years
Furniture and fixtures	3 to 5 years

Upon disposition of these assets, any resulting gain or loss is included in other, net (see Note 8). Major repairs and maintenance costs that extend the useful life of the related assets are capitalized.  Normal repairs and maintenance costs are charged to operations.

The Company capitalizes the cost of interest on borrowed funds which are used to finance the construction of certain property, plant and equipment. Such capitalized interest costs are charged to the property, plant and equipment accounts and are amortized through depreciation charges over the estimated useful lives of the assets. Interest capitalized was $0.3 million, $0.1 million and $0.1 million for the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006, respectively.

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

Debt Issuance Costs

Effective June 1, 2006, the Company amended and restated its fifth senior credit facility with a consortium of banks, additionally capitalizing $1.6 million in debt issuance costs.  This amendment and restatement is within the scope of the Emerging Issues Task Force (EITF) 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments, as well as EITF 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements.  In accordance with that guidance, a portion of the unamortized loan costs of approximately $0.5 million from the fourth credit facility as well as additional finance and legal charges associated with the new fifth amended and restated credit facility of approximately $0.1 million were expensed in other, net in the consolidated statement of operations during the fiscal year ended August 26, 2006.  On March 21, 2007, the Company amended its credit facility to increase the available credit under the facility by $50.0 million.  The term loan was increased by $40.0 million and the line of credit was increased by $10.0 million.  Additional finance and legal charges associated with the restated credit facility of less than $0.1 million were expensed in other, net in the consolidated statement of operations during the fiscal year ended August 25, 2007.

F-10
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            Effective July 25, 2007, the Company amended and restated its sixth senior credit facility with a consortium of banks, additionally capitalizing $0.4 million in debt issuance costs.  This sixth amendment and restatement is within the scope of the EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments, as well as EITF 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements.  In accordance with that guidance, a portion of the unamortized loan costs of approximately $0.7 million from the previous amended and restated credit facility as well as additional finance and legal charges associated with the new amended and restated credit facility of less than $0.1 million were expensed in other, net in the consolidated statement of operations during the fiscal year ended August 25, 2007. 

            On June 27, 2008, the Company amended its credit facility to increase the amount of allowable net capital expenditures. The Company capitalized an additional $0.1 million in debt issuance costs associated with this amendment.  The remaining costs are being amortized over the life of the related debt instruments. 

            In July 2008, the Company repurchased and cancelled approximately $30.6 million of its Senior Notes.  Associated with the repurchase and cancellation of these Senior Notes, a portion of the unamortized loans costs of approximately $0.4 million were expensed in other, net in the consolidated statement of operations during the fiscal year ended August 30, 2008.

            Amortization of $1.0 million, $1.0 million and $1.1 million was charged to interest expense during the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006, respectively, related to these costs.  The Company had unamortized costs of $4.2 million and $5.6 million for the fiscal years ended August 30, 2008 and August 25, 2007, respectively.
 

Goodwill and Other Intangible Assets 

Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (SFAS 142), provides that goodwill and other intangible assets with indefinite lives shall not be amortized but shall be tested for impairment on an annual basis. Identifiable intangible assets with definite lives are amortized over their estimated useful lives.  The Company evaluates goodwill and other indefinite life intangible assets annually for impairment and, if there is impairment, the carrying amount of goodwill and other intangible assets is written down to the implied fair value.  For goodwill, this test involves comparing the fair value of each reporting unit to the unit’s book value to determine if any impairment exists.  The Company calculates the fair value of each reporting unit using estimates of future cash flows.  All of the Company’s goodwill has been allocated to the Core Beef segment. In connection with the acquisition of Vintage Foods, L.P. during the fourth quarter of fiscal year 2006 and subsequent adjustments, the Company recognized excess cost over the fair value of the net tangible and identifiable intangible assets acquired, and recorded an excess of $1.8 million as goodwill, which has also been allocated to the Core Beef segment.  In accordance with SFAS 142, goodwill was tested for impairment and, as of August 30, 2008, management determined there was no impairment.

The amounts of goodwill, all allocated to the Core Beef segment, are as follows (amounts in thousands):

	August 30, 2008		August 25, 2007
Beginning balance	$	80,042	$	79,411
Adjustment of goodwill from prior year acquisition		600		631
Ending balance	$	80,642	$	80,042

 

F-11
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

		August 30, 2008				August 25, 2007
	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Intangible assets subject to amortization:
Customer relationships	8.3 years	$	15,599	$	9,347		$	15,435	$	7,214
Intangible assets not subject to amortization:
Trademarks	Indefinite	20,438		—			20,438		—
Total intangible assets		$	36,037	$	9,347		$	35,873	$	7,214

Customer relationships, including contractual and noncontractual relationships, are being amortized using the straight-line method over their useful lives, which range from four to 15 years.  Trademarks are not scheduled for amortization due to their expected indefinite useful life.  In accordance with SFAS 142, these trademarks were tested for impairment and, as of August 30, 2008, management determined there was no impairment.

For the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006, the Company recognized $2.1 million, $1.9 million and $1.9 million, respectively, of amortization expense on intangible assets. The following table reflects the anticipated amortization expense relative to intangible assets recognized in the Company’s consolidated balance sheet as of August 30, 2008, for each of the next five years and thereafter:

	(Amounts  In thousands)
Estimated amortization expense for fiscal years ended:
2009	$	2,095
2010		1,987
2011		356
2012		241
2013 (1)		239
Thereafter		1,334
(1)  Fiscal year 2013 consists of 53 weeks

Overdraft Balances

The majority of the Company’s bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are included in the trade accounts payable and cattle purchases payable balances, and the change in the related balances are reflected in financing activities on the Company’s consolidated statement of cash flows. Overdraft balances of $72.3 million and $73.7 million were included in trade accounts and cattle purchases payables at August 30, 2008 and August 25, 2007, respectively.

Self-insurance

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

F-12
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Environmental Expenditures and Remediation Liabilities

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

Foreign Currency Translation

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

Income Taxes

The provision for income taxes is computed on a separate legal entity basis.  Accordingly, the separate legal entity of the Company does not provide for income taxes as the results of operations are included in the taxable income of the individual members.  However, to the extent that subsidiary entities provide for income taxes, deferred tax assets and liabilities are recognized based on the differences between the financial statement and tax bases of assets and liabilities at each balance sheet date using enacted tax rates expected to be in effect in the year the differences are expected to reverse, and are thus included in the consolidated financial statements of the Company.  The Company’s subsidiary, National Carriers, has concluded an examination of its U.S. federal income taxes for the 2005 fiscal year.  Based on federal income tax statute of limitations, National Carriers remains subject to examination of its income taxes for fiscal years 2008, 2007 and 2006.    

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, short-term trade receivables and payables, approximate their fair values due to the short-term nature of the instruments. At August 30, 2008, the Senior Notes had a carrying value of $129.4 million and an approximate fair value of $129.7 million, based on our observations of transaction prices surrounding the close of our 2008 fiscal year.  The carrying value of other debt also approximates its fair value at August 30, 2008, as substantially all such debt has a variable interest rate.

Revenue Recognition

The Company recognizes revenue from the sale of products based on the terms of the sale, typically upon delivery to customers.  National Carriers, Inc. and National Elite recognize revenue when shipments are complete.

 Selling, General and Administrative Costs

            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.  Selling, general and administrative costs consist of aggregated expenses that generally apply to multiple locations.

Shipping Costs

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

F-13
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Advertising and Promotion Expenses

Advertising and promotion expenses are charged to operations in the period incurred and were $2.1 million in fiscal year 2008, $3.3 million in fiscal year 2007, and $3.0 million in fiscal year 2006.

Comprehensive Income

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

Derivatives and Hedging Activities

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

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

The fair value of derivative assets is recognized within other current assets, while the fair value of derivative liabilities is recognized within accrued liabilities. The net fair value of derivatives recognized within other current assets and other accrued liabilities at August 30, 2008 and August 25, 2007 is not significant.
 

NOTE 3.  NEW ACCOUNTING PRONOUNCEMENTS

            In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classifications, interest and penalties, accounting in interim periods, disclosures and transition.  FIN 48 was effective for fiscal years beginning after December 15, 2006.  The Company adopted the provisions of FIN 48 effective August 26, 2007, which had no impact on the financial statements of the Company.

            In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157).  This statement establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.  SFAS 157 will apply to fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In February 2008, however, the FASB issued FASB Staff Position 157-2 (FSP 157-2) which defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually).  FSP 157-2 will apply to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  The Company is currently evaluating the impact SFAS 157 may have, if any, on its consolidated financial statements.

F-14
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R).  This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date to be measured at their fair value as of that date.  An acquirer is required to recognize assets or liabilities arising from all other contingencies (contractual contingencies) as of the acquisition date, measured at their acquisition-date fair values, only if it is more likely than not that they meet the definition of an asset or a liability in FASB Concepts Statement No. 6, Elements of Financial Statements.  Any acquisition-related costs are to be expensed instead of capitalized.  This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The impact to the Company from the adoption of SFAS 141R in fiscal year 2010 will depend on acquisitions at the time.

            In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159).  This statement provides companies with an option to report selected financial assets and liabilities at fair value.  SFAS 159 will apply to fiscal years beginning after November 15, 2007.  The Company is currently evaluating the impact SFAS 159 may have, if any, on its consolidated financial statements.

            In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51 (SFAS 160).  SFAS 160 establishes accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary.  SFAS 160 requires noncontrolling interests held by parties other than the parent in subsidiaries be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent's equity.   SFAS 160 is effective for fiscal years beginning after December 15, 2008.  The Company is currently assessing the impact SFAS 160 may have, if any, on its consolidated financial statements.

            In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 (SFAS 161).  SFAS 161 establishes enhanced disclosure requirements about: 1) how and why an entity uses derivative instruments; 2) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and 3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company is currently assessing the impact SFAS 161 will have on its consolidated financial statements.
 

NOTE 4:  MEMBERSHIP INTEREST PURCHASE AGREEMENT WITH JBS

            On February 29, 2008, the Company, JBS, U.S. Premium Beef, our majority owner, and the other holders of our membership interests, including NBPCO Holdings and parties controlled by three executive officers, John R. Miller, Timothy M. Klein and Scott H. Smith (the Sellers), entered into a Membership Interest Purchase Agreement , as amended from time to time (MIPA). Under the MIPA, JBS will acquire all of the Company’s outstanding membership interests for a combination of approximately $488.4 million cash and $71.6 million in common stock of JBS (the Purchase Price).

            Pursuant to the MIPA, at closing U.S. Premium Beef and certain other members of ours will receive their proportionate share of the Purchase Price with (i) 80.0% to be paid in cash and 20.0% to be paid in shares of common stock of JBS (JBS Stock) or (ii) 100% to be paid in shares of JBS Stock, which will be freely transferable on the Novo Mercado segment of the BOVESPA stock exchange in Brazil. The number of shares of JBS Stock will be determined based on its volume weighted average closing price during the 20 trading days prior to closing, subject to certain adjustments. Certain of the Company’s members have elected to receive or, under certain circumstances, have the right to receive their portion of the Purchase Price entirely in cash. If JBS is unable to deliver JBS Stock on an unencumbered and freely transferable basis at closing, the Sellers may still demand to close, but be paid entirely in cash.

F-15
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            Consummation of the MIPA is subject to customary conditions, including approval of the MIPA by the members of U.S. Premium Beef and the shareholders of JBS and the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and possible approvals by certain foreign jurisdictions.  The members of U.S. Premium Beef approved the MIPA on March 14, 2008 and the shareholders of JBS approved the MIPA on April 11, 2008.  The U.S. Department of Justice (DoJ), state attorneys general from seventeen states, R-CALF and OCM have filed civil antitrust suits seeking a permanent injunction of the MIPA, which are being vigorously contested by the Company, U.S. Premium Beef and JBS.

            The MIPA contains certain termination rights and provides that under certain circumstances, JBS or the Company may be required to pay our members or the members of JBS, respectively, a termination fee of $25 million plus certain costs.  The parties have agreed on the payment of certain fees and expenses, including those related to antitrust filings and compliance.
 

NOTE 5.  ACQUISITIONS

            On May 19, 2006, the Company entered into a Contribution Agreement (the Agreement) with Brawley Beef, LLC (Brawley Beef) and National Beef California, LP (NBC).  NBC, a newly formed limited partnership, was formed for the purpose of acquiring substantially all of the assets of Brawley Beef, with National Carriers, a wholly-owned subsidiary of the Company, acting as its general partner.  Brawley Beef was an alliance of cattle producers in Arizona and California who supplied the beef processing facility in Brawley, California. The facility commenced operations in December 2001.

            Pursuant to the terms of the Agreement, Brawley Beef contributed substantially all of its assets to NBC in exchange for limited partnership units of NBC, and NBC assumed approximately $74.7 million of Brawley Beef’s debt and current liabilities. Brawley Beef then exchanged all of its NBC units with U.S. Premium Beef, the Company’s majority owner, for 44,160 new Class A U.S. Premium Beef units and 44,160 new Class B U.S. Premium Beef units. Under a separate unit exchange agreement between U.S. Premium Beef and the Company, U.S. Premium Beef then exchanged these units of NBC with the Company for 5,899,297 Class A nonvoting units, at a price per unit of $1.00, and 664,475 Class B-1 voting units, at an approximate price per unit of $2.61 or an aggregate value of approximately $7.6 million. As a result, U.S. Premium Beef’s ownership interest in the Company’s Class B voting units increased to 54.76%.  This acquisition was accounted for using the purchase method.

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

            Concurrently with the transfer of assets, Brawley Beef entered into long-term cattle supply agreements with both NBC and U.S. Premium Beef under which Brawley Beef committed to supply approximately 275,000 head of cattle to NBC’s Brawley facility.

            Under the terms of the Agreement, Brawley Beef made customary covenants, representations and warranties and agreed to indemnify NBC and the Company for breaches of these representations and warranties.  Brawley Beef can satisfy these indemnification obligations over a three-year period with a combination of cash, deductions from payments under certain cattle contracts or surrender of its U.S. Premium Beef units at $165 per unit.  In addition, Brawley Beef pledged its U.S. Premium Beef units to NBC to secure its obligations under the Agreement. Brawley Beef’s obligations under the Agreement and cattle supply agreements are also supported by limited guaranties from its members.  In connection with acquisition of Brawley Beef, during fiscal year 2006, intangible assets associated with customer relationships of approximately $2.4 million were recorded at acquisition and are being amortized on a straight-line basis over 15 years. 

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the Brawley acquisition, after allocating negative goodwill of approximately $36.6 million to property, plant and equipment and intangible assets.  The net assets acquired include an additional approximate $0.9 million incurred by the Company associated with costs from third parties attributable to the acquisition.

F-16
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		(in millions)
Current assets	$	46.3
Property, plant and equipment		34.5
Intangibles		2.4
Total assets acquired		83.2
Current liabilities		(13.4	)
Long-term debt, including current maturities		(61.3	)
Total liabilities assumed		(74.7	)
Net assets acquired	$	8.5

Had the acquisition of Brawley Beef occurred at the beginning of fiscal year 2006, unaudited pro forma revenue and earnings would have been $5.0 billion and $20.8 million, respectively, for fiscal year 2006.

The Company acquired Vintage Foods, L.P., including the Vintage™ Natural Beef brand, during fiscal year 2006 for $1.5 million.  The Vintage brand is marketed as natural beef that is antibiotic- and hormone-free, and uses cattle that are 20 months of age and younger.  In connection with this acquisition, the Company recognized excess cost over the fair value of the net tangible and identifiable intangible assets acquired, and recorded this excess of $0.6 million as goodwill and $0.1 million of intangible assets, which has also been allocated to the Core Beef segment.  Also in connection with the Vintage acquisition, if certain net sales margin target levels are achieved, potential additional consideration will be payable, up to the maximum amount $0.6 million for the fiscal year 2009.  During fiscal years 2008 and 2007, $0.6 million and $0.5 million, respectively, was paid based on the net sales margin target level being achieved and the transaction was recorded as additional goodwill. 

In connection with acquisitions of Vintage Foods, L.P. and Rains Agency, a transportation company acquired for $0.6 million by National Carriers during fiscal year 2006, intangible assets of approximately $1.7 million associated with customer relationships were recorded and are being amortized on a straight-line basis over a range of four to 12 years.  Also in connection with the Rains acquisition, if certain future contingent objectives were achieved, potential additional consideration would be payable.  During fiscal years 2008 and 2007, $0.1 million and $0.3 million, respectively, was paid based on the achievement of certain objectives and was recorded as an intangible asset.
 

NOTE 6.  OTHER INCOME

Investments—Other income includes income and expense related to the Company’s investment in aLF Ventures, LLC, which is accounted for using the equity method. Losses for each of the fiscal years 2008, 2007 and 2006 were $0.1 million.

Miscellaneous— Other non-operating income, net was $5.8 million, $1.4 million and $3.3 million in the fiscal years ended 2008, 2007 and 2006, respectively.  Other non-operating income, net includes miscellaneous non-operating items of income and expense such as adjustments to unamortized loan costs as discussed in Note 2. Basis of Presentation and Accounting Policies, Debt Issuance Costs, adjustments to postretirement benefits costs as discussed in Note 8. Retirement Plans, and gains or losses on the disposal of fixed assets as discussed in Note 2. Basis of Presentation and Accounting Policies, Property, Plant and Equipment, and disclosed on the consolidated statements of cash flows.  Other non-operating income for fiscal year 2008 includes approximately $3.4 million for the settlement of a lawsuit related to corrugated packaging materials and about $1.3 million related to proceeds received in redemption of an investment interest in which our basis had previously been written down to zero.

F-17
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.  LONG-TERM DEBT AND LOAN AGREEMENTS

The Company entered into various debt agreements in order to finance acquisitions and provide liquidity to operate the business on a going forward basis. As of August 30, 2008 and August 25, 2007, debt consisted of the following:

		August 30, 2008		August 25, 2007
		(in thousands)
Short-term debt:
Revolving credit facility (a)	$	—	$	—
Current portion of long-term debt (term loan) (a)		—		—
Current portion of capital lease obligations (d)		3,590		3,391
		3,590		3,391
Long-term debt:
Term loan facility, net of current portion (a)		202,616		202,616
Senior notes (b)		129,397		160,000
Industrial Development Revenue Bonds (c)		20,665		20,665
Revolving credit facility (a)		11,367		38,368
Long-term capital lease obligations & other (d)		10,194		13,806
		374,239		435,455
Total debt	$	377,829	$	438,846

 

(a)

Senior Credit Facilities— Effective July 25, 2007, the Company amended and restated its existing senior credit facility with a consortium of banks.  The facility now consists of a $202.6 million term loan that matures in May 2016 and a $200.0 million revolving line of credit loan that matures in July 2012 that is subject to certain borrowing base limitations.  A non-use fee is payable quarterly on the daily average unused amount of the revolving credit facility.

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

Borrowing Base Availability Level	Average Amount of Borrowing Base Availability	LIBOR Rate Line of  Credit Loan	LC Fees	Non-Use  Fee
Level 1	Greater than or equal to $150.0 million	1.25%	1.25%	0.375%
Level 2	Less than $150.0 million but greater than or equal to $50.0 million	1.50%	1.50%	0.250%
Level 3	Less than $50.0 million	1.75%	1.75%	0.250%

As of August 30, 2008 and August 25, 2007, the interest rate for the revolving loan was equal to 3.87% and 6.95%, respectively.

F-18
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Financial Performance Level	Funded Debt to EBITDA Ratio	Base Rate Advance on Term Loan	LIBOR Rate Term Loan
Level 1	Greater than or equal to 3.50 to 1.00	0.25%	2.00%
Level 2	Less than 3.50 to 1.00	0%	1.75%

As of August 30, 2008 and August 25, 2007, the interest rate for the term loan was equal to 4.22% and 7.32%, respectively.

Availability under the revolving credit facility is subject to a borrowing base. The borrowing base is based on the Company’s and certain of its domestic wholly-owned subsidiaries’ assets. The borrowing base consists of percentages of the Company’s eligible accounts receivable, inventory and supplies less certain eligibility and availability reserves.  The Company is required to report the borrowing base on a monthly basis and, as a result, the availability under the senior credit facilities is subject to change. At August 30, 2008, the Company’s amended and restated credit facility consisted of a $202.6 million term loan, all of which was outstanding, and a $200.0 million revolving line of credit loan, which had outstanding borrowings of $11.4 million, outstanding letters of credit of $45.2 million and available borrowings of $143.4 million based on the most restrictive financial covenant calculations.

The revolving line of credit and the term loan will have no financial covenants unless the borrowing base availability is less than $50.0 million for five consecutive business days or less than $35.0 million on any single business day during any fiscal quarter.  If the borrowing base availability falls below these amounts, a fixed charge ratio of 1:15 to 1:00 must be maintained at the end of each subsequent fiscal quarter until the borrowing base availability has been greater than or equal to $50.0 million for 90 consecutive days.  The advance rates under the borrowing base at August 30, 2008 are 90% on eligible accounts and 70% on eligible inventory.  As of August 30, 2008, the Company had met the borrowing base availability requirements under its senior credit facilities and was not subject to any financial covenants.

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

The amended and restated credit facility contains customary affirmative covenants, including, without limitation, conduct of business, the 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, including without limitation, restrictions on the following:  distributions, mergers, sale of assets, investments and acquisitions, encumbrances, indebtedness, affiliate transactions, and ERISA matters.

F-19
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	The amended and restated 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 the Company’s property, changes in control of the Company, the 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 facility also includes customary provisions protecting the lenders against increased cost or loss of yield resulting from changes in tax, reserve, capital adequacy and other requirements of law.
	The Company’s net capital expenditures are limited in each fiscal year throughout the term of the credit agreement.  On June 27, 2008, the Company amended its credit facility to increase the amount of net capital expenditures during fiscal year 2008.  At the end of fiscal year 2008, it was determined that the Company exceeded the capital expenditure limitation within the Company’s credit facility by approximately $0.4 million and a waiver was subsequently obtained from the Company’s banks for this violation.
(b)	Senior Notes—On August 6, 2003, the Company issued $160.0 million of its 10 1/2% Senior Notes due 2011. The Senior Notes will mature on August 1, 2011. Interest on the Senior Notes is payable semi-annually in arrears on August 1 and February 1 of each year. The Senior Notes are senior unsecured obligations, ranking equal in right of payment with all other senior unsecured obligations of the Company. The Senior Notes were redeemable at 105.250% of the principal during the twelve-month period commencing August 12, 2007 and may be redeemed at 102.625% during the twelve-month period commencing August 1, 2008. Thereafter, the Senior Notes may be redeemed at 100% of face value. The Indenture governing the Senior Notes contains certain covenants that restrict the Company’s ability to:
	•   incur additional indebtedness;
	•   make restricted payments;
	•   sell assets;
	•   direct the Company’s restricted subsidiaries to pay dividends or make other payments;
	•   create liens;
	•   merge or consolidate with another entity; and
	•   enter into transactions with affiliates.
	During fiscal year 2008, we purchased and cancelled approximately $30.6 million of our Senior Notes.  No material gains or losses were incurred as a result of the purchase and cancellation of these Senior Notes.
	As of August 30, 2008, the Company was in compliance with all covenants associated with the Senior Notes.
	NB Finance Corp., a wholly-owned finance subsidiary of the Company, is a co-issuer on a joint and several basis with the Company of the Senior Notes. NB Finance Corp. has nominal assets and conducts no business or operations. There are no significant restrictions on the ability of subsidiaries to transfer funds to the Company.

F-20
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(c)	Industrial Development Revenue Bonds—In conjunction with the fourth amended and restated credit facility, effective December 30, 2004, the Company entered into a transaction with the City of Dodge City, Kansas, in order to provide property tax savings to the Company.  Under the transaction, the City purchased the Company’s Dodge City facility (the “facility”) by issuing $102.3 million in bonds due in December 2014, and leased the facility to the Company for an identical term under a capital lease.  The City’s bonds were purchased by the Company using proceeds of its term loan under the fourth amended and restated credit facility.  Because the City has assigned the lease to the bond trustee for the benefit of the Company as the sole bondholder, the Company, in effect, controls enforcement of the lease against itself.  As a result of the capital lease treatment, the facility will remain a component of property, plant and equipment in the Company’s consolidated balance sheet.  As a result of the legal right of offset, the capital lease obligation and the corresponding bond investments have been eliminated in consolidation.  The transaction provides the Company 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 existing senior 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.
	In 1999 and 2000 the cities of Liberal and Dodge City, Kansas issued an aggregate of $13.8 million of industrial development revenue bonds to fund the purchase of equipment and construction improvements at the Company’s facilities in those cities. These bonds were issued in four series of $1.0 million, $1.0 million, $6.0 million and $5.8 million and are due on demand or on February 1, 2029, March 1, 2027, March 1, 2015 and October 1, 2009, respectively. However, because each series of bonds are backed by a letter of credit under the Company’s senior credit facilities, the bonds have been presented as non-current obligations.  Pursuant to capital lease agreements, the Company leases the facilities, equipment and improvements from the respective cities and makes lease payments in the amount of principal and interest due on the bonds.
	The 1999 and 2000 issued bonds are variable rate demand obligations that bear interest at a rate that is adjusted weekly, which rate will not exceed 10% per annum. The per annum interest rate for each series of bonds was 2.7% in 2008, 3.7% in 2007 and 3.4% in 2006.  The Company has the option to redeem a series of bonds at any time for an amount equal to the principal plus accrued interest to the date of such redemption. The holders of the bonds have the option to tender the bonds upon seven days’ notice for an amount equal to par plus accrued interest. To the extent that the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent will use the letter of credit to fund such tender.
	An event of default would occur under the lease agreements if the Company fails to make any lease payment or other required payment, if a petition of bankruptcy is filed by or against the Company, if a receiver is appointed on the Company’s behalf, or if the Company fails to observe and perform any covenant, condition, obligation or agreement under the lease agreements.
	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.  The average per annum interest rate for this series of bonds for fiscal years 2008 and 2007 was 2.7% and 3.7%, respectively.   These bonds have a maturity date of October 1, 2016.  The Company has 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 that the remarketing agent for the bonds is unable to resell any of the bonds that are tendered, the remarketing agent will use the letter of credit to fund such tender.  Because these bonds are backed by a letter of credit under the Company’s senior credit facilities, the bonds have been presented as non-current obligations.
(d)	Capital and Operating Leases—the Company leases a variety of buildings and equipment, some of which were acquired through the Brawley Beef acquisition, as well as tractors and trailers through its subsidiary National Carriers, under capital and operating lease agreements that expire in various years. Future minimum lease payments required at August 30, 2008, under capital leases and non-cancelable operating leases with terms exceeding one year, are as follows:

F-21
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Capital Lease Obligations			Non-cancelable Operating Lease Obligations
		(in thousands)
For the fiscal years ended August:
2009	$	4,117		$	14,672
2010		3,411			11,835
2011		1,672			7,015
2012		1,659			4,744
2013		1,659			1,516
Thereafter		3,077			455
Net minimum lease payments	$	15,595		$	40,237
Less: Amount representing interest		(2,011	)
Present value of net minimum lease payments	$	13,584

Rent expense associated with operating leases was $14.2 million, $14.1 million and $10.9 million, for fiscal years 2008, 2007 and 2006, respectively.  The Company expects that it will renew lease agreements or enter into new leases as the existing leases expire.

Utilities Commitment—Not included in the table above are the obligations under an agreement for a utilities commitment at the Dodge City, Kansas, facility.  In order to meet the continuing growth needs for water and wastewater services of the Dodge City facility, effective December 30, 2004, the Company entered into a services agreement for the city to provide the Company water and wastewater services at a price and term sufficient to permit the city to recoup up to one-half of the capital cost of providing fresh water service from a parcel of land owned by the Company 11 miles south of Dodge City, and of providing upgraded city wastewater facilities to help service the needs of the Dodge City facility.  The city sold twenty year municipal bonds to pay for these improvements and the Company has committed to make a series of service charge payments totaling $19.3 million over a 20 year period, of which $1.4 million, $1.4 million and $1.2 million was paid in fiscal years 2008, 2007 and 2006, respectively.  Payments under the commitment will be $1.4 million in fiscal year 2009, $1.7 million in fiscal year 2010, and $0.8 million in each of the fiscal years 2011, 2012 and 2013, with the remaining balance of $8.9 million to be paid in subsequent years. 

Additionally, the Company makes a verbal commitment to cattle producers to purchase cattle about one week in advance of delivery of the live animals to its plants, with the actual price paid for the cattle determined after the cattle are delivered and inspected at the Company’s facilities.   The Company’s estimated cattle commitments as of August 30, 2008 were $91.8 million.

The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years and thereafter following August 30, 2008, are as follows:

	Minimum  Principal Maturities
	(in thousands)
Fiscal Year ending August:
2009	$	3,590
2010		8,913
2011		130,704
2012		12,744
2013 (1)		1,465
Thereafter		220,413
Total minimum principal maturities	$	377,829
(1) Fiscal year 2013 consists of 53 weeks

F-22
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  RETIREMENT PLANS

The Company maintains a tax-qualified employee savings and retirement plan (together, the 401(k) Plan) covering the Company’s non-union employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the lesser of 75% of their annual compensation or the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan provides for additional matching contributions by the Company, based on specific terms contained in the 401(k) Plan. The trustee of the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code. Expenses related to the 401(k) Plan totaled approximately $0.4 million, $0.6 million and $0.5 million for fiscal years 2008, 2007 and 2006, respectively. 

The Company has agreed to make contributions to the United Food and Commercial Workers International Union-Industry Pension Fund (the UFCW Plan) for employees covered by a collective bargaining agreement as provided for in that agreement.  Expenses related to the UFCW Plan totaled approximately $0.7 million, $0.6 million and $0.6 million for fiscal years 2008, 2007 and 2006, respectively.

Postretirement Benefits— Certain former employees are covered by an unfunded postretirement benefit plan that provides medical and dental benefits.  Costs associated with this plan, which relate primarily to insurance premiums, benefit payments and changes in the accumulated benefit obligation were approximately $0.3 million, $0.2 million and $0.2 million, for fiscal years 2008, 2007 and 2006, respectively, and are included in cost of sales.

The health care trend rate used to value the accumulated benefit obligation at August 30, 2008 is a rate of 8% per year, declining by 1% per year to an ultimate rate of 5% in 2011 and thereafter.  The discount rate used to value the accumulated benefit obligation is 6%.  The unfunded accumulated benefit obligation was $1.6 million and $1.9 million at August 30, 2008 and August 25, 2007, respectively, and has been recorded in the consolidated financial statements as non-current other liabilities. 
 

NOTE 9.  INCOME TAXES  

Income tax expense includes the following current and deferred provisions:

	53 weeks ended		52 weeks ended		52 weeks ended
	August 30, 2008		August 25, 2007		August 26, 2006
			(in thousands)
Current provision:
Federal	$	297	$	1,098	$	2,198
State	618		205		401
Foreign	18		16		12
Total current tax expense	933		1,319		2,611
Deferred provision:
Federal	625		509		(909		)
State	193		90		(166		)
Foreign	—		—		—
Total deferred tax expense	818		599		(1,075		)
Total income tax expense	$	1,751	$	1,918	$	1,536

 

F-23
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	53 weeks ended			52 weeks ended			52 weeks ended
	August 30, 2008			August 25, 2007			August 26, 2006
				(in thousands)
Computed “expected” income tax expense	$	44,192		$	7,673		$	14,331
Passthrough income	(43,120		)	(5,686		)	(12,997		)
State taxes, net of federal	757			195			155
Other	(78		)	(264		)	47
Total income tax expense	$	1,751		$	1,918		$	1,536

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at August 30, 2008 and August 25, 2007 are presented below:  

	August 30, 2008		August 25, 2007
	(in thousands)
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	119	$	122
Intangible assets	156		102
Self-insurance and workers’ compensation accruals	804		1,611
Accrued vacation pay and bonuses	10		—
Employee benefit accruals	10		—
Total gross deferred tax assets	1,099		1,835
Deferred tax liabilities:
Prepaid assets	4		—
Plant and equipment, principally due to differences in depreciation	480		402
Total gross deferred tax liabilities	484		402
Net deferred tax assets	$	615	$	1,433

Net deferred tax assets and liabilities at August 30, 2008 and August 25, 2007 are included in the consolidated balance sheet as follows:

	August 30, 2008		August 25, 2007
	(in thousands)
Other current assets	$	1,099	$	1,835
Other liabilities	484		402
	$	615	$	1,433

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

There was no valuation allowance provided for at August 30, 2008 and August 25, 2007.  Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

Beginning in calendar year 2008, some states in which the Company conducts business, modified their business taxes, using net income, or a modification of net income, as the basis.  The modification of these state taxes necessitated the inclusion of approximately $0.7 million of these business taxes in income tax expense during fiscal year 2008 as compared to the same period of last year.

F-24
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10.  RELATED PARTY TRANSACTIONS

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

During fiscal years 2008, 2007 and 2006, the Company had sales and purchases with the following related parties (amounts in thousands):

		53 weeks ended		52 weeks ended		52 weeks ended
		August 30, 2008		August 25, 2007		August 26, 2006
Sales to:
Beef Products, Inc. (1)	$	132,415	$	89,133	$	65,724
Total sales to affiliates	$	132,415	$	89,133	$	65,724
Purchases from:
Beef Products, Inc. (1)	$	15,710	$	14,155	$	15,036
Total purchases from affiliates	$	15,710	$	14,155	$	15,036

                   (1) Beef Products, Inc. (BPI) is an affiliate of NBPCo Holdings

At August 30, 2008 and August 25, 2007, the amounts due from BPI for sale of beef trimmings were approximately $4.9 million and $4.4 million, respectively.  At August 30, 2008 and August 25, 2007, the amounts due to BPI for the purchase of processed lean beef were approximately $0.9 million and $0.4, respectively. 

In December 1997, the former Farmland National Beef Packing Company, L.P. (FNBPC), the predecessor entity to the Company, entered into a contract with U.S. Premium Beef to purchase a portion of its annual cattle requirements.  In connection with U.S. Premium Beef’s purchase of its interest in Farmland National Beef, U.S. Premium Beef obtained the right, and became subject to the obligation, if requested, to deliver cattle annually to the Company relative to: (i) U.S. Premium Beef’s ownership in the Company and (ii) the number of cattle processed annually by the Company.  At the beginning of fiscal year 2005, U.S. Premium Beef converted to a limited liability company.  U.S. Premium Beef now facilitates the delivery of cattle annually to the Company through its individual producer-owners.  The purchase price for the cattle is determined by the Company’s pricing grid, which, under the terms of the agreement with U.S. Premium Beef, must be competitive with the pricing grids of the Company’s competitors and may not be less favorable than pricing grids offered to other suppliers.  During the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006, the Company obtained approximately 19%, 17% and 18%, respectively, of its cattle requirements through this pricing grid process from U.S. Premium Beef and its producer-owners. 

In October 2003, the Company entered into an aircraft lease agreement under which the Company leased a business jet aircraft from John R. Miller Enterprises III, LLC, a Utah limited liability company of which John R. Miller, the Company’s Chief Executive Officer, is the beneficial owner. The term of the lease is 81 months. The monthly lease payments will range from $25,400 in the first year of the lease to $45,380 in the fourth year of the lease and thereafter, and are adjusted quarterly based on the change in the three month LIBOR interest rate.  During the fiscal year ended August 30, 2008, the Company paid $0.7 million to lease the aircraft and paid $0.1 million into an engine replacement reserve account.  The funds in the reserve account are to be used to finance new engines installed on the aircraft.

In December 2004, the Company entered into an aircraft lease agreement under which it leases a business jet aircraft from John R. Miller Enterprises III, LLC, a Utah limited liability company of which John R. Miller, the Company’s Chief Executive Officer, is the beneficial owner. The term of the lease is 72 months. This aircraft replaces an aircraft leased from John R. Miller Enterprises, LLC in March 2001.  The base monthly lease payments will range from $35,400 in the first year of the lease to $45,380 in the fourth year of the lease and thereafter, and are adjusted quarterly based on the change in the three month LIBOR interest rate.  During the fiscal year ended August 30, 2008, the Company paid $0.7 million to lease the aircraft and paid $0.1 million into an engine replacement reserve account.  The funds in the reserve account are to be used to finance new engines installed on the aircraft.    

F-25
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            In January 2007, the Company entered into an agreement with BPI for BPI to manufacture and install a grinding system in one of the Company’s plants.  In accordance with the agreement with BPI, the Company is to pay BPI a technology and support fee based on the number of pounds of product produced using the grinding system.  The installation of the grinding system was completed in fiscal year 2008.  During fiscal year 2008, the Company paid approximately $0.7 million to BPI in technology and support fees.      

During fiscal year 2008, the Company incurred certain legal fees related to the MIPA (see Note 4) that are to be reimbursed by U.S. Premium Beef and its other members.  At August 30, 2008, the amount due from U.S. Premium Beef and the other members was approximately $2.1 million.
 

NOTE 11.  CAPITAL SUBJECT TO REDEMPTION  

At any time after certain dates, the earliest being July 31, 2008, the latest being July 31, 2011, certain members of management and/or NBPCo Holdings have the right to request that the Company repurchase their interests, the value of which is to be determined by a mutually agreed appraisal process. If the Company is unable to effect the repurchase within a specified time, the requesting member(s) have the right to cause a sale process to commence.  The Company 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 30, 2008, the value of the capital subject to redemption was determined to be $220.3 million, which was in excess of its carrying value.  Accordingly, the carrying value of the capital subject to redemption increased by approximately $34.5 million through accretion during the fiscal year ended August 30, 2008, resulting in the $186.5 million carrying value, as reflected in the accompanying consolidated balance sheet as of August 30, 2008.

            Generally accepted accounting principles require the Company to determine the fair value of the capital subject to redemption at the end of each reporting period.  This change in fair value is accreted over the redemption period as discussed above.   The Company uses Stern Brothers Valuation Advisors to assist management in measuring fair value of the capital subject to redemption.  Key assumptions in determining the fair value include the value offered by JBS under the MIPA, management’s estimate of the probability of the MIPA reaching a successful conclusion, valuation multiples of publicly traded companies in the same or similar industries, management’s projections of future cash flows, and the discount rate applied to the projected future cash flows.

            The value of the capital subject to redemption at August 30, 2008, increased by approximately $148.2 million compared to the value at August 25, 2007 primarily as a result of the indication of fair value from the MIPA that was entered into on February 29, 2008 with JBS.  Under the MIPA, JBS will acquire all of the outstanding membership interests in the Company for an aggregate value of $560.0 million.  The value also significantly increased as a result of the increased operating results of the company in 2008 as compared to 2007 and an associated increase in management’s projections of future cash flows.  

            The U.S. DoJ, state attorneys general from seventeen states, the Ranchers Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF), and the Organization for Competitive Markets (OCM) filed civil antitrust suits seeking a permanent injunction of the MIPA.  Although these suits are being vigorously contested by the Company, U.S. Premium Beef and JBS, the fair value of the capital subject to redemption could be significantly impacted if the MIPA is unable to be successfully completed.  Offsetting the change in the value of the capital subject to redemption is a corresponding change in members’ capital.  (See Note 4 for further discussion of the MIPA.)  

F-26
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.  LEGAL PROCEEDINGS

            The Company is a party to a number of 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.

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

            The U.S. DoJ, joined by state attorneys general from seventeen states (Arizona, Colorado, Connecticut, Iowa, Kansas, Minnesota, Mississippi, Missouri, Montana, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, and Wyoming), filed a civil antitrust suit against JBS and the Company on October 20, 2008 in the U.S. District Court for the Northern District of Illinois, Eastern Division, seeking a permanent injunction against the proposed acquisition of the Company by JBS, along with an award in the amount of their costs and attorneys’ fees.  The DoJ is alleging that the proposed acquisition would substantially lessen competition in the purchase of fed cattle in the High Plains and the Southwest and in the production and sales of USDA-graded box beef in the U.S. generally, in violation of Section 7 of the Clayton Act.  JBS and the Company intend to vigorously contest this attempt to block the acquisition.  No date has been set by the Court for trial.

            On November 13, 2008, R-CALF and OCM filed a civil antitrust suit against JBS and the Company in the U.S. District Court for the Northern District of Illinois, Eastern Division, seeking a permanent injunction against the proposed acquisition of the Company by JBS, along with an award in the amount of their costs and attorneys’ fees.  R-CALF and OCM are alleging that the proposed acquisition would substantially lessen competition in the purchase of fed cattle in the High Plains and the Southwest and in the production and sales of USDA-graded boxed beef in the U.S. generally, in violation of Section 7 of the Clayton Act.  JBS and the Company intend to vigorously contest this attempt to block the acquisition.  No date has been set by the Court for trial.
 

NOTE 13.  BUSINESS SEGMENTS 

            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 the Company’s two reporting segments, Core Beef and Other, based on the definitions provided in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.   

Core Beef—the majority of the Company’s revenues are generated from the sale of fresh meat, which include chuck cuts, rib cuts, loin cuts, round cuts, thin meats, ground beef, and other products.  In addition, we also sell beef by-products to the variety meat, feed processing, fertilizer and pet food industries.

Other—the Other segments of the Company consists of the operations of National Carriers, a refrigerated and livestock contract carrier company, National Elite, a provider of transportation logistics services, and Kansas City Steak, a portion control steak cutting operation.

 

F-27
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

		53 weeks ended August 30, 2008		52 weeks ended August 25, 2007		52 weeks ended August 26, 2006
Net sales:
Core beef	$	5,877,374	$	5,562,958	$	4,622,146
Other		237,100		225,687		211,111
Eliminations		(267,182)		(210,112)		(197,227)
Total net sales	$	5,847,292	$	5,578,533	$	4,636,030
Depreciation and amortization:
Core beef	$	35,119	$	31,126	$	27,250
Other		1,289		1,312		1,400
Total depreciation and amortization	$	36,408	$	32,438	$	28,650
Operating income:
Core beef	$	148,478	$	51,970	$	64,664
Other		6,303		7,688		4,868
Total operating income		154,781		59,658		69,532
Interest income		460		669		403
Interest expense		(33,996)		(39,426)		(32,009)
Other income		5,723		1,334		3,181
Minority interest		(704)		(313)		(160)
Total income before taxes	$	126,264	$	21,922	$	40,947
Capital expenditures:
Core beef	$	56,422	$	40,870	$	33,625
Other		3,455		852		867
Total capital expenditures	$	59,877	$	41,722	$	34,492
		August 30, 2008		August 25, 2007
Assets:
Core beef	$	838,594	$	779,483
Other		37,934		36,632
Eliminations		(626)		(612)
Total assets	$	875,902	$	815,503

Customer Concentration

In the fiscal year ended August 30, 2008, one customer with its consolidated subsidiaries represented 7.8% of total sales, with no other customer representing more than 3.8% of total sales.  In the fiscal year ended August 25, 2007, one customer with its consolidated subsidiaries represented 6.8% of total sales, with no other customer representing more than 3.6% of total sales. In the fiscal year ended August 26, 2006, one customer with its consolidated subsidiaries represented approximately 7.9% of total sales with no other single customer representing more than 3.0% of total sales.

F-28
 

NATIONAL BEEF PACKING COMPANY, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sales to Foreign Countries

The Company had sales outside the United States of America in the fiscal years ended August 30, 2008, August 25, 2007 and August 26, 2006 of approximately $675.1 million, $561.9 million and $309.7 million, respectively.  No single country accounted for more than 3% of total sales. The amount of assets maintained outside the United States of America is not material.

F-29

EX-2.4

Exhibit 2.4(d)

THIRD AMENDMENT

OF

MEMBERSHIP INTEREST PURCHASE AGREEMENT

THIS THIRD AMENDMENT (this “Amendment”) to the Membership Interest Purchase Agreement, dated as of February 29, 2008 (as amended, supplemented or otherwise modified from time to time, the “MIPA”), among JBS S.A., National Beef Packing Company, LLC, U.S. Premium Beef, LLC, French Basin Land and Cattle Co., LLC, TKK Investments, LLC, S-B Enterprises V, LLC, TMKCO, LLC, John R. Miller, Timothy M. Klein and NBPCO Holdings, LLC is dated effective as of October 31, 2008.  Unless otherwise defined in this Amendment, terms used in this Amendment shall have the meanings assigned in the MIPA and includes JBS S.A. which is defined as “Buyer”.

W I T N E S S E T H :

WHEREAS, Section 1.2 of the MIPA states that NBPCO will sell its National Interests to Buyer for the Seller’s Purchase Price in Exhibit B to be paid in cash and Buyer Stock, provided that NBPCO and Buyer anticipate entering into a separate unrelated transaction at or about the time of the execution of the MIPA providing for the payment by Buyer of all cash and no Buyer Stock for NBPCO’s National Interests;

WHEREAS, as contemplated under Section 1.2 of the MIPA, NBPCO and Buyer have agreed that NBPCO will receive all cash and no Buyer Stock for NBPCO’s National Interests;

WHEREAS, Section 1.2 of the MIPA states that TMK, TKK, and Klein each will sell their National Interests to Buyer for the Seller’s Purchase Price in Exhibit B to be paid in cash and Buyer Stock;

WHEREAS, TKK and Klein have requested that Buyer pays TKK’s and Klein’s Seller’s Purchase Price in all cash, and TMK has requested that Buyer pays TMK’s Seller’s Purchase Price in all Buyer Stock;

WHEREAS, the Parties wish to amend Section 1.2, Section 1.3 and Exhibit B to the MIPA to state that Buyer will make an all cash payment to NBPCO, TKK and Klein at the Closing, and a payment in all Buyer Stock to TMK at Closing; and

WHEREAS, the Parties wish to amend Section 7.3 to provide that the Termination Fee shall be paid to Sellers, instead of National, in proportion to Sellers’ respective holdings of National Interests as set forth on Exhibit B.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Amendment, the Parties agree as follows:

1.    Amendment to Section 1.2.  The Parties agree to amend Section 1.2 with existing language stricken and new language underlined as provided below: 

SIGNATURE  COPY

                                                                                                                                                 &nb sp;                                                             

NBP Members/JBS S.A.

Purchase Price

.  Buyer agrees to pay to each Seller at the Closing the purchase price of the National Interests to be sold by each Seller based on an aggregate value of $560,000,000 for all of the issued and outstanding National Interests at the time of Closing.  (The aggregate amount payable to all Sellers hereunder is referred to as the “Purchase Price”; the amount payable to each Seller is sometimes referred to herein as each “Seller’s Purchase Price.”)  Buyer and Sellers acknowledge and agree that certain Sellers other than USPB, NBPCO, and TMK, TKK, and Klein, will sell all of their National Interests for cash in which case the amount in Exhibit B is the cash amount to be paid to those Sellers at Closing.  NBPCO, USPB, and TMK, TKK and Klein each will sell their National Interests to Buyer for the Seller’s Purchase Price in Exhibit B to be paid to (a) USPB in cash and Buyer Stock in proportion of 80% to be paid in cash and 20% to be paid in Buyer Stock and (b) TMK in 100% Buyer Stock as provided in Section 1.3; provided, however, NBPCO and Buyer anticipate entering into a separate unrelated transaction at or about the time of execution of this Agreement pursuant to which Buyer will agree that NBPCO will receive all cash and no Buyer Stock for NBPCO’s National Interests.

2.         Amendment to Section 1.3.  The Parties agree to amend the second sentence of Section 1.3 with existing language stricken and new language underlined as provided below: 

The total U.S. Dollar value of the Buyer Stock to be issued to Sellers from Exhibit B is $94,964,869 71,599,664 (referred to as the “JBS Stock Payment Amount”).

3.         Amendment to Section 7.3.  The Parties agree to amend Section 7.3 with existing language stricken and new language underlined as provided below:

Termination Fee

.  Notwithstanding anything in this Agreement to the contrary, if:

(a)        the Closing does not occur and this Agreement is terminated;

(b)        Buyer fails to provide to Sellers the Financing Representation as provided in Section 7.1(c) by March 31, 2008 or a later date as extended by Sellers in their sole discretion; or

(c)         Buyer provides the Financing Representation to Sellers and then Buyer does not have adequate financing to pay amounts due at the Closing under Section 7.1(d);

then Buyer shall pay or cause to be paid to National Sellers in proportion to their respective holdings of National Interests as set forth on Exhibit B, by 60 days after occurrence of an event in Section 7.3(a), (b), or (c) a cash amount equal to $25,000,000 plus all costs of National and Sellers incurred in the United States related to the negotiation and implementation of the transactions under this Agreement included in a written notice from Sellers to Buyer including costs of legal counsel, consultants, advisors, data room, due diligence, and printing (the “Termination Fee”), provided, however, that the Termination Fee shall not be paid by Buyer in the event that:

2 SIGNATURE COPY

                                                                                                                                                 &nb sp;                                                             

NBP Members/JBS S.A.

(i)          this Agreement is terminated pursuant to Section 7.1(a) (Mutual Termination) or Section 7.1(e) (Buyer’s Termination);

(ii)         the Members of USPB fail to approve this Agreement and the contemplated transactions under this Agreement by 30 days after execution of the Agreement;

(iii)         the shareholders of JBS fail to approve this Agreement and the contemplated transactions under this Agreement by 30 days after execution of this Agreement;

(iv)        the FTC or DOJ, in response to the notifications required under Section 5.10(a), unconditionally disapprove the transactions contemplated in the Transaction Documents such that no possible appeal or remedy, including any sale, divestiture of disposition of assets or businesses, remains available to Buyer to effect the resolution of objections or concerns by the FTC or DOJ;

(v)         Sellers terminate this Agreement after acceptance of a Superior Proposal; or

(vi)        an Act of God occurs and Buyer terminates this Agreement pursuant to Section 7.1(f).

4.         Amendment to Exhibit B.  The Parties agree to amend Exhibit B with existing language stricken and new language underlined as provided below: 

Seller	National Interests To Be Sold				Sellers’ Purchase Price
	Class A Units	Class B‑1 Units	Class B‑2 Units	Class C Units	Cash	Buyer Stock	Total
USPB	94,680,681	10,664,475			$261,128,788	$65,282,197	$326,410,985
NBPCO	31,553,956	3,810,044			$91,474,472 114,343,090	$22,868,618	$114,343,090
French Basin		2,247,619			$48,838,919		$48,838,919
Miller	6,057,143		609,524	609,524	$19,301,600		$19,301,600
TKK		1,123,810			$19,535,576 24,419,470	$4,883,894	$24,419,470
Klein	3,028,571			304,762	$2,666,666 3,333,333	$666,667	$3,333,333
S-B	1,514,286	714,286			$17,035,136		$17,035,136
TMK			304,762		$5,053,974	$1,263,493 6,317,467	$6,317,467
Total	136,834,637	18,560,234	914,286	914,286	$465,035,131 488,400,336	$94,964,869 71,599,664	$560,000,000

                                                                                                                                                 &nb sp;                                                             

3 SIGNATURE COPY

NBP Members/JBS S.A.

5.         Limited Effect.  The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided in this Amendment, operate as a waiver of any right, power or remedy of the Sellers or National under the MIPA, nor constitute a waiver of any other provision of the MIPA or any other Transaction Document.  Except as expressly amended, waived, modified and supplemented in this Amendment, all of the provisions and covenants of the MIPA and the other Transaction Documents are and shall continue to remain in full force and effect in accordance with their terms and are in all respects ratified and confirmed.  Each reference to the “MIPA” contained in the MIPA and in each of the Transaction Documents shall be deemed to refer to the MIPA, as amended from time to time.

6.         Governing Law; Counterparts. 

(a) This Amendment and the rights and obligations of the Parties shall be governed by, and construed and interpreted in accordance with, the laws of the State of Delaware.

(b) This Amendment may be executed by one or more of the Parties on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  This Amendment may be delivered by facsimile transmission or PDF electronic transmission of the relevant signature pages of this Amendment.

[The remainder of this page intentionally left blank]

4 SIGNATURE COPY

NBP Members/JBS S.A. 3rd Amendment MIPA

IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

SELLERS:                                                    U.S. PREMIUM BEEF, LLC

By:      /s/ Steven D. Hunt                                           

            Name: Steven D. Hunt                                    

            Title:    CEO                                                   

FRENCH BASIN LAND & CATTLE CO., LLC

By:      /s/ John R. Miller                                              

            Name:                                                             

            Title:                                                                

TKK INVESTMENTS, LLC

By:      /s/ Timothy M. Klein                                         

            Name:                                                             

            Title:                                                                

TMKCo, LLC

By:      /s/ Timothy M. Klein                                         

            Name:                                                             

            Title:                                                                

S-B ENTERPRISES V, LLC

By:      /s/ Scott H. Smith                                            

            Name:  Scott H. Smith                                   

            Title:    Manager                                             

S-1 SIGNATURE COPY

NBP Members/JBS S.A. 3rd Amendment MIPA

/s/ John R. Miller                                                       

JOHN R. MILLER

/s/ Timothy M. Klein                                                  

TIMOTHY M. KLEIN

NBPCO HOLDINGS, LLC

By:      /s/ Richard A. Jochum                                     

            Name:                                                            

            Title:                                                               

BUYER:                                                        JBS S.A.

By:      /s/ Wesley Mendonca Batista                          

            Name:                                                            

            Title:                                                               

NATIONAL:                                                 NATIONAL BEEF PACKING COMPANY, LLC

By:      /s/ John R. Miller                                            

            Name:                                                           

            Title:                                                              

S-2 SIGNATURE COPY

EX-3.1

Exhibit 3.1(c)

August 6, 2008

Third Amended Exhibit 3.1

MEMBERS OF THE COMPANY; CAPITAL CONTRIBUTIONS

Members	Class A Units (1)	Class B-1 Units (1)	Class B-2 Units (2)	Class C Units (1)	Percentage Interests (Class B Units only)
USPB	94,680,681	10,664,475			54.7612%
NBPCo Holdings	31,553,956	3,810,044			19.5643%
MillerCo		2,247,619			11.5413%
Miller	6,057,143		609,524	609,524	3.1299%
KleinCo		1,123,810			5.7707%
Klein	3,028,571			304,762	0%
SmithCo	1,514,286	714,286			3.6678%
TMKCo			304,762		1.5649%
Total	136,834,637	18,560,234	914,286	914,286	100.00%

-------
(1)	Initial Capital Contribution is equal to an amount in U.S. Dollars equal to the number of Units of such Class and the number of units issued with respect to the Brawley transaction.
(2)	Initial Capital Contribution with respect to Class B-2 Units is zero.

EX-10.2

Exhibit 10.2(c)

JOHN R. MILLER

EMPLOYMENT AGREEMENT EXTENSION

            THIS EMPLOYMENT AGREEMENT EXTENSION (“Extension Agreement”) dated as of the 28th day of August, 2008, is made by and between National Beef Packing Company, LLC, a Delaware limited liability company (“National Beef”), and John R. Miller (“Executive”).

            WHEREAS, National Beef entered into an employment agreement with Executive dated as of the 6^th day of August 2003 (“Employment Agreement”) under which Executive will be employed as Chief Executive Officer of National Beef until the earlier of the last day of the fiscal year ending on or about August 30, 2008, or such later date as the parties may agree, or the Termination Date as defined in the Employment Agreement;

            WHEREAS, National Beef and the owners of National Beef have entered into a Membership Interest Purchase Agreement with JBS, S.A., a Brazilian beef processing company, dated as of February 29, 2008 (“MIPA”) under which the ownership interests of National Beef would be sold and transferred to JBS, S.A. or an affiliate at the closing of the transaction (“Closing”); and

            WHEREAS, National Beef and Executive desire the Employment Agreement to continue through the earlier of the Closing or October 31, 2008 under the provisions of this Extension Agreement;

            THEREFORE, National Beef and Executive agree as follows:

            1.        Extension of Expiration Date.  The Expiration Date of the Employment Agreement shall be extended under Paragraph 1, clause (a) from “the last day of the fiscal year ending on or about August 30, 2008” to “October 31, 2008, or the closing of the transactions under the MIPA, whichever is earlier.”  The extension shall apply to all provisions of the Employment Agreement, except Sections 3.b., 3.c., and 3.d. for which the language shall be construed that the Employment Agreement expires and measuring periods end on the last day of the fiscal year ending on or about August 30, 2008.

            2.        Effect.  National Beef and Executive intend this Extension Agreement to amend the Employment Agreement as of the date above written.

NATIONAL BEEF PACKING COMPANY, LLC       By   /s/ Steven D. Hun                                                Steven D. Hunt     Chair, Management Committee EXECUTIVE: JOHN R. MILLER         /s/ John R. Miller                                                     John R. Miller  

EX-10.2

Exhibit 10.2(d)

JOHN R. MILLER

EMPLOYMENT AGREEMENT EXTENSION

            THIS EMPLOYMENT AGREEMENT EXTENSION (“Extension Agreement”) dated as of the 28th day of October, 2008, is made by and between National Beef Packing Company, LLC, a Delaware limited liability company (“National Beef”), and John R. Miller (“Executive”).

            WHEREAS, National Beef entered into an employment agreement with Executive dated as of the 6^th day of August 2003 (“Employment Agreement”) under which Executive will be employed as Chief Executive Officer of National Beef until the earlier of the last day of the fiscal year ending on or about August 30, 2008, or such later date as the parties may agree, or the Termination Date as defined in the Employment Agreement;

            WHEREAS, the Employment Agreement was previously extended through October 31, 2008; 

            WHEREAS, National Beef and the owners of National Beef have entered into a Membership Interest Purchase Agreement with JBS, S.A., a Brazilian beef processing company, dated as of February 29, 2008 (“MIPA”) under which the ownership interests of National Beef would be sold and transferred to JBS, S.A. or an affiliate at the closing of the transaction (“Closing”); and

            WHEREAS, National Beef and Executive desire the Employment Agreement to continue through the earlier of the Closing or the last day of November, 2008 under the provisions of this Extension Agreement;

            THEREFORE, National Beef and Executive agree as follows:

            1.         Extension of Expiration Date.  The Expiration Date of the Employment Agreement shall be extended under Paragraph 1, clause (a) from October 31, 2008 to “the last day of November, 2008, or the closing of the transactions under the MIPA, whichever is earlier.”  The extension shall apply to all provisions of the Employment Agreement, except Sections 3.b., 3.c., and 3.d. for which the language shall be construed that the Employment Agreement expires and measuring periods end on the last day of the fiscal year ending on or about August 30, 2008.

            2.         Effect.  National Beef and Executive intend this Extension Agreement to amend the Employment Agreement as of the date above written.

NATIONAL BEEF PACKING COMPANY, LLC       By   /s/ Steven D. Hunt                                                      Steven D. Hunt     Chair, Management Committee EXECUTIVE: JOHN R. MILLER      /s/ John R. Miller                                                  John R. Miller  

EX-10.4

Exhibit 10.4(c)

WAIVER AND CONSENT

This Waiver and Consent is given as of November 21, 2008, under the Sixth Amended and Restated Credit Agreement dated as of July 25, 2007 (as amended, modified, supplemented, renewed or restated from time to time, the "Credit Agreement") by and among NATIONAL BEEF PACKING COMPANY, LLC, a Delaware limited liability company (together with its successors and assigns, the “Borrower”) and the various financial institutions as are or may become parties thereto (collectively the "Lenders").  This Waiver and Consent is made by the undersigned Lenders (being at least the “Required Lenders”, as defined in the Credit Agreement).

RECITALS

Except as defined herein, all capitalized terms used in this Waiver and Consent shall have meaning assigned to them in the Credit Agreement. During fiscal year 2008 Borrower incurred Net Capital Expenditures in excess of the amount allowed by Section 10.7 of the Credit Agreement resulting in a Matured Default (the “Cap Ex Default”).  The Borrower desires that the Lenders consent to the Cap Ex Default and waive their rights powers and remedies as a result thereof.  The Lenders are willing to accommodate the Borrower in this regard.

NOW, THEREFORE, the undersigned Lenders provide this Waiver and Consent as follows:

1.         The Lenders hereby consent to the Cap Ex Default, and agree that their rights powers and remedies as a result thereof, shall be and are hereby waived in accordance with Section 13.29 of the Credit Agreement.

2.         Notwithstanding the foregoing, it is expressly understood and agreed that the Lenders shall have the right at all times hereafter to require strict performance by the Borrower of all terms of the Credit Agreement or any other Financing Agreement, that the Lenders do not waive, affect or diminish any right, power or remedy of the Lenders under the Credit Agreement or any other Financing Agreement except as expressly set forth herein and that except as expressly set forth herein, the Credit Agreement and each other Financing Agreement shall continue in full force and effect in accordance with their respective terms.

3.         This Waiver and Consent may be executed in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same document.  Facsimile signatures on this Waiver and Consent shall be considered as original signatures.

4.         This Waiver and Consent is a Financing Agreement executed pursuant to the Credit Agreement and shall be construed, administered and applied in accordance with all of the terms and provisions of the Credit Agreement.

[Signature Pages Follow]

IN WITNESS WHEREOF, this Waiver and Consent has been duly executed as of the day and year first above written.

NATIONAL BEEF PACKING

COMPANY, LLC

By: /s/ Jay D. Nielsen                       

Its: Chief Financial Officer               

COBANK, ACB, individually and as Lead Arranger, Syndication Agent and Administrative Agent

By: /s/ James Matzat                        

Its: Vice President                             

COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, individually and as Documentation Agent

By: /s/ Rebecca O. Morrow                                      By: /s/ Robert K. Hughes

Its: Executive Director                                              Its: Executive Director

{SIGNATURE PAGE ONE OF THREE TO WAIVER AND CONSENT RELATED TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT}

2

THE CIT GROUP/BUSINESS CREDIT, INC.

By: __________________________

Its: __________________________

BANK OF OKLAHOMA, N.A.

By: /s/ Christopher Port                     

Its: Vice President                             

BMO CAPITAL MARKETS FINANCING, INC.

By: /s/ Scott Morris                             

Its: Vice President                             

LASALLE BANK N.A.

By: /s/ Mark A. Jacobson                  

Its:                   VP                               

CALYON – NEW YORK BRANCH

By: /s/ David Cagle                           

Its: Managing Director                     
 

By: /s/ Robert Smith                          

Its: Managing Director                      

{SIGNATURE PAGE ONE OF THREE TO WAIVER AND CONSENT RELATED TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT}

3

FIRST NATIONAL BANK OF OMAHA

By: __________________________

Its: __________________________

AMERICAN AGCREDIT, PCA,

formerly known as Pacific Coast Farm Credit Services, ACA

By: __________________________

Its: __________________________

{SIGNATURE PAGE ONE OF THREE TO WAIVER AND CONSENT RELATED TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT}

4

EX-10.16

Exhibit 10.16

*PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT WHICH HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

FMI Grinding System Lease Agreement

This Agreement is made by and between Beef Products, Inc. (“BPI”), a Nebraska corporation each having its principal place of business at 891 Two Rivers Drive, Dakota Dunes, SD 57049; and National Beef Packing Company, LLC (“NATIONAL”), 12200 North Ambassador Drive, Kansas City, MO 64163.  While this Agreement is entered into between BPI and NATIONAL, NATIONAL acknowledges, due to the relationships described below, that many of the services and/or technology addressed in this Agreement will be provided by parties related to BPI.

BPI is a closely held Nebraska corporation that is primarily engaged in the business of producing, distributing, and selling lean beef, pork, and other meat products.  It currently has production facilities in Amarillo, Texas; Finney County, Kansas; Waterloo, Iowa; and South Sioux City, Nebraska.  The majority shareholders of Beef Products are Eldon and Regina Roth.  BPI’s primary business is the manufacture and sale of frozen meat products produced through patented and/or proprietary production processes and marketed to food manufacturers such as NATIONAL who use BPI’s product in combination with other raw materials in production of NATIONAL’s final product.

Freezing Machines, Inc. (“FMI”) is a technology company that develops equipment and processes for producing meat products.  The equipment and processes developed by FMI are proprietary and sometimes subject to letters patent.  FMI is a closely held company whose sole shareholder is Eldon Roth.  Eldon Roth is the primary inventor for FMI.

BPI Technology, Inc. (“Tech”) is a closely held Delaware corporation, formerly known as Beef Products, Inc., that is engaged in the business of providing technological and manufacturing support services including research and development, engineering and design services, project management, operation consulting and sales, marketing and administrative support.  The majority shareholders of Technology are Eldon and Regina Roth.

FMI has developed a unique grinding system (“grinding system”) that incorporates patented and/or proprietary technology of FMI and may be used by NATIONAL or others in the production of comminuted food products.  Through agreement with BPI, those grinding systems are manufactured/assembled by BPI at its South Sioux City, Nebraska facilities.  Through agreement with Tech, once installed, those grinding systems will be monitored and/or controlled from Tech’s Operations Support Center and other Tech locations.

NATIONAL is a current/potential user of BPI’s frozen products.  NATIONAL currently purchases BPI’s frozen products for incorporation into ground beef and other products to customer specifications.  NATIONAL and BPI desire to further their relationship through this agreement.

BPI has manufactured for NATIONAL and will lease to NATIONAL a grinding system designed by FMI and incorporating FMI technology at the price and upon the conditions noted below.  Through agreement with BPI, Tech will provide technology support and monitoring/controls technology assistance to NATIONAL regarding operation of the grinding system.

1.         AGREEMENT EFFECTIVE PERIOD

This Agreement is effective on January ____, 2007 (date of first full production using the grinding system), and shall remain effective for a period of not less than five (5) years, and will continue thereafter until terminated by either upon at least ninety (90) days prior written notice to the other as specified herein.  If BPI terminates the agreement, adequate time will be allowed National to replace the FMI grinding system with an acceptable alternative.

2.         FOB/COST TO INSTALL

The grinding system shall be shipped FOB NATIONAL’s Dodge City, KS facility.  NATIONAL and BPI shall arrange for the installation of the grinding system at NATIONAL’s facility at BPI’s expense, using only contractors approved by both NATIONAL and BPI, if any.

3.         TECHNOLOGY AND SUPPORT FEE

NATIONAL shall pay FMI the sum of $* per pound of product produced using the grinding system.  This is a preferential rate for the technology and support fee based upon NATIONAL’s assistance in establishing a commercial retail market for products produced using the grinding system.  This technology and support fee is based upon the parties’ anticipation that the pounds produced at the facility will average * pounds or more per work-day at the NATIONAL facility.  If the average production for the facility falls below * pounds per week during any two consecutive months, the parties shall meet to discuss adjustment to the support and technology fee that may be appropriate, if any.  The parties will communicate and cooperate with each other as necessary to achieve such production and to work out any differences that may arise over production volumes.

* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT WHICH HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

4.         TERMS OF PAYMENT

NATIONAL shall begin paying the technology and support fee for the grinding system following its installation at NATIONAL’s facility, based upon monthly billings submitted by BPI.  The billings will be based on throughput numbers supplied by National.  The technology and support fee shall be paid by NATIONAL to BPI monthly, not later than thirty (30) days after the end of the month for which the technology and support fee is computed.

5.         MAINTENANCE OF THE GRINDING SYSTEM

During the term of this Agreement, the grinding system shall be maintained in working condition at BPI’s expense.  However, any repair or restoration of the grinding system caused by acts or omissions on the part of NATIONAL (items beyond normal wear and tear – for example, damage due to metal in raw materials) required to maintain the grinding system in working condition will be made at NATIONAL’s sole expense.  All maintenance and/or repair activities related to the grinding system must be coordinated through BPI and, at BPI’s discretion, may be conducted by Technology or contractors retained by BPI.  It is anticipated that minor, routine preventative maintenance (“PM”) may take place with the grinding system and be conducted by NATIONAL employees, but all PMs must be coordinated with and communicated to BPI in advance.  The ONLY PMs that will be conducted by NATIONAL employees will be operational and preventative maintenance activities such as; daily assembly and disassembly, lubrication, inspection, and wear item replacement, as outlined in the users guide.  No alterations or modifications of any kind will be made to the grinding system without BPI’s advance consent.

6.         TECHNOLOGY AND SUPPORT SERVICES

At NATIONAL’s request, BPI shall provide the following technology and support services for the grinding system at no additional cost to National:

v	Continuous monitoring, support, and control as required, provided via voice and data network connections through BPI’s Operations Support Center; Field Equipment Support Group, and Systems Engineering Group;
v	Operational analysis and daily summary management provided as requested through BPI’s Operations Support Center and the Systems Engineering Group;
v	Regularly scheduled (at least quarterly) maintenance and inspection service provided through BPI’s Field Equipment Support Group;
v	Upgrades and/or enhancements to the grinding system and/or support technologies and services, as they become available;
v	Unscheduled corrective maintenance service provided through BPI’s Field Equipment Support Group; and
v	Expanded monitoring, support, and controls as requested for additional NATIONAL equipment, provided via voice and data network connections through BPI’s Operations Support Center; Field Equipment Support Group, and Systems Engineering Group.  Expanded services, if any, will be at an additional cost as agreed upon by the parties.

7.         EXCLUSIVE USE OF FMI GRINDING SYSTEM FOR RETAIL GROUND BEEF

For a period of * months from the date of first full production run using the FMI grinding system, BPI agrees not to sell or lease a grinding system of similar design to any competitor of NATIONAL in the retail ground beef market.  However, NATIONAL is aware of BPI’s intention to construct other facilities of its own and the likelihood of such facility(ies) producing ground beef that may compete in some markets with NATIONAL’s products.  Nothing contained in this Agreement shall limit BPI’s ability to construct such facility(ies) and produce for itself or copack for others products that may compete with NATIONAL’s products.  If at any time during the term of this agreement, BPI leases a grinding system of similar design to any competitor of NATIONAL or BPI copacks products in its own facility(ies) using a grinding system of similar design, the third party leasing the grinding system or purchasing BPI copacked products shall be charged a technology and support fee not less than the preferential rate charged NATIONAL.  If BPI’s facility will become operational within the exclusivity period outlined above, the parties will communicate and cooperate with each other as necessary to accommodate operation of the BPI facility, while maintaining a market advantage for National and to work out any differences that may arise with regard to the same.

* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT WHICH HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

8.         PRODUCT QUALITY ASSURANCE/MINIMUM LBT INCREASE

The parties acknowledge that NATIONAL’s decision to lease the grinding system from BPI is based upon the parties belief that the grinding system will produce a finished ground beef product that is superior to comparable products of National’s best competitor.  In addition, the parties believe that use of the grinding system will allow NATIONAL to increase its use of BPI frozen products, with an average increase of * percent (*%) over current incorporation rates (*% * v. *%).  Should NATIONAL not be able to produce a superior product using the grinding system, or if the average increase in use of BPI frozen products does not meet expectations, the parties shall meet to discuss adjustment to the support and technology fee that may be appropriate, if any.  The parties will communicate and cooperate with each other as necessary to achieve such product quality and increases in LBT use and to work out any differences that may arise over such quality and/or volume issues.

* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT WHICH HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

9.         ASSIGNMENT

Neither party may assign any right or interest under this Agreement without the prior written consent of the other party.

10.       CHOICE OF LAW

This Agreement and all transactions under it shall be governed by the laws of the State of Nebraska.  Any disputes arising under this Agreement shall be submitted exclusively to court of competent jurisdiction in the State of Nebraska, each party hereby acknowledging the jurisdiction of such courts over both the subject matter and parties to this Agreement.

11.       COMPLIANCE WITH LAWS

Each party and all persons furnished by or acting on behalf of either party shall comply at their own expense with all applicable laws, ordinances, regulations and codes, including the identification and procurement of required permits, certificates, licenses, insurance, approvals, inspection, regulatory (e.g. emissions) and safety (e.g. UL) requirements in connection with their respective performance under this Agreement.

12.       DEFAULT

If either party shall be in material breach or default of any of the terms, conditions or covenants of this Agreement and if such breach or default shall continue for a period of seven (7) days after the giving of written notice to the breaching party by the other party, then, in addition to all other rights and remedies which the aggrieved party may have at law or equity or otherwise, such party shall have the right to terminate this Agreement.

13.       INDEMNITY

Each party, in its capacity as the “Indemnifying Party” agrees to indemnify, defend and hold harmless the other party and its affiliates, customers, employees, successors and assigns from and against any direct losses, damages, claims, fines, penalties and expenses (including reasonable attorney’s fees) that arise out of or result from the Indemnifying Party’s negligence or willful misconduct or its obligations under this Agreement, provided that the party seeking indemnification notifies, as soon as reasonably possible, the other party of the filing of such a claim, provides the indemnifying party full cooperation in the defense of such claim, at the indemnifying party’s expense, and affords the indemnifying party full control over the defense and settlement of such claim.

14.       LICENSES

No licenses, express or implied, under any patents are granted by BPI to NATIONAL under this Agreement.

15.       LIMITATION OF LIABILITY; INSURANCE

In no event will either party be liable for loss of profits, loss of revenue, special, indirect or consequential damages arising out of its actions or failures to act in connection with this Agreement.  This limitation does not apply to:

(i)         Damages of any sort arising out of death or personal injury, or

(ii)        Damages from breach of the confidentiality obligations, or

(iii)       Awards of damages to third parties, however denominated.

16.       NON-DISCLOSURE AGREEMENT

Since BPI, and NATIONAL each expect to disclose to the other party certain information concerning equipment designs, products, business and strategies which are considered confidential and proprietary and which neither party wants to disclose to others, they agree to keep all such information confidential.  The Parties agree not to make any general press releases or public disclosures regarding the details of this Agreement without the prior review and written consent of the other Party.  Each party may however disclose the existence of this Agreement to its respective customers on an as-needed basis for sales and marketing purposes without the prior consent of the other party.  Furthermore, neither Party shall use the other Party’s trademarks, trade names and service marks without the prior written consent of the other Party; if such consent is given, then the Party shall disclose that such trademarks, trade names, and service marks are the sole property of the other Party.

17.       NOTICES

Any notice given or demand which under the terms of this Agreement or under any statute must or may be given or made by BPI or NATIONAL shall be in writing and shall be given or made by confirmed facsimile, or similar communication or by certified or registered mail addressed to the respective parties as follows:

To BPI:	Beef Products, Inc.
	891 Two Rivers Drive
	Dakota Dunes, SD  57049
	Attn: Richard A.  Jochum, Corporate Administration
	Fax: (605) 217-8001
-OR-
To NATIONAL:	National Beef Packing Company, LLC
	12200 N.  Ambassador Drive
	Kansas City, MO  64163
	Attn: David Grossenheider
	Fax: (816) 713-8885

Such notice or demand shall be deemed to have been given or made when sent by facsimile, or other communication or when deposited, postage prepaid in the U.S.  mail.  The above addresses may be changed at any time by giving prior written notice as above provided.  The above addresses may be changed at any time by giving prior written notice as above provided.

18.       SEVERABILITY

If any of the provisions of this Agreement shall be invalid or unenforceable, such invalidity or unenforccability shall not invalidate or render unenforceable the entire Agreement, but rather the entire Agreement shall be construed as if not containing the particular invalid or unenforceable provision or provisions, and the rights and obligations of the parties shall be construed and enforced accordingly.

19.       RISK OF LOSS

Risk of loss and damage to the grinding system under this Agreement shall vest in NATIONAL when the grinding system has been installed at NATIONAL’s facility.

20.       USE OF INFORMATION

NATIONAL shall view as BPI’s property any idea, data, program, technical, business or other intangible information, however conveyed, and any document, print, tape, disc, tool, or other tangible information-conveying or performance-aiding article owned or controlled by BPI and identified as proprietary/confidential either in writing or orally.  NATIONAL shall, at no charge to BPI, and as BPI directs, destroy or surrender to BPI promptly at its request any such article or any copy of such Information.  NATIONAL shall keep Information confidential and use it only in performing under this Agreement and obligate its employees, subcontractors and others working for it to do so, provided that the foregoing shall not apply to information previously known to NATIONAL free of obligation, or made public through no fault imputable to NATIONAL.

21.       WARRANTY

BPI warrants to NATIONAL that grinding system furnished will be free from defects in design (as embodied in specifications accompanying the Agreement), material and workmanship and will conform to and perform in accordance with the Specifications and drawings set forth in this Agreement.  THIS WARRANTY IS IN LIEU OF AND EXCLUDES ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, ARISING FROM OPERATION OF LAW OR OTHERWISE, INCLUDING WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE EXCEPT THAT PURPOSE FOR WHICH THE GRINDING SYSTEM WAS DESIGNED BY “TECH”.

IN NO EVENT SHALL BPI BE LIABLE TO NATIONAL FOR ANY INCIDENTAL, OR CONSEQUENTIAL DAMAGES, COSTS, OR EXPENSES (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF MARGIN, LOSS OF USE, LOSS OF CONTRACT, LOSS OF GOODWILL).

22.       ENTIRE AGREEMENT

This Agreement shall constitute the entire agreement between the parties with respect to the subject matter of this Agreement and shall not be modified or rescinded, except by writing signed by the parties.

National Beef Packing Company, LLC	Beef Products, Inc.
By:   /s/ David Grossenheider	By:    /s/ Eldon Roth
David Grossenheider,	Eldon Roth, President
Executive Vice President
Dated:      05/04/06	Dated:      05/02/06

EX-21.1

Exhibit 21.1

National Beef Packing Company, LLC

Subsidiaries

Subsidiary	Jurisdiction of Incorporation or Organization	Name Under Which Business is Done
Kansas City Steak Company, LLC	Missouri	Kansas City Steak Company, LLC
National Beef aLF, LLC	Delaware	National Beef aLF, LLC
National Beef California, L.P.	Delaware	National Beef California, L.P.
National Beef Japan, Inc.	Japan	National Beef Japan, Inc.
NBP Korea, Inc.	Korea	NBP Korea, Inc.
National Carriers, Inc.	Kansas	National Carriers, Inc.
NCI Leasing, Inc.	Kansas	NCI Leasing, Inc.
National Elite Transportation, LLC	Delaware	National Elite Transportation, LLC
NB Finance Corp.	Delaware	NB Finance Corp.

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, John R. Miller, certify that:

1. I have reviewed this annual report on Form 10-K of National Beef Packing Company, LLC;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ John R. Miller
	John R. Miller Chief Executive Officer

Date: November 24, 2008

 

  EX-31.2 10 ex31-2.htm  

EXHIBIT 31.2

CERTIFICATIONS

I, Jay D. Nielsen, certify that:

1. I have reviewed this annual report on Form 10-K of National Beef Packing Company, LLC;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Jay D. Nielsen
	Jay D. Nielsen Chief Financial Officer

Date: November 24, 2008

EX-31.2

Exhibit 31.2




 

EX-32.1

 

EXHIBIT 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of National Beef Packing Company, LLC (the “Company”) on Form 10-K for the period ended August 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John R. Miller, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ John R. Miller
	John R. Miller Chief Executive Officer

Date: November 24, 2008

 

EX-32.2

 

EXHIBIT 32.2

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of National Beef Packing Company, LLC (the “Company”) on Form 10-K for the period ended August 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay D. Nielsen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Jay D. Nielsen
	Jay D. Nielsen Chief Financial Officer

Date: November 24, 2008