UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549

FormFORM 10-Q

                   (Mark(Mark one)

x

þ

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

For the quarterly period ended May 28, 200527, 2006

OR

or

o

o

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

For the transition period from _____________to _____________.

Commission file number 333-115164

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

DELAWARE

20-1576986

(State or other jurisdiction of

(I.R.S. Employer
incorporation or organization)

(I.R.S. employer
identification number)Identification No.)

12200 North Ambassador Drive
Kansas City,
, MO 64163

(Address of principal executive offices)

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

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  xþ    Noo

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

Large Accelerated Filer o          Accelerated Filer o          Non-Accelerated Filerþ

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

     The Registrant'sregistrant’s equity is not traded on an exchange or in any public market. As of July 11, 2005,June 24, 2006, there were 691,845736,005 Class A units and 691,845736,005 Class B units outstanding.




TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATIONPage No.
   

PART I.

      Item 1.

FINANCIAL INFORMATIONFinancial Statements

Page No.

1
 

Item 1.

Financial Statements.

1

Item 2.

Management'sManagement’s Discussion and Analysis of Financial Condition

10
and Results of Operations.Operations

12

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.Risk

19

17
 

Item 4.

Controls and Procedures.Procedures

20

18
 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings.Proceedings

20

18
 

      Item 1A.

Risk Factors19
Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds

20

19
 

Item 3.

Defaults Upon Senior Securities.Securities

21

19
 

Item 4.

Submission of Matters to a Vote of Security Holders.Holders

21

19
 

Item 5.

Other Information.Information

21

19
 

Item 6.

Exhibits. Exhibits

21

19
 

Signatures.Signatures

22

21

     

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

ii




PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements


1



U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

May 28,

August 28,

Assets

 2005

 

2004

 (unaudited)

Current assets:

Cash and cash equivalents

$

             42,763 

             43,611 

Accounts receivable, less allowance for returns and doubtful

accounts of $6,393 and $5,614 in 2005 and 2004, respectively

           177,442 

           177,614 

Due from affiliates

               2,704 

               2,873 

Other receivables

               3,197 

               4,513 

Inventory

             96,769 

             85,962 

Other current assets

               8,810 

             10,782 

Total current assets

           331,685 

           325,355 

Property, plant and equipment, at cost

           255,093 

           242,903 

Less accumulated depreciation

           (37,243)

           (20,844)

Net property, plant and equipment

           217,850 

           222,059 

Goodwill

             78,858 

             78,858 

Other intangible assets, net of accumulated amortization

of $2,931 and $1,722 in 2005 and 2004, respectively

             28,830 

             30,039 

Other assets

               6,541 

               7,446 

Total assets

$

           663,764 

           663,757 

Liabilities and Capital Shares and Equities

 

 

 

 

Current liabilities:

Current installments of long-term debt

$

               1,030 

             10,483 

Cattle purchases payable

             56,897 

             49,569 

Accounts payable

             40,291 

             39,455 

Due to affiliates

                  456 

                  416 

Patronage refunds payable in cash

                      - 

                  847 

Accrued compensation and benefits

             19,184 

             20,828 

Accrued insurance

             14,569 

             13,903 

Other accrued expenses and liabilities

             15,407 

               7,690 

Distributions payable

                  412 

               2,296 

Total current liabilities

           148,246 

           145,487 

Long-term liabilities:

Long-term debt, excluding current maturities

           331,521 

           331,812 

Interest rate exchange agreement

                      - 

                  105 

Other liabilities

               4,873 

               5,237 

Total long-term liabilities

           336,394 

           337,154 

Total liabilities

           484,640 

           482,641 

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

             63,075 

             63,108 

Capital shares and equities:

Members' capital, 691,845 class A units and 691,845 class B units

authorized, issued and outstanding

             65,365 

                      - 

Common stock, $0.01 par value; authorized 5,000,000 shares,

691,845 shares issued and outstanding

                      - 

                      7 

Cooperative members' contributed capital

                      - 

             39,531 

Nondelivery fee

                      - 

               1,330 

Patronage notices

             50,642 

                      - 

Patronage refunds for reinvestment

                      - 

             50,752 

Unallocated equity

                      - 

             26,375 

Accumulated other comprehensive income

                    42 

                    13 

Total capital shares and equities

           116,049 

           118,008 

Total liabilities and capital shares and equities

$

           663,764 

           663,757 

See accompanying notes to consolidated financial statements.

2




U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands)

 

 

13 weeks
ended

 

13 weeks
 ended

 

39 weeks
 ended

 

39 weeks
 ended

 

 

May 28, 2005

 

May 29, 2004

 

May 28, 2005

 

May 29, 2004

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

Net sales

 $

            1,126,574               1,018,740               3,204,021               3,009,082 
Costs and expenses:
Cost of sales1,082,875    987,085 3,131,662 2,918,517 
Selling, general and administrative expenses8,953 10,429 26,505 26,034 
Depreciation and amortization         6,142 5,101                18,231        16,745 
Total costs and expenses1,097,970 1,002,615 3,176,398 2,961,296 
Operating income28,604        16,125        27,623        47,786 
Other income (expense):
Interest income               204                  138      506                  506 
Interest expense (7,330) (6,711) (21,793) (19,842)
Minority owners' interest in income
     of National Beef Packing Co., LLC (9,867) (4,944)(1,087)  (14,104)
Minority owners' interest in net (income)
     loss of Kansas City Steak, LLC                   55 (12)(156)             (210)
Equity in loss of aLF Ventures, LLC (128) (149) (523) (655)
Interest rate exchange agreement                 124                  105                  543 
Other, net               402                  299        (2,074)      2,090 
Income before taxes     11,940            4,870            2,601        16,114 
Income tax expense           (843)              (941)       (1,939)       (2,353)
Net income

 $

     11,097            3,929                  662        13,761 
Income per unit
Basic

 $

16.04 

0.96 

Diluted

 $

15.74 

0.94 

Outstanding weighted-average units
Basic

691,845 

691,845 

Diluted

705,113 

705,113 

Pro forma amounts assuming the conversion to an LLC is applied retroactively:
Earnings per unit
Basic$16.04 5.68  0.96  19.89 
Diluted$15.74 5.58  0.94  19.53 
Outstanding weighted-average units
Basic

691,845 

691,845 

691,845 

691,845 

Diluted

705,113 

704,632 

705,113 

704,632 

 
See accompanying notes to consolidated financial statements.
     
     

3




U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

 39 weeks ended

 

 39 weeks ended

 May 28, 2005

 

 May 29, 2004

 

 (unaudited)

 

 (unaudited)

Cash flows from operating activities:

Net income

$

                    662                 13,761 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

               18,231                 16,745 

Loss (gain) on disposal of property, plant and equipment

                  (167)                     123 

Minority interest

                 1,204                 14,215 

Write-off of debt issuance costs

                 3,181                           - 

Interest rate exchange agreement

                  (105)                   (543)

Changes in assets and liabilities:

Accounts receivable

                    172                 (3,948)

Due from affiliates

                    169                 (1,072)

Other receivables

                 1,316                      952 

Inventories

             (10,807)                (9,222)

Other assets

                  (304)                  2,404 

Accounts payable

                  (244)                (1,507)

Due to affiliates

                      40                      (27)

Accrued compensation and benefits

               (1,644)              (10,614)

Accrued insurance

                    666                 (2,956)

Other accrued expenses and liabilities

                 7,353                   2,934 

Cattle purchases payable

                 2,857                      115 

Net cash provided by operating activities

               22,580                 21,360 
Cash flows from investing activities:

Capital expenditures, including interest capitalized

             (13,958)              (23,848)

Proceeds from sale of property, plant and equipment

                 1,312                   1,208 

Net cash used in investing activities

             (12,646)              (22,640)
Cash flows from financing activities:

Proceeds from membership and registration fees

                        -                        24 

Proceeds from nondelivery fees

                        -                      235 

Net receipts under revolving credit lines

               (9,794)                30,299 

Borrowings of term note payable

                 3,594                           - 

Net repayments of other indebtedness

                  (428)                   (455)

Payments of notes payable and fees

               (3,116)                (5,434)

Payments of patronage refunds

                  (956)                (8,370)

Change in overdraft balances

                 4,220                    (474)

Partnership distributions

               (4,331)              (19,859)

Net cash used in financing activities

             (10,811)                (4,034)
Effect of exchange rate changes on cash                      29                        13 
Net decrease in cash                  (848)                (5,301)
Cash and cash equivalents at beginning of the period               43,611                 42,228 
Cash and cash equivalents at end of the period

$

               42,763                 36,927 
Supplemental information:

Cash paid during the period for interest

$

               14,085                 13,132 

Cash paid during the period for taxes, net

$

                      35                      574 
See accompanying notes to consolidated financial statements.

 

4


U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)

  May 27, August 27,
Assets2006 2005
  

(unaudited)

  
Current assets:     
     Cash and cash equivalents$49,521  $54,428 
     Accounts receivable, less allowance for returns and doubtful accounts     
 of $3,690 and $3,903 in fiscal years 2006 and 2005, respectively 153,356   170,854 
     Due from affiliates 1,343   2,979 
     Other receivables 7,253   3,385 
    Inventory 115,027   85,426 
     Other current assets 11,410   9,920 
 Total current assets 337,910   326,992 
Property, plant and equipment, at cost 285,632   258,493 
     Less accumulated depreciation (62,201)  (43,331)
 Net property, plant and equipment 223,431   215,162 
Goodwill 78,858   78,858 
Other intangible assets, net of accumulated amortization     
     of $4,612 and $3,335 in fiscal years 2006 and 2005, respectively 27,824   28,426 
Other assets 6,194   6,710 
 Total assets$674,217  $656,148 
   
Liabilities and Capital Shares and Equities     
Current liabilities:     
     Current installments of long-term debt$2,957  $1,030 
     Cattle purchases payable 58,371   54,394 
     Accounts payable 44,446   42,514 
     Due to affiliates 455   1,533 
     Accrued compensation and benefits 20,940   22,168 
     Accrued insurance 13,777   15,528 
     Other accrued expenses and liabilities 16,948   9,389 
     Distributions payable 1,909   1,865 
 Total current liabilities 159,803   148,421 
Long-term liabilities:     
     Long-term debt, excluding current installments 326,506   313,998 
     Other liabilities 4,588   4,738 
 Total long-term liabilities 331,094   318,736 
 Total liabilities 490,897   467,157 
Minority interest in National Beef Packing Company, LLC and Kansas City Steak, LLC 62,409   64,971 
Capital shares and equities:     
     Members' capital, 736,005 linked Class A and Class B units authorized,     
 691,845 linked Class A and Class B units issued and outstanding 70,215   73,343 
     Patronage notices 50,642   50,642 
     Accumulated other comprehensive income 54   35 
 Total capital shares and equities 120,911   124,020 
 Total liabilities and capital shares and equities$674,217  $656,148 
   
See accompanying notes to consolidated financial statements.     



U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands)

 13 weeks ended 13 weeks ended 39 weeks ended 39 weeks ended
 May 27, 2006 May 28, 2005 May 27, 2006 May 28, 2005
 (unaudited) (unaudited) (unaudited) (unaudited)
        
Net sales$1,134,514  $1,126,574  $3,310,278  $3,204,021 
            
Costs and expenses:           
   Cost of sales 1,085,946   1,082,875   3,241,210   3,131,662 
   Selling, general and administrative expenses 9,980   8,953   28,575   26,505 
   Depreciation and amortization 7,095   6,142   20,569   18,231 
   
      Total costs and expenses 1,103,021   1,097,970   3,290,354   3,176,398 
   
         Operating income 31,493   28,604   19,924   27,623 
   
Other income (expense):           
   Interest income 317   204   867   506 
   Interest expense (8,040)  (7,330)  (23,210)  (21,793)
   Minority owners' interest in net (income) loss           
      of National Beef Packing Co., LLC (11,617)  (9,867)  644   (1,087)
   Minority owners' interest in net (income)           
      loss of Kansas City Steak, LLC (52)  55   (120)  (156)
   Equity in loss of aLF Ventures, LLC (39)  (128)  (119)  (523)
   Interest rate exchange agreement       105 
   Other, net 718   402   1,962   (2,074)
        
         Income (loss) before taxes 12,780   11,940   (52)  2,601 
            
Income tax benefit (expense) 128   (843)  (1,048)  (1,939)
            
         Net income (loss)$12,908  $11,097  $(1,100) $662 
   
            
Net income (loss) per linked unit:           
   Basic$18.66  $16.04  $(1.59) $0.96 
   Diluted$18.33  $15.74  $(1.59) $0.94 
   
Outstanding weighted-average Class A and Class B units:           
   Basic 691,845   691,845   691,845   691,845 
   Diluted 704,016   705,113   691,845   705,113 
   
See accompanying notes to consolidated financial statements.           


U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)

 39 weeks ended 39 weeks ended
 May 27, 2006 May 28, 2005
 (unaudited) (unaudited)
Cash flows from operating activities:     
   Net (loss) income$(1,100) $662 
   Adjustments to reconcile net (loss) income to net cash provided by operating activities:     
      Depreciation and amortization 20,569   18,231 
      Gain on disposal of property, plant and equipment (138)  (167)
      Minority interest (660)  1,204 
      Write-off of debt issuance costs   2,552 
      Interest rate exchange agreement   (105)
      Changes in assets and liabilities:     
         Accounts receivable 17,498   172 
         Due from affiliates 1,636   169 
         Other receivables (668)  1,316 
         Inventories (29,601)  (10,807)
         Other assets (974)  1,978 
         Accounts payable 1,291   (244)
         Due to affiliates (1,078)  40 
         Accrued compensation and benefits (1,228)  (1,644)
         Accrued insurance (1,751)  666 
         Other accrued expenses and liabilities 7,409   7,353 
         Cattle purchases payable 2,804   2,857 
            Net cash provided by operating activities 14,009   24,233 
Cash flows from investing activities:     
   Capital expenditures, including interest capitalized (22,758)  (13,958)
   Acquistion of intangible assets (675)  
   Proceeds from sale of property, plant and equipment 832   1,312 
            Net cash used in investing activities (22,601)  (12,646)
Cash flows from financing activities:     
   Net receipts (payments) under revolving credit lines 7,274   (9,794)
   Borrowings of term note payable   3,594 
   Repayments of other indebtedness (764)  (428)
   Repayments of notes payable and fees (772)  (3,116)
   Payments of patronage refunds   (956)
   Cash paid for financing costs   (1,653)
   Change in overdraft balances 1,814   4,220 
   Distributions to minority interest owners in National Beef Packing Co. (2,689)  (1,210)
   Member distributions (1,197)  (3,121)
            Net cash provided by (used in) financing activities 3,666   (12,464)
Effect of exchange rate changes on cash 19   29 
            Net decrease in cash (4,907)  (848)
Cash and cash equivalents at beginning of the period 54,428   43,611 
Cash and cash equivalents at end of the period$49,521  $42,763 
Supplemental cash disclosures:     
   Cash paid during the period for interest$17,595  $15,120 
   Cash paid during the period for taxes, net$172  $35 
Supplemental noncash disclosure:     
   Assets acquired through capital lease$8,697  $
  
      
      
See accompanying notes to consolidated financial statements.     


U.S. PREMIUM BEEF, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Interim Financial Statements

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information; therefore, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included.included 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 from these estimates and judgments. For further information, refer to the audited Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are included in the Company'sCompany’s Annual Report on Form 10-K on file with the Securities and Exchange Commission (SEC) for the fiscal year ended August 28, 2004.27, 2005. The results of operations for the interim periods presented are not necessarily indicative of the results for a full fiscal year. Certain prior year amounts have been reclassified in order to conform to the current year presentation.

On August 18,In December 2004, SFAS No. 123 (revised 2004),Shared-Based Payment, was issued. SFAS 123R requires an entity to recognize, in the shareholdersstatement of U.S. Premium Beef, Ltd. approvedoperations, the mergergrant-date fair-value of the cooperative into a wholly-owned subsidiary, U.S. Premium Beef, Inc., a Delaware corporation.stock options and other equity-based compensation issued to employees. The mergerCompany was effectiverequired to adopt SFAS 123R on August 29, 2004.28, 2005. The Delaware corporation then, in a statutory conversion authorized under Delaware law, converted into a Delaware limited liability company. Underadoption of SFAS 123R had no effect on the new ownership structure, each share of common stock of the cooperative was converted to one unit of Class A interest and one unit of Class B interest.  Immediately following the conversion, there were 691,845 units of Class A interests and 691,845 units of Class B interests.  For a period to be determined by the board of directors, each Class A unit will be linked to its corresponding Class B unit and each pair of linked units must, if transferred, be transferred together.  Patronage refunds for reinvestment in the cooperative were carried over at their face amount into the LLC as patronage notices. 

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

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

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

NB Finance Corp., a wholly-owned finance subsidiary of NBP, is a co-issuer on a joint and several basis with NBP of the Senior Notes, which are ourNBP’s senior unsecured obligations, ranking equal in right of payment with all of ourits other senior unsecured obligations. NB Finance Corp. has nominal assets and conducts no business or operations. There are no significant restrictions on the ability of subsidiaries to transfer funds to NBP.

5




(2) Inventories

Inventories at May 28, 200527, 2006 and August 28, 200427, 2005 consisted of the following (in thousands):

May 28, 2005

 

August 28, 2004

May 27, August 27,

Dressed and boxed beef

$

                              76,396

$

                        67,801

2006 2005
   
Dressed and boxed meat products$94,444 $66,993

Beef by-products

10,315

 

9,158

 9,219  8,476

Supplies

10,058

 

 

9,003

 11,364  9,957

Total inventory

$

                             96,769

$

                      85,962

$115,027 $85,426
 

(3) Comprehensive Income (Loss)

Comprehensive income (loss), which consists of net income (loss) and foreign currency translation adjustments, was as follows for the periods indicated (in thousands):

13 weeks ended

 

13 weeks ended

 

39 weeks ended

 

39 weeks ended

May 28, 2005

 

May 29, 2004

 

May 28, 2005

 

May 29, 2004

Net income

$

            11,097

$

3,929

$

662

$

13,761

Other comprehensive income:

Foreign currency translation
    adjustments

                          4

4

29

              13

Comprehensive income

$

            11,101

$

3,933

$

691

$

13,774


 13 weeks ended 13 weeks ended 39 weeks ended 39 weeks ended
 May 27, 2006 May 28, 2005 May 27, 2006 May 28, 2005
     
Net income (loss)$12,908 $11,097 $(1,100) $662
Other comprehensive income:           
   Foreign currency translation adjustments 4  4  19   29
      Comprehensive income (loss)$12,912 $11,101 $(1,081) $691
    

(4) Income TaxesMinority Interest

Subchapter T of the Internal Revenue Code sets forth rules for the tax treatment of cooperatives and applies both to cooperatives exempt from tax under Section 521 of the Internal Revenue Code and to nonexempt cooperatives. Prior to August 29, 2004, the Company operated as an exempt cooperative. As an exempt cooperative, a company is not taxed on amounts of patronage and non-patronage source income withheld from its patrons in the form of qualified per-unit retains or on amounts distributed to its patrons in the form of Qualified Written Notices of Allocation. Such amounts are instead taxed directly to the patrons. If the Company was not entitled to be taxed under Subchapter T, its income would be taxed to the Company similar to a corporation and the patrons would be taxed when and if dividends are distributed. The characterization of income as patronage or non-patronage source income is subject to challenge by the Internal Revenue Service. Non-patronage source income, if deemed more than incidental, is subject to tax at the entity level instead of being passed through to the patrons in the form of a patronage dividend.  Notwithstanding the acquisition of a controlling interest in NBP on August 6, 2003, management continues to believe that its non-patronage source income, if any, is incidental and would vigorously defend any such challenge by the Internal Revenue Service. However, USPB has recognized tax expense in the accompanying third quarter and year to date fiscal 2004 Consolidated Financial Statements on a portion of its earnings for periods after August 6, 2003 to provide for such potential recharacterization of income from patronage source to non-patronage source, which may be asserted by the Internal Revenue Service.

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

6




(5) Minority Interest  

At any time after certain dates, the earliest being July 31, 2008, the latest being July 31, 2011, certain members of NBP management and/or NBPCo Holdings, LLC have the right to request that NBP repurchase their interests, the value of which is 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 over the current period through the earliest redemption date of the respective interests. At May 28, 2005,27, 2006, the minority interest in National Beef included in the minority interest in the accompanying Consolidated Balance Sheet, was revalued by an independent appraisal process, and the value was determined to be $62.3$65.1 million, which closely approximatedwas in excess of its carrying value. Accordingly, the carrying value of the minority interest in National Beef increased by a negligible amountapproximately $0.3 million through accretion during the thirteen weeks ended May 28, 2005,27, 2006, resulting in the $62.3 milliona carrying value atof $61.7 million which is reflected in the accompanying Consolidated Balance Sheet as of May 28, 2005.27, 2006.

(6)(5) Contingencies

Schumacher vv. Tyson Foods, et al.On July 1, 2002, a lawsuit was filed against Farmland National Beef Packing Company, L.P. (FNBPC, or the predecessor to NBP), ConAgra Beef Company, Tyson Foods, Inc. and Excel Corporation in the United States District Court for the District of South Dakota seeking certification of a class of all persons who sold cattle to the defendants for cash, or on a basis affected by the cash price for cattle, during the period from April 2, 2001 through May 11, 2001 and for some period up to two weeks thereafter. The case was filed by three named plaintiffs on behalf of a putative nationwide class that plaintiffs estimate is comprised of hundreds or thousands of members. The complaint alleges that the defendants, in violation of the Packers and Stockyards Act of 1921, knowingly used, without correction or disclosure, incorrect and misleading boxed beef price information generated by the USDA to purchase cattle offered for sale by the plaintiffs at a price substantially lower than was justified by the actual and correct price of boxed beef during this period. Plaintiffs also seek recovery against all defendants under a theory of unjust enrichment. The case was certified as a class-action matter in June, of 2004. The plaintiffs claimclaimed damages against FNBPC in the amount of $2.39approximately $4.5 million plus prejudgment interest, attorneys'attorneys’ fees and court costs. The claim will be reducedis subject to reduction in an unknown amount by the number of class members who have opted out of the class. Opt outs were due on JuneTrial began March 31, 2006. On April 13, 2005,2006, the jury returned a verdict in favor of FNBPC but against the numberother defendants. The defendants found liable have filed post-trial motions for judgment as a matter of opt outs willlaw, which are now pending. Plaintiffs have not be known to the Company until plaintiffs filefiled a report.  The case is now in discovery.  The Court has ordered the parties to be ready for trial on December 15, 2005, but no actual trial date has been set.  Management believes that FNBPC acted properly and lawfully in dealings with cattle producers. Management is currently unable to evaluate the outcome of this matter or to estimate the amount of potential loss, if any. In accordance with SFAS No. 5, post-trial motion against FNBPC.Accounting for Contingencies, NBP has not established a loss accrual associated with this claim.

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

(7)(6) United States BSE Outbreak

The closure of U.S. borders to the importation of Canadian feeder and fattened (ready for slaughter) animals, which occurred in May 2003 following the discovery of bovine spongiform encephalopathy (BSE) in Alberta that same month, tightened the U.S. cattle supply.  The U.S. beef packing industry has operated at a price disadvantage during the ban on importation of Canadian livestock.   This continued closure of the U.S. border to Canadian livestock has resulted in higher overall feeder and fed cattle prices in the U.S., negatively impacting raw material prices.  Additionally, the opening of the U.S. border to Canadian produced boxed beef in September 2003 has negatively affected boxed beef prices.

7




On December 23, 2003, it was announced by the United States Department of Agriculture (USDA) that a single Holstein dairy cow was discovered in the state of Washington to have tested positive for BSE.bovine spongiform encephalopathy (BSE). The origin of the animal was subsequently traced to a farm in Canada. Shortly after the announcement, several countries, including Japan, representing a substantial share of NBP'sNBP’s export business, closed their borders to the importation of edible beef products from the United States. Certain by-products have been classified as Specified Risk Materials (SRMs), and have been banned from useA second case of BSE in feedstocks and the human food chain. Some of these products previously enjoyedTexas was confirmed in June 2005, with a marketthird case in foreign countries.  In FYE 2004, NBP's total export sales were approximately 10% of total net sales.Alabama confirmed in March 2006.

During the second quarter of FYE 2004, NBP recorded charges to sales and cost of sales totaling approximately $18.8 million due to the market impacts of the closure of international borders as a result of the BSE discovery in late December 2003. 


On December 29, 2004,8, 2005, the USDA announced it had established conditionsJapanese Food Safety Commission issued its final report, concluding that U.S. beef under which it will allow imports into the U.S. of live cattle under 3020 months of age is safe for Japanese consumers. On December 11, 2005, Japan reopened its market to U.S. and certain other commoditiesCanadian beef from regions with effective BSE prevention and detection measures.  Prior to being able to import to the U.S., each country must undergo a thorough risk assessment to be recognized as a "minimal-risk region."  Canada will be the first country recognized as a minimal-risk region and, as such, will be eligible to export to the U.S. live cattle under 3020 months of age (subject to certain restrictions), as well as certain other animals and products.  The final rule was published in the January 4, 2005 Federal Register and was to become effective March 7, 2005 unless delayed by litigation, legislation or other reasons. 

On January 2, 2005, the Canadian Food Inspection Agency confirmed that an older dairy cow from Alberta tested positive for BSE.  The infected animal was born in 1996,younger, where prior to the introductionborder closing, there were no age restrictions on cattle used in beef products imported to Japan. Beef from cattle that would have qualified for export to Japan had to comply with requirements for age verification of cattle and removal of specified risk materials (SRMs). Subsequently, on January 20, 2006, Japan halted the 1997 feed ban.    On January 3, 2005,import of U.S. beef after vertebral columns were found in three boxes from a small U.S. processor. That delivery violated the USDA issued a statement expressing confidenceagreement the U.S. had with Japan regarding vertebral columns, which are included in the animaldefinition of SRMs. On June 21, 2006, Japan and public health measures that Canada has in place, noting that the risk assessment conducted by the USDA as part of the rulemaking process to determine Canada's status as a minimal-risk region included consideration of the possibility that Canada could experience additional cases of BSE.

On March 2, 2005, the U.S. District Court in Billings, Montana granted a preliminary injunctiononce again announced an agreement had been reached to delay the implementation of USDA's minimal-risk regions rule, temporarily blockingpermit the opening of the Canadian borderJapanese markets to the importation of live cattle under 30 months of age into the U.S.  On March 17, 2005, the U.S. Department of Justice, on behalf of the USDA, filed a request with the U.S. Court of Appeals for the Ninth Circuit requesting that the court overturn the decision issued by the U.S. District Court in Montana, which would re-establish trade with Canada for beef products and live cattle under 30 monthsonce inspections of age.  The National Meat Association along with the Canadian Cattlemen's Association and the Alberta Beef Producers, who were all denied leave to intervene in the trial court have also appealed seeking to overturn the preliminary injunction.  Arguments on all these appeals will be held on July 13, 2005.  It is unknown when the Court of Appeals will issue its decision.  Trial on the merits of the case is scheduled to commence on July 27, 2005.  It is unknown when the trial court will make a decision.  These actions introduce significant uncertainty regarding the future timing and nature of trade in live cattle andqualifying U.S. beef products between the U.S. and Canada.plants are completed.

Announcements of inconclusive, preliminary test results for BSE can be expected from time to time as a result of the sensitivity of the new screening regime. SinceConfirmed cases of BSE discovered in the USDA enhanced surveillance programU.S. can lead to uncertainty regarding domestic consumer demand for BSE began in 2004, more than 375,000 cattle have been tested for BSE using a rapid test.  Three of these animals tested inconclusive and were subsequently subjected to immunohistchemistry, or IHC, testing.  The IHC is an internationally recognized confirmatory test for BSE.  All three inconclusive samples tested negative using IHC.  The three samples were then tested by a second internationally recognized confirmatory test, referred to as the Western Blot test.  Of the three samples, two were negative but the third came back reactive.  Because of the conflicting results, the samples from the animal that tested reactive were sent to Weybridge, England for further testingbeef and the resultsexport of that testing were confirmed on June 24, 2005 as positive for BSE.   In a USDA statement issued June 29, 2005, the cow was identified as born and raised in a herd in Texas and was approximately 12 years old.  In the USDA statement, USDA Chief Veterinarian John Clifford stated that the USDA believes, "it was most likely infected by consuming feed prior to the implementation of the ruminant-to-ruminant feed ban in 1997," and he emphasized "that this animal did not enter the human food chain." Although the Secretary of the USDA has stated that there is no risk to animal or human health related to this case, the impact on the market created by this or other future tests is not possible to predict.

8




The Company cannotU.S. beef. Neither USPB nor NBP can presently assess the full economic impact of the consequences of BSE on the U.S. beef packing industry or on itsthe Company’s operations. The Company'sCompany’s revenues and net income may continue to be materially adversely affected in the eventdue to existing or new import restrictions continue indefinitely, additional countries announce similar restrictions,or additional regulatory restrictions, are put into effect or disruptions in domestic consumer demand for beef declines substantially.beef.

(8)  Long-term Debt and Loan Agreements

Senior Credit Facilities

Effective December 30, 2004, NBP amended and restated its existing senior credit facility with a consortium of banks.  The facility now consists of a $120.0 million term loan that matures in December 2014 and a $140.0 million revolving line of credit loan that matures in December 2009 that is subject to certain borrowing base limitations.  The 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 $2.6 million from the previous credit facility as well as additional finance and legal charges associated with the new amended and restated credit facility of approximately $0.6 million were recorded in Other, net in the Statement of Operations during the Company's second quarter of fiscal year 2005. 

The borrowings under the revolving loan are available for NBP'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 NBP's assets.  The principal amount outstanding under the term loan is due and payable in equal quarterly installments of $6.0 million on the last business day of each March, June, September and December commencing on March 31, 2010 and ending on December 29, 2014.  Prepayment is allowed at any time.

NBP's amended and restated credit facility contains covenants that limit its ability to incur additional indebtedness, sell or dispose of assets, pay certain dividends and prepay or amend certain indebtedness among other matters.  The amended and restated credit facility also contains a provision for a conversion to more favorable interest rates and more restrictive financial covenants on the earlier of (a) June 1, 2006 or (b) the election of NBP (the Conversion Date).  At the election of NBP, interest may be computed at the Base Rate (as defined in the credit agreement) plus an applicable margin or a LIBOR rate plus an applicable margin.  As of May 28, 2005, the interest rate for the term loan was equal to LIBOR plus 275 basis points (5.8%) and the weighted average interest rate for the revolving loan was equal to LIBOR plus 250 basis points (5.6%).  After the Conversion Date the interest rate for the term loan and revolving loan is determined by reference to a matrix of rates keyed to NBP's funded debt to EBITDA ratio.

The amended and restated credit facility also imposes certain financial covenants.  From December 30, 2004 until the Conversion Date, NBP is required to  (i) have as of the end of each fiscal quarter a minimum four-quarter rolling EBITDA of $50.0 million and (ii) maintain at all times a minimum Borrowing Base Availability (as defined in the credit agreement) of at least $25.0 million.  After the Conversion Date, NBP will be subject to covenants imposing a specified maximum funded debt to EBITDA ratio, a maximum senior secured funded debt to EBITDA ratio, a minimum four-quarter rolling EBITDA and a minimum four-quarter rolling debt service coverage ratio.  In addition, NBP's annual net capital expenditures are limited to amounts ranging from $32 million in fiscal 2005 to $40 million in fiscal 2008 and fiscal years thereafter.  As defined in the amended credit facility, EBITDA contains specified adjustments.  On May 28, 2005, the Company was in compliance with all financial covenants.

Effective July 7, 2005, NBP amended its existing senior credit facility with a consortium of four lenders.  The facility was amended to allow NBP to purchase up to $30 million in cumulative purchase price (including any premium) of its 10‑1/2% Senior Notes due August 1, 2011 so long as NBP is not in default under the facility at the time of the purchase or as a result of the purchase.

9




Industrial Revenue Bonds

In conjunction with the amendment and restatement of NBP's credit facility, effective December 30, 2004, NBP entered into a transaction with the City of Dodge City (the City), Kansas, in order to provide NBP property tax savings.  Under the transaction, the City purchased NBP'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 NBP using proceeds of its term loan under the 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, NBP, 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 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 NBP 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 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.

Utilities Commitment

Effective December 30, 2004, NBP finalized an agreement with the City of Dodge City, Kansas, whereby in consideration of certain improvements made to the City water and wastewater systems, NBP has committed to make a series of service charge payments totaling $19.3 million over a 20 year period.  Payments under the commitment will be $0.8 million in fiscal year 2005, $1.2 million in fiscal year 2006, $1.4 million in fiscal year 2007, $1.4 million in fiscal year 2008 and $1.4 million in fiscal year 2009, with the balance of $13.1 million to be paid in subsequent years.

(9)(7) Earnings Per Unit

Prior to the conversion from a cooperative to an LLC, per share data had been omitted because, under the cooperative structure, earnings of the Company were distributed as patronage dividends to members and associate members, those who leased delivery rights from shareholders, based on the level of business conducted with the Company as opposed to a common shareholder's proportionate share of underlying equity in the Company.  Under the LLC structure, earnings of the Company are to be distributed to unitholders based on their proportionate share of underlying equity, and, as a result, earnings per unit (EPU) has been presented in the accompanying Consolidated Statement of Operations, along with the pro forma amounts for the prior year for the same fiscal periods assuming the conversion to an LLC was retroactively applied.

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

     Diluted EPU reflects the potential dilution that could occur if potential unit purchase rights were exercised or contractual appreciation rights were converted into units. Upon termination of the CEO employment agreement, at the election of the CEO, or upon mutual agreement of the Board of the Company and the CEO, the CEO may purchase up to 20,000 Class A and Class B units, or upon agreement of the CEO and the Board of the Company, the CEO may convert the contractual unit appreciation rights to up to 20,000 Class A and Class B units. The diluted EPU reflects the circumstances of termination of the CEO employment agreement, and the election of CEO or agreement by the Board of the Company and the CEO for the CEO to purchase or convert contractual rights to the maximum 20,000 units at $55 per linked Class A and Class B unit for boththe periods as provided in the CEO employment agreement.

10




(In thousands, except unit and per unit data)

13 weeks ended May 28, 2005

 

39 weeks ended May 28, 2005

 

Earnings
(Numerator)

Units
(Denominator)

 

Per Unit
Amount

 

Earnings
(Numerator)

Units
(Denominator)

 

Per Unit
Amount

Basic earnings per unit

    

Income available to unitholders

$

  11,097

             691,845

 $

 16.04

 $

  662

        691,845

 $

     0.96

Effect of dilutive securities - unit options

 

               13,268

  

          13,268

 

Diluted earnings per unit

    

Income available to unitholders
   including assumed conversion

$

11,097

705,113

 $

15.74

 $

662

705,113

 $

0.94

    

Pro Forma
13 weeks ended May 29, 2004

 

Pro Forma
39 weeks ended May 29, 2004

 

Earnings
(Numerator)

Units
(Denominator)

 

Per Unit
Amount

 

Earnings
(Numerator)

Units
(Denominator)

 

Per Unit
Amount

Basic earnings per unit

    

Income available to unitholders

$

  3,929

             691,845

 $

     5.68

 $

  13,761

        691,845

 $

    19.89

Effect of dilutive securities - unit options

 

               12,787

  

          12,787

 

Diluted earnings per unit

    

Income available to unitholders
   including assumed conversion

$

  3,929

             704,632

 $

     5.58

 $

 13,761

        704,632

 $

    19.53

    

     The diluted income (loss) per linked unit calculation in the following table excludes the effect of the 20,000 unit purchase rights noted above for the thirty-nine week period ending May 27, 2006 as the effect of including them would have been anti-dilutive to the loss per linked unit calculation.

 

 

11
Income (Loss) Per Linked Unit Calculation           
            
(In thousands, except unit and per unit data)13 Weeks Ended 39 Weeks Ended
 May 27, 2006 May 28, 2005 May 27, 2006 May 28, 2005
 (unaudited) (unaudited) (unaudited) (unaudited)
Basic income (loss) per unit           
Income available to unitholders (numerator)$12,908 $11,097 $(1,100) $662
            
Outstanding units (denominator) 691,845  691,845  691,845   691,845
            
   Per unit amount$18.66 $16.04 $(1.59) $0.96
    
Diluted income (loss) per unit           
Income available to unitholders (numerator)$12,908 $11,097 $(1,100) $662
            
Outstanding units 691,845  691,845  691,845   691,845
Effect of dilutive securities - unit options 12,171  13,268    13,268
   Units (demoninator) 704,016  705,113  691,845   705,113
            
   Per unit amount$18.33 $15.74 $(1.59) $0.94
    

(8) Long-term Debt and Loan Agreements

     As of May 27, 2006, we had $329.5 million of long-term debt, of which $3.0 million was classified as a current liability. As of May 27, 2006, NBP’s fourth amended and restated credit facility consisted of a $120.0 million term loan, all of which was outstanding, and a $140.0 million revolving line of credit loan, which had outstanding borrowings of $22.3 million, outstanding letters of credit of $44.5 million and available borrowings of $66.9 million, based on the most restrictive financial covenant calculations. NBP was in compliance with all of the financial covenants under its amended and restated credit facility as of May 27, 2006. In addition to outstanding borrowings under the amended and restated credit facility, the Company had outstanding senior notes of $160.0 million, borrowings under industrial revenue bonds of $13.8 million, a term loan with CoBank, of which $5.4 million was outstanding, and capital leases of $8.0 million as of May 27, 2006.

      Amended Senior Credit Facilities

Effective May 30, 2006, and related to the purchase of the assets of Brawley Beef, LLC (Brawley Beef), USPB amended its Credit Agreement to provide for the acquisition of limited partnership units in National Beef California, L.P. (NBC) and the contribution of those partnership units to NBP in exchange for an increased ownership percentage (see Note 9. Subsequent Events).

Effective June 1, 2006, and related to the purchase of the assets of Brawley Beef (see Note 9.Subsequent Events), NBP amended and restated its existing senior credit facility with a consortium of banks. The facility now consists of a $170.0 million term loan that matures in May 2016 and a $160.0 million revolving line of credit loan that matures in May 2011 that is subject to certain borrowing base limitations. 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 from the previous credit facility as well as additional finance and legal charges associated with the new amended and restated credit facility will be written off during the Company’s fourth quarter of fiscal year 2006. Management is currently evaluating the impact of the guidance on the costs and charges. At the closing of the amended and restated credit facility, NBP had outstanding $170.0 million under the term loan and $21.1 million under the revolving loan with an additional $51.6 million of the revolving loan used in the form of letters of credit and had estimated available borrowings of $76.5 million based on the most restrictive financial covenant calculations.


     The borrowings under the revolving loan are available for NBP’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 NBP’s assets. The principal amount outstanding under the term loan shall be payable in semi-annual installments on the last business day of each June and December commencing June 30, 2011 in equal installments of approximately $2.8 million, with any and all remaining principal outstanding being due and payable on the maturity date. Prepayment is allowed at any time.

     NBP’s amended and restated credit facility contains covenants that limit its ability to incur additional indebtedness, sell or dispose of assets, pay certain dividends and prepay or amend certain indebtedness among other matters. The amended and restated credit facility also contains a provision for a conversion to more favorable interest rates and more restrictive financial covenants on the earlier of (a) August 25, 2007 or (b) the election of NBP (the Conversion Date). Currently, the interest rate for the term loan is (a) the Base Rate (as defined in the credit agreement) plus 75 basis points or (b) the LIBOR Rate (as defined in the credit agreement) plus 275 basis points, or a combination of these rates at the election of NBP. At closing of the amended and restated credit facility, the interest rate for the term loan was 8.75, as a Base Rate loan. On June 6, 2006, the term loan was converted to a 90 day LIBOR Rate loan at 8.0625%. Currently, the interest rate for the revolving loan is (a) the Base Rate plus 50 basis points or (b) the LIBOR Rate plus 250 basis points, or a combination of these rates at the election of NBP. At closing of the amended and restated credit facility, the interest rate for the revolving loan was 8.5%, as a Base Rate loan. After the Conversion Date, the interest rate for the term loan and revolving loan will be determined by reference to a matrix of rates keyed to NBP’s funded debt to EBITDA (as defined in the credit agreement) ratio.

     The amended and restated credit facility imposes certain financial covenants. From May 30, 2006 until the earlier of February 28, 2007 or the Conversion Date, NBP is required to (i) have as of the end of each fiscal quarter a minimum four-quarter rolling EBITDA of $50.0 million and (ii) maintain at all times a minimum Borrowing Base Availability (as defined in the credit agreement) of at least $25.0 million. After February 28, 2007 until the Conversion date, NBP is required to (i) have as of the end of each fiscal quarter a minimum four-quarter rolling EBITDA of $60.0 million and (ii) maintain at all times a minimum Borrowing Base Availability of at least $25.0 million. After the Conversion Date, NBP is required to maintain at all times a specified maximum funded debt to EBITDA ratio, a maximum senior secured funded debt to EBITDA ratio, a minimum four-quarter rolling EBITDA and a minimum four-quarter rolling debt service coverage ratio. In addition, NBP’s annual net capital expenditures are limited to $48 million in fiscal year 2006 and $50 million in each of the fiscal years thereafter.

     The amended and restated credit facility contains customary affirmative covenants, including furnishing financial statements, maintenance of insurance, conduct of business, maintenance of properties, and compliance with laws. The facility also contains customary negative covenants, including covenants restricting NBP’s ability to pay certain distributions, incur additional indebtedness, merge with another entity, sell or dispose assets, and make investments or acquire assets, among other restrictions.

(9) Subsequent Events

     On June 1, 2006, USPB and its majority owned subsidiary, NBP, completed the acquisition of substantially all of the assets of Brawley Beef pursuant to the Contribution Agreement with Brawley Beef and NBC (the Agreement). NBC is a newly formed limited partnership with National Carriers, Inc., a wholly-owned subsidiary of NBP, acting as its general partner. Brawley Beef was formed in 2001 and owned by an alliance of cattle producers in Arizona and California who supplied its meat packing operations with cattle. Brawley Beef operated a new beef processing facility that began operations in December 2001in Brawley, California, and produced upscale custom cuts for sale to retail customers.

     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 $72 million of Brawley Beef’s debt and current liabilities, subject to certain adjustments. Brawley Beef then exchanged all of its NBC units with USPB, for 44,160 new Class A USPB units and 44,160 new Class B USPB units. The value of these Class A USPB units and Class B USPB units was estimated to be $7.3 million based on recent trades at the time the Agreement was negotiated. Under a separate unit exchange agreement between USPB and NBP, USPB exchanged the limited partnership units of NBC with NBP for 5,899,297 Class A units and 664,475 Class B-1 units of NBP. As a result, USPB’s ownership interest in NBP’s Class B voting units increased to 54.76%.


     Adjustments to the purchase price will be made within 60 days of closing based on changes in the working capital and debt of Brawley Beef prior to the closing date. For accounting purposes, the closing is deemed to have occurred on May 30, 2006. The Company is currently reviewing the valuation of the net assets acquired in determining the allocation of the purchase price.

     Concurrently with the transfer of assets, Brawley Beef entered into long-term cattle supply agreements with both NBC and USPB 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 any indemnification obligations over a three-year period with a combination of cash, deductions from payments under certain cattle contracts or surrender of its USPB units at $165 per unit. In addition, Brawley Beef pledged its USPB 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.




Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Forward-Looking Statements

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

In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this report will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Please review the "Risk Factors"Risk Factors in "Item 1. Business"Item 1. Business of the Company'sCompany’s Annual Report for the year ended August 27, 2005 on Form 10-K filed with the Securities and Exchange Commission on November 26, 2004 for other important factors that could cause actual results to differ materially from those in any such forward-looking statements, and which should be read in conjunction with this report.

Industry Outlook

Recent legal developments and the discovery of a BSE positive animal     Drought conditions provided poor pasture in the U.S. have increased the uncertaintymany important grazing areas of the timing of the border opening for importation of live cattlecountry and contributed to the U.S. from Canada.  Also, while there is a framework of an agreement for the resumption of trade with Japan, it appears trade will not resume for some time.  Currently live weightslarger numbers of cattle being slaughtered continue higher than last year, implying suppliesplaced on feed. The larger number of cattle on feed has increased the supply of market-ready fed cattle in recent weeks, which increases the risk that this supply could decline in the near term will be larger; however, until international market access is restored and live cattle are permitted from Canada, margins can be expected to be negatively impacted. coming months.


Recent Developments

     On June 1, 2006, USPB and its majority owned subsidiary, NBP, completed the acquisition of substantially all of the assets of Brawley Beef, LLC (Brawley Beef) pursuant to a Contribution Agreement with Brawley Beef and National Beef California, LP (NBC) (the Agreement). NBC is a newly formed limited partnership with National Carriers, Inc., a wholly-owned subsidiary of NBP, acting as its general partner. Brawley Beef was formed in 2001 and owned by an alliance of cattle producers in Arizona and California who supplied its meat packing operations with cattle. Brawley Beef operated a new beef processing facility that began operations in December 2001in Brawley, California, and produced upscale custom cuts for sale to retail customers.

     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 $72 million of Brawley Beef’s debt and current liabilities, subject to certain adjustments. Brawley Beef then exchanged all of its NBC units with USPB, for 44,160 new Class A USPB units and 44,160 new Class B USPB units. The value of these Class A USPB units and Class B USPB units was estimated to be $7.3 million based on recent trades at the time the Agreement was negotiated. Under a separate unit exchange agreement between USPB and NBP, USPB exchanged the limited partnership units of NBC with NBP for 5,899,297 Class A units and 664,475 Class B-1 units of NBP. As a result, USPB’s ownership interest in NBP’s Class B voting units increased to 54.76%.

     Adjustments to the purchase price will be made within 60 days of closing based on changes in the working capital and debt of Brawley Beef prior to the closing date. For accounting purposes, the closing is deemed to have occurred on May 30, 2006. The Company is currently reviewing the valuation of the net assets acquired in determining the allocation of the purchase price.

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

Effective DecemberMay 30, 2004, NBP's2006, and related to the purchase of the assets of Brawley Beef, USPB amended credit facility wasits Credit Agreement to provide for the acquisition of limited partnership units in NBC and the contribution of those partnership units to NBP in exchange for an increased ownership percentage (see Note 9.  Subsequent Events).

     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 any indemnification obligations over a three-year period with a combination of cash, deductions from payments under certain cattle contracts or surrender of its USPB units at a value of $165 per unit. In addition, Brawley Beef pledged its USPB 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.

Effective June 1, 2006, and related the purchase of the assets of Brawley Beef, NBP’s amended and restated to reflect changes in loan amounts, interest rates and financial covenants.  In conjunction with the amendment and restatement of itssenior credit facility the Citywith a consortium of Dodge City, Kansas issued $102.3banks was further amended and restated. The facility now consists of a $170.0 million term loan that matures in May 2016 and a $160.0 million revolving line of industrial revenue bonds at the same timecredit loan that effectively resultsmatures in annual savings of approximately 25% in property taxes on the Dodge City facility.May 2011 that is subject to certain borrowing base limitations. These transactions are more fully described in "LiquidityLiquidity and Capital Resources"Resources below.

The closure of U.S. borders to the importation of Canadian feeder and fattened (ready for slaughter) animals, which occurred in May 2003 following the discovery of bovine spongiform encephalopathy (BSE) in Alberta that same month, tightened the U.S. cattle supply.  The U.S. beef packing industry has operated at a price disadvantage during the ban on importation of Canadian livestock.   This continued closure of the U.S. border to Canadian livestock has resulted in higher overall feeder and fed cattle prices in the U.S., negatively impacting raw material prices.  Additionally, the opening of the U.S. border to Canadian produced boxed beef in September 2003 has negatively affected boxed beef prices.

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On December 23, 2003, it was announced by the United States Department of Agriculture (USDA) that a single Holstein dairy cow was discovered in the state of Washington to have tested positive for BSE.bovine spongiform encephalopathy (BSE). The origin of the animal was subsequently traced to a farm in Canada. Shortly after the announcement, several countries, including Japan, representing a substantial share of NBP'sNBP’s export business, closed their borders to the importation of edible beef products from the United States. Certain by-products have been classified as Specified Risk Materials (SRMs), and have been banned from useA second case of BSE in feedstocks and the human food chain. Some of these products previously enjoyedTexas was confirmed in June 2005, with a marketthird case in foreign countries.  In FYE 2004, NBP's total export sales were approximately 10% of total net sales.Alabama confirmed in March 2006.

During the second quarter of FYE 2004, NBP recorded charges to sales and cost of sales totaling approximately $18.8 million due to the market impacts of the closure of international borders as a result of the BSE discovery in late December 2003. 


On December 29, 2004,8, 2005, the USDA announced it had established conditionsJapanese Food Safety Commission issued its final report, concluding that U.S. beef under which it will allow imports into the U.S. of live cattle under 3020 months of age is safe for Japanese consumers. On December 11, 2005, Japan reopened its market to U.S. and certain other commoditiesCanadian beef from regions with effective BSE prevention and detection measures.  Prior to being able to import to the U.S., each country must undergo a thorough risk assessment to be recognized as a "minimal-risk region."  Canada will be the first country recognized as a minimal-risk region and, as such, will be eligible to export to the U.S. live cattle under 3020 months of age (subject to certain restrictions), as well as certain other animals and products.  The final rule was published in the January 4, 2005 Federal Register and was to become effective March 7, 2005 unless delayed by litigation, legislation or other reasons. 

On January 2, 2005, the Canadian Food Inspection Agency confirmed that an older dairy cow from Alberta tested positive for BSE.  The infected animal was born in 1996,younger, where prior to the introductionborder closing, there were no age restrictions on cattle used in beef products imported to Japan. Beef from cattle that would have qualified for export to Japan had to comply with requirements for age verification of cattle and removal of specified risk materials (SRMs). Subsequently, on January 20, 2006, Japan halted the 1997 feed ban.  On January 3, 2005,import of U.S. beef after vertebral columns were found in three boxes from a small U.S. processor. That delivery violated the USDA issued a statement expressing confidenceagreement the U.S. had with Japan regarding vertebral columns, which are included in the animaldefinition of SRMs. On June 21, 2006, Japan and public health measures that Canada has in place, noting that the risk assessment conducted by the USDA as part of the rulemaking process to determine Canada's status as a minimal-risk region included consideration of the possibility that Canada could experience additional cases of BSE.

On March 2, 2005, the U.S. District Court in Billings, Montana granted a preliminary injunctiononce again announced an agreement had been reached to delay the implementation of USDA's minimal-risk regions rule, temporarily blockingpermit the opening of the Canadian borderJapanese markets to the importation of live cattle under 30 months of age into the U.S.  On March 17, 2005, the U.S. Department of Justice, on behalf of the USDA, filed a request with the U.S. Court of Appeals for the Ninth Circuit requesting that the court overturn the decision issued by the U.S. District Court in Montana, which would re-establish trade with Canada for beef products, and live cattle under 30 monthscommencing when inspections of age.  The National Meat Association along with the Canadian Cattlemen's Association and the Alberta Beef Producers, who were all denied leave to intervene in the trial court have also appealed seeking to overturn the preliminary injunction.  Arguments on all these appeals will be held on July 13, 2005.  It is unknown when the Court of Appeals will issue its decision.  Trial on the merits of the case is scheduled to commence on July 27, 2005.  It is unknown when the trial court will make a decision.  These actions introduce significant uncertainty regarding the future timing and nature of trade in live cattle andqualifying U.S. beef products between the U.S. and Canada.plants are completed.

Announcements of inconclusive, preliminary test results for BSE can be expected from time to time as a result of the sensitivity of the new screening regime. SinceConfirmed cases of BSE discovered in the USDA enhanced surveillance programU.S. can lead to uncertainty regarding domestic consumer demand for BSE began in 2004, more than 375,000 cattle have been tested for BSE using a rapid test.  Three of these animals tested inconclusive and were subsequently subjected to immunohistchemistry, or IHC, testing.  The IHC is an internationally recognized confirmatory test for BSE.  All three inconclusive samples tested negative using IHC.  The three samples were then tested by a second internationally recognized confirmatory test, referred to as the Western Blot test.  Of the three samples, two were negative but the third came back reactive.  Because of the conflicting results, the samples from the animal that tested reactive were sent to Weybridge, England for further testingbeef and the resultsexport of that testing were confirmed on June 24, 2005, as positive for BSE.  In a USDA statement issued June 29, 2005, the cow was identified as born and raised in a herd in Texas and was approximately 12 years old.  In the USDA statement, USDA Chief Veterinarian John Clifford stated that the USDA believes, "it was most likely infected by consuming feed prior to the implementation of the ruminant-to-ruminant feed ban in 1997," and he emphasized "that this animal did not enter the human food chain."  Although the Secretary of the USDA has stated that there is no risk to animal or human health related to this case, the impact on the market created by this or other future tests is not possible to predict.

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We cannotU.S. beef. Neither USPB nor NBP can presently assess the full economic impact of the consequences of BSE on the U.S. beef packing industry or on ourthe Company’s operations. The Company'sCompany’s revenues and net income may continue to be materially adversely affected in the eventdue to existing or new import restrictions continue indefinitely, additional countries announce similar restrictions,or additional regulatory restrictions, are put into effect or disruptions in domestic consumer demand for beef declines substantially.beef.

Results of Operations

Thirteen weeks ended May 28, 200527, 2006 compared to thirteen weeks ended May 29, 200428, 2005

General.Net income for the thirteen weeks ended May 28, 200527, 2006 was $11.1$12.9 million compared to net income of $3.9$11.1 million for the thirteen weeks ended May 29, 2004,28, 2005, an increase of $7.2$1.8 million, or 184.6%16.2%. Sales were higher in the thirteen weeks ended May 27, 2006 compared to those of the prior period due to an approximate 2.7% increase in the number of cattle slaughtered at average weights about 2.8% higher than last year, partially offset by an average decline in sales prices per head of 2.9% for the 13 weeks ended May 27, 2006. Live cattle prices declined approximately 8.1% in the current period resulting from an increase in available market-ready cattle.

     Total costs and expenses of $1,103.0 million and $1,098.0 million for the thirteen weeks ended May 27, 2006 and May 28, 2005, respectively, were 97.2% as a percent of sales for the thirteen weeks ended May 27, 2006 compared to 97.5% for the thirteen weeks ended May 28, 2005. Increasing numbers of market-ready cattle became available during the thirteen weeks ended May 27, 2006 compared to the prior period, contributing to an 8.1% decline in live cattle prices. Additionally, improved plant capacity utilization contributed to an increase in gross margin, resulting in an increase in operating income of $2.9 million, or 10.1% of operating income.

Net Sales. Net sales were $1,134.5 million for the thirteen weeks ended May 27, 2006 compared to $1,126.6 million for the thirteen weeks ended May 28, 2005, an increase of $7.9 million, or 0.7%. The moderate increase resulted from an approximate 2.7% increase in number of cattle slaughtered at average weights about 2.8% higher than last year, offset by an average decline in sales prices per head of 2.9% for the 13 weeks ended May 27, 2006. Sales improved due to continued growth in value-added sales for the thirteen weeks ended May 27, 2006 as compared to May 28, 2005.

Cost of Sales. Cost of sales was $1,085.9 million for the thirteen weeks ended May 27, 2006 compared to $1,082.9 million for the thirteen weeks ended May 28, 2005, an increase of $3.0 million, or 0.3%. The moderate increase resulted primarily from an approximate 2.7% increase in number of cattle slaughtered at average weights about 2.8% higher than last year, offset by a decline in live cattle prices of approximately 8.1% in the current period. Cost of sales benefited from an increase in available market-ready cattle during the thirteen weeks ended May 27, 2006 as compared to May 28, 2005.


Selling, General and Administrative Expenses. Selling, general and administrative expenses were $10.0 million for the thirteen weeks ended May 27, 2006 compared to $9.0 million for the thirteen weeks ended May 28, 2005, an increase of $1.0 million, or 11.1%. The current year reflects an increase in marketing expense and travel expense of approximately $0.5 million associated with supporting two new marketing programs, approximately $0.3 from long-term bonus programs, increased travel associated in part with the Brawley Beef acquisition negotiations, and also from increased fuel costs.

Depreciation and Amortization Expense. Depreciation and amortization expenses were $7.1 million for the thirteen weeks ended May 27, 2006 compared to $6.1 million for the thirteen weeks ended May 28, 2005, an increase of $1.0 million, or 16.4%. Depreciation expense increased due largely to assets being placed into service, primarily at the Dodge City and Liberal beef plants, during the fourth quarter of fiscal year 2005 and the first, second and third quarters of fiscal year 2006.

Operating Income. Operating income was $31.5 million for the thirteen weeks ended May 27, 2006 compared to $28.6 million for the thirteen weeks ended May 28, 2005, an increase of $2.9 million, or 10.1%. The increase resulted primarily from improved market conditions resulting from the increase of available market-ready cattle, as well as an increased number of cattle slaughtered in the current period at higher average weights than the same period last year.

Interest Expense. Interest expense was $8.0 million for the thirteen weeks ended May 27, 2006 compared to $7.3 million for the thirteen weeks ended May 28, 2005, an increase of $0.7 million, or 9.6%. The increase was due primarily to higher interest rates on our variable rate debt for the thirteen weeks ended May 27, 2006, as compared to the same period in fiscal year 2005.

Other, net.Other, net non-operating income was $0.7 million for the thirteen weeks ended May 27, 2006 compared to non-operating income of $0.4 million for the thirteen weeks ended May 28, 2005, an increase of $0.3 million, due primarily to $0.4 million in patronage income received in the current period.

Income Tax (Benefit) Expense. Income tax benefit was $0.1 million for the thirteen weeks ended May 27, 2006 compared to income tax expense of $0.8 million for the thirteen weeks ended May 28, 2005, a decrease in expense of $0.9 million. Income tax expense decreased due to lower income recorded by National Carriers, Inc., which is organized as a C Corporation, in the current period compared to the same period last year.

Thirty-nine weeks ended May 27, 2006 compared to thirty-nine weeks ended May 28, 2005

General.Net loss for the thirty-nine weeks ended May 27, 2006 was $1.1 million compared to net income of $0.7 million for the thirty-nine weeks ended May 28, 2005, a decrease in income of $1.8 million. Sales and cost of sales were both higher in the thirty-nine weeks ended May 27, 2006 than those of the prior year period primarily due to an increase of approximately 1.4% in the number of cattle processedslaughtered, and an increase in live cattle weights of approximately 2.3%1.6%, combined with a slight increase in live cattle prices of approximately 0.1% and an approximate 1.0% increase in sales prices per head. For the thirty-nine weeks ended May 27, 2006, cost of sales increased at a higher rate than sales, negatively impacting gross margin for the thirty-nine weeks ended May 27, 2006 as compared to the same period in the prior year.

     Total costs and expenses of $3,290.4 million and $3,176.4 million for the thirty-nine weeks ended May 27, 2006 and May 28, 2005, respectively, were 99.4% as a percent of sales for the thirty-nine weeks ended May 27, 2006 compared to 99.1% for the thirty-nine weeks ended May 28, 2005. The first half of fiscal year 2006 was negatively impacted by the tightened supply of market-ready cattle; increased supply of market-ready cattle helped lower live cattle costs in the third quarter of fiscal year 2006. Lower plant capacity utilization in the first half of fiscal year 2006 combined with continued export market closures contributed to a decline in gross margin, resulting in lower operating income for the thirty-nine weeks ended May 27, 2006.


Net Sales. Net sales were $3,310.3 million for the thirty-nine weeks ended May 27, 2006 compared to $3,204.0 million for the thirty-nine weeks ended May 28, 2005, an increase of $106.3 million, or 3.3%. The increase resulted primarily from an increase of approximately 1.4% in the number of cattle slaughtered, an increase in live cattle weights that averaged 2.0% higher thanof approximately 1.6% and an approximate 1.0% increase in sales prices per head in the thirty-nine weeks ended May 27, 2006 compared to the same period in the prior year. Sales prices improved due to an improved product sales mix and continued growth in value-added sales for the thirteenthirty-nine weeks ended May 27, 2006 as compared to May 28, 2005.

Cost of Sales. Cost of sales was $3,241.2 million for the thirty-nine weeks ended May 27, 2006 compared to $3,131.7 million for the thirty-nine weeks ended May 28, 2005, as compared to May 29, 2004.

Total costs and expenses of $1,098.0 million and $1,002.6 million, respectively, as a percent of sales were 97.5% for the thirteen weeks ended May 28, 2005 compared to 98.4% for the thirteen weeks ended May 29, 2004.  Costs were higher due to a 2.3% increase in the number of cattle processed from 2004, combined with higher live cattle prices and higher average live weights.  Operating income increased $12.5 million due to boxed beef and beef product prices rising at a higher rate than live cattle costs.

Net Sales.  Net sales were $1,126.6 million for the thirteen weeks ended May 28, 2005 compared to $1,018.7 million for the thirteen weeks ended May 29, 2004, an increase of $107.9$109.5 million, or 10.6%3.5%. The increase resulted primarily from an increase in boxed beef and beef product prices of approximately 7.0% combined with an approximate 2.3%1.4% increase in the number of cattle processed in 2005. 

Cost of Sales.  Cost of sales was $1,082.9 million for the thirteen weeks ended May 28, 2005 compared to $987.1 million for the thirteen weeks ended May 29, 2004,slaughtered, and an increase in live cattle weights of $95.8 million or 9.7%.  The increase resulted primarily fromapproximately 1.6%, combined with a 5.8%slight increase in live cattle prices combined with an increaseof approximately 0.1%. The first half of fiscal year 2006 was negatively impacted by the tightened supply of market-ready cattle; increased supply of market-ready cattle helped lower live cattle costs in the numberthird quarter of cattle processed from 2004 of 2.3% and an increase in average live weights of 2.0%.fiscal year 2006.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $9.0$28.6 million for the thirteenthirty-nine weeks ended May 27, 2006 compared to $26.5 million for the thirty-nine weeks ended May 28, 2005, compared to $10.4 million for the thirteen weeks ended May 29, 2004, a decreasean increase of $1.4$2.1 million, or 13.5%.   The decrease7.9%, which is primarily due to a $0.5 million decrease in professional services, a $0.4 million decreasean increase in payroll and relatedbenefit expenses a $0.2of approximately $1.5 million, and an approximate $1.1 million increase in marketing expense and travel expense associated with supporting two new marketing programs, increased travel associated in part with the Brawley Beef acquisition negotiations, and also from increased fuel costs; partially offset by an approximate $1.0 million decrease in bad debt expense and a $0.3 million decrease in marketing expense.reserve resulting from miscellaneous recoveries.

Depreciation and Amortization Expense. Depreciation and amortization expenses were $6.1$20.6 million for the thirteenthirty-nine weeks ended May 27, 2006 compared to $18.2 million for the thirty-nine weeks ended May 28, 2005, compared to $5.1 million for the thirteen weeks ended May 29, 2004, an increase of $1.0$2.4 million, or 19.6%13.2%. Depreciation expense increased due largely to assets being placed into service, primarily at the Dodge City and Liberal beef plants, atduring the endfourth quarter of fiscal year 20042005 and throughout the first, threesecond and third quarters of fiscal year 2005.2006.

Operating Income. Operating income was $28.6$19.9 million for the thirteenthirty-nine weeks ended May 27, 2006 compared to $27.6 million for the thirty-nine weeks ended May 28, 2005, compareda decrease of $7.7 million, or 27.9%. The first half of fiscal year 2006 was negatively impacted by the tightened supply of market-ready cattle; increased supply of market-ready cattle helped lower live cattle costs in the third quarter of fiscal year 2006. Lower plant capacity utilization in the first half of fiscal year 2006 combined with continued export market closures contributed to $16.1a decline in gross margin, resulting in lower operating income for the thirty-nine weeks ended May 27, 2006.

Interest Expense. Interest expense was $23.2 million for the thirteenthirty-nine weeks ended May 29, 2004, an increase of $12.527, 2006 compared to $21.8 million or 77.6%.  The increase resulted from higher boxed beef and beef product prices, partially offset by higher live cattle prices.  Operating income, as a percentage of net sales, was 2.5% for the thirteenthirty-nine weeks ended May 28, 2005, and 1.6% for the thirteen weeks ended May 29, 2004.

Interest Expense.  Interest expense was $7.3 million for the thirteen weeks ended May 28, 2005 compared to $6.7 million for the thirteen weeks ended May 29, 2004, an increase of $0.6$1.4 million, or 9.0%6.4%. The increase was due primarily to higher interest rates on NBP'sour variable rate debt, partially offset by a decrease in average revolver borrowings for the thirteenthirty-nine weeks ended May 28, 200527, 2006, as compared to the same period in fiscal 2004.

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Income Tax Expense.  Income tax expense of $0.8 million for the thirteen weeks ended May 28, 2005 compared to $0.9 million for the thirteen weeks ended May 29, 2004, a decrease of $0.1 million or 11.1%.  The decrease was primarily due to the conversion from a cooperative to an LLC offset by increased income tax expense as a result of higher income for the period for National Carriers, Inc. and the associated income tax expense on income from that entity, which is organized as a C Corporation.year 2005.

Thirty-nine weeks ended May 28, 2005 compared to thirty-nine weeks ended May 29, 2004

General.Other, net.  NetOther, net non-operating income for the thirty-nine weeks ended May 28, 2005 was $0.7 million compared to net income of $13.8$2.0 million for the thirty-nine weeks ended May 29, 2004, a decrease of $13.1 million or 94.9%.  Sales were higher in the thirty-nine weeks ended May 28, 2005 than those of the prior year period due to an increase in the number of cattle processed of approximately 4.5% combined with an approximate 3.1% increase in average weights. The loss of export markets due to BSE, the smaller supplies of cattle as a result of the continued closure of the Canadian border to live cattle imports and the on-going importation of boxed beef products to the U.S. from Canada pressured beef margins in the first half of fiscal 2005, but recently there has been some improvement in boxed beef prices.

Total costs and expenses as a percent of sales were 99.1% for the thirty-nine weeks ended May 28, 2005 compared to 98.4% for the thirty-nine weeks ended May 29, 2004.  Costs were higher due to a 4.5 % increase in the number of cattle processed from 2004, combined with an approximate 3.1% increase in average weights.  Operating income decreased $20.2 million primarily due to continued pressure on boxed beef and beef product prices relative to live cattle costs, and to a continuing unfavorable pricing environment for products traditionally marketed outside the U.S., especially in the first half of fiscal 2005.

Net Sales.  Net sales were $3,204.0 million for the thirty-nine weeks ended May 28, 2005 compared to $3,009.1 million for the thirty-nine weeks ended May 29, 2004, an increase of $194.9 million or 6.5%.  The increase resulted primarily from an increase in the number of cattle processed and higher average weights.  Boxed beef and beef product prices were generally pressured by the loss of key export markets closed to U.S. beef products due to BSE as well as the continued flow of boxed beef products from Canada to the U.S.

Cost of Sales.  Cost of sales was $3,131.7 million for the thirty-nine weeks ended May 28, 2005 compared to $2,918.5 million for the thirty-nine weeks ended May 29, 2004, an increase of $213.2 million or 7.3%.  The increase resulted primarily from an increase in the number of cattle processed of 4.5% combined with an approximate 3.1% increase in average live weights.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were $26.5 million for the thirty-nine weeks ended May 28, 2005 compared to $26.0 million for the thirty-nine weeks ended May 29, 2004, an increase of $0.5 million or 1.9%.  The increase is primarily due to a $0.6 million increase in payroll and related expenses, an expense for state franchise taxes of approximately $0.3 million, offset by a decrease in professional services of $0.2 million.

Depreciation and Amortization Expense.  Depreciation and amortization expenses were $18.2 million for the thirty-nine weeks ended May 28, 2005 compared to $16.7 million for the thirty-nine weeks ended May 29, 2004, an increase of $1.5 million or 9.0%.  The increase is largely attributable to assets being placed into service at our processing plants at the end of fiscal year 2004 and throughout the first three quarters of fiscal year 2005.

Operating Income.  Operating income was $27.6 million for the thirty-nine weeks ended May 28, 2005 compared to $47.8 million for the thirty-nine weeks ended May 29, 2004, a decrease of $20.2 million or 42.3%.  The continued closure of the U.S. border to Canadian livestock and the corresponding reduction in the number of live cattle available for processing, along with the loss of key export markets and continued flow of boxed beef products from Canada to the U.S has resulted in compressed margins in the U.S. beef packing industry for the first half of fiscal year 2005, but recently there has been some improvement in boxed beef prices.  Operating income, as a percentage of net sales, was 0.9% for the thirty-nine weeks ended May 28, 2005 and 1.6% for the thirty-nine weeks ended May 29, 2004.

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Interest Expense.  Interest expense was $21.8 million for the thirty-nine weeks ended May 28, 2005 compared to $19.8 million for the thirty-nine weeks ended May 29, 2004, an increase of $2.0 million or 10.1%.  The increase was due primarily to higher interest rates in the thirty-nine weeks ended May 28, 2005 as compared to the same period in fiscal 2004.

Other, net.  Other, net non-operating expense was $2.1 million for the thirty-nine weeks ended May 28, 200527, 2006 compared to non-operating incomeexpense of $2.1 million for the thirty-nine weeks ended May 29, 2004.28, 2005, an increase in income of $4.1 million. The thirty-nine weeks ended May 28,27, 2006 included $0.6 million in income we received for a settlement of a lawsuit related to corrugated packaging materials and $0.4 million in patronage income received, and the same period for fiscal year 2005 included $3.2 million in expense for the write-off of unamortized loan costs associated with amending and restating ourNBP’s existing senior credit facility, and the same period in fiscal 2004 included a $1.2 million gain received through the demutualization of a company which held annuities for NBP employees.facility.

Income Tax Expense. Income tax expense was $1.0 million for the thirty-nine weeks ended May 27, 2006 compared to $1.9 million for the thirty-nine weeks ended May 28, 2005, compared to $2.4 million for the thirty-nine weeks ended May 29, 2004, a decrease of $0.5$0.9 million, or 20.8%47.4%. The decrease was primarilyIncome tax expense decreased due to the conversion from a cooperative to an LLC offsetlower income recorded by increased income tax expense as a result of higher income for the period for National Carriers, Inc. and the associated income tax expense on income from that entity,, which is organized as a C Corporation.Corporation, in the current period compared to the same period last year.


Liquidity and Capital Resources

As of May 28, 2005,27, 2006, we had net working capital of $183.4$178.1 million, which included $0.4$1.9 million in distributions payable, and cash and cash equivalents of $42.8 million. At$49.5 million, including $4.0 million restricted to IRB approved expenditures. As of August 28, 2004,27, 2005, we had net working capital of $179.9$178.6 million, which included $3.1$1.9 million in distributions payable, and patronage refunds payable in cash, and cash and cash equivalents of $43.6 million.$54.4 million, including $3.9 million restricted to IRB approved expenditures. Our primary sources of liquidity are cash flows from operations and available borrowings under ourNBP’s amended and restated credit facility.

As of May 28, 2005,27, 2006, we had $332.6$329.5 million of long-term debt, of which $1.0$3.0 million was classified as a current liability. As of May 28, 2005, there were27, 2006, NBP’s fourth amended and restated credit facility consisted of a $120.0 million term loan, all of which was outstanding, and a $140.0 million revolving line of credit loan, which had outstanding borrowings of $32.3$22.3 million, outstanding letters of credit of $44.0$44.5 million and available borrowings of $63.7$66.9 million, underbased on the $140.0 million revolving portion of our amended and restated credit facility.most restrictive financial covenant calculations. Cash flow from operations and borrowings under ourNBP’s amended and restated credit facility have funded ourits working capital requirements, capital expenditures and other general corporate purposes. We wereNBP was in compliance with all of ourthe financial covenants under theits amended and restated credit facility as of May 28, 2005.27, 2006.

In addition to outstanding borrowings under ourthe amended and restated credit facility, wethe Company had outstanding senior notes of $160.0 million, borrowings under industrial revenue bonds of $13.8 million, senior notesa term loan with CoBank, of $160.0which $5.4 million was outstanding, and term loanscapital leases of $126.5$8.0 million as of May 28, 2005.27, 2006.

Amended and Restated Senior Credit FacilityFacilities

Effective DecemberMay 30, 2004,2006, and related to the purchase of the assets of Brawley Beef, more fully described inRecent Developments above, USPB amended its Credit Agreement to provide for the acquisition of limited partnership units in National Beef California, L.P. and the contribution of those partnership units to NBP in exchange for an increased ownership percentage (see Note 9. Subsequent Events).

Effective June 1, 2006, and related to the purchase of the assets of Brawley Beef, more fully described inRecent Developments above, NBP amended and restated its existing senior credit facility with a consortium of banks. The facility now consists of a $120.0$170.0 million term loan that matures in December 2014May 2016 and a $140.0$160.0 million revolving line of credit loan that matures in December 2009May 2011 that is subject to certain borrowing base limitations. TheThis amendment and restatement is within the scope of the Emerging Issues Task Force (EITF) 96-19,Debtor'sDebtor’s Accounting for a Modification or Exchange of Debt Instruments as well as EITF 98-14,Debtor'sDebtor’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 $2.6 million from the previous credit facility as well as additional finance and legal charges associated with the new amended and restated credit facility of approximately $0.6 million were recorded in Other, net in the Statement of Operationswill be written off during the Company's secondCompany’s fourth quarter of fiscal year 2005. 2006. Management is currently evaluating the impact of the guidance on the costs and charges. At the closing of the amended and restated credit facility, NBP had outstanding $170.0 million under the term loan and $21.1 million under the revolving loan with an additional $51.6 million of the revolving loan used in the form of letters of credit and had estimated available borrowings of $76.5 million based on the most restrictive financial covenant calculations.

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The borrowings under the revolving loan are available for NBP'sNBP’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 NBP'sNBP’s assets. The principal amount outstanding under the term loan is due andshall be payable in equal quarterlysemi-annual installments of $6.0 million on the last business day of each March, June September and December commencing June 30, 2011 in equal installments of approximately $2.8 million, with any and all remaining principal outstanding being due and payable on March 31, 2010 and ending on December 29, 2014.the maturity date. Prepayment is allowed at any time.

NBP's


     NBP’s amended and restated credit facility contains covenants that limit its ability to incur additional indebtedness, sell or dispose of assets, pay certain dividends and prepay or amend certain indebtedness among other matters. The amended and restated credit facility also contains a provision for a conversion to more favorable interest rates and more restrictive financial covenants on the earlier of (a) June 1, 2006August 25, 2007 or (b) the election of NBP (the Conversion Date). AtCurrently, the election of NBP, interest may be computed atrate for the term loan is (a) the Base Rate (as defined in the credit agreement) plus an applicable margin75 basis points or (b) the LIBOR Rate (as defined in the credit agreement) plus 275 basis points, or a LIBOR rate plus an applicable margin.  Ascombination of May 28, 2005,these rates at the election of NBP. At closing of the amended and restated credit facility, the interest rate for the term loan was equal8.75%. On June 6, 2006, the term loan was converted to a 90 day LIBOR Rate loan at 8.0625%. Currently, the interest rate for the revolving loan is (a) the Base Rate plus 27550 basis points (5.8%)or (b) the LIBOR Rate plus 250 basis points, or a combination of these rates at the election of NBP. At closing of the amended and restated credit facility, the weighted average interest rate for the revolving loan was equal to LIBOR plus 250 basis points (5.6%).  After8.5%, as a Base Rate loan.After the Conversion Date, the interest rate for the term loan and the revolving loan iswill be determined by reference to a matrix of rates keyed to NBP'sNBP’s funded debt to EBITDA (as defined in the credit agreement) ratio.

The amended and restated credit facility also imposes certain financial covenants. From DecemberMay 30, 20042006 until the earlier of February 28, 2007 or the Conversion Date, NBP is required to (i) have as of the end of each fiscal quarter a minimum four-quarter rolling EBITDA of $50.0 million and (ii) maintain at all times a minimum Borrowing Base Availability (as defined in the credit agreement) of at least $25.0 million. After February 28, 2007 until the Conversion date, NBP is required to (i) have as of the end of each fiscal quarter a minimum four-quarter rolling EBITDA of $60.0 million and (ii) maintain at all times a minimum Borrowing Base Availability of at least $25.0 million. After the Conversion Date, NBP will be subjectis required to covenants imposingmaintain at all times a specified maximum funded debt to EBITDA ratio, a maximum senior secured funded debt to EBITDA ratio, a minimum four-quarter rolling EBITDA and a minimum four-quarter rolling debt service coverage ratio. In addition, ourNBP’s annual net capital expenditures are limited to amounts ranging from $32 million in fiscal 2005 to $40 million in fiscal 2008 and fiscal years thereafter.  As defined in the amended credit facility, EBITDA contains specified adjustments.  On May 28, 2005, the Company was in compliance with all financial covenants.

Effective July 7, 2005, NBP amended its existing senior credit facility with a consortium of four lenders.  The facility was amended to allow NBP to purchase up to $30 million in cumulative purchase price (including any premium) of its 10‑1/2% Senior Notes due August 1, 2011 so long as NBP is not in default under the facility at the time of the purchase or as a result of the purchase.

Industrial Revenue Bonds

In conjunction with the amendment and restatement of NBP's credit facility, effective December 30, 2004, NBP 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 the Company's Dodge City facility (the facility) by issuing $102.3 million in bonds due in December 2014, and leased the facility to NBP for an identical term under a capital lease.  The City's bonds were purchased by NBP using proceeds of its term loan under the 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, NBP, 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 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 NBP 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 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.

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Utilities Commitment

Effective December 30, 2004, NBP finalized an agreement with the City of Dodge City, Kansas, whereby in consideration of certain improvements made to the City water and wastewater systems, NBP has committed to make a series of service charge payments totaling $19.3 million over a 20 year period.  Payments under the commitment will be $0.8 million in fiscal year 2005, $1.2$48 million in fiscal year 2006 $1.4and $50 million in each of the fiscal year 2007, $1.4 million in fiscal year 2008years thereafter.

     The amended and $1.4 million in fiscal year 2009,restated credit facility contains customary affirmative covenants, including furnishing financial statements, maintenance of insurance, conduct of business, maintenance of properties, and compliance with the balance of $13.1 millionlaws. The facility also contains customary negative covenants, including covenants restricting NBP’s ability to be paid in subsequent years. pay certain distributions, incur additional indebtedness, merge with another entity, sell or dispose assets, and make investments or acquire assets, among other restrictions.

Capital spending through the thirty-nine weeks ended May 28, 2005 was approximately $14.0 million.  NBP expects to spend somewhat less than $25 million in total on capital expenditures during fiscal year 2005, primarily for plant expansion, renewals and improvements.

We believe that available borrowings under the NBP amended and restated credit facility and cash provided by operating activities will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future. Our ability to generate sufficient cash, however, is subject to certain general economic, financial, industry, legislative, regulatory and other factors beyond our control. For a review of our obligations that affect liquidity, please see theCash Payment Obligations table in Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended August 27, 2005.

Operating Activities

     Net cash provided by operating activities in the thirty-nine weeks ended May 28, 200527, 2006 was $22.6$14.0 million compared to $21.4net cash provided by operating activities of $24.2 million in the thirty-nine weeks ended May 29, 2004,28, 2005. The $10.2 million decrease was primarily due to an increase in working capital requirements in the result ofcurrent period resulting from increased beef inventory volumes partially offset by lower live cattle prices, combined with a decrease in net earningsloss in the current year compared to net income in the same period offset by a decrease in working capital requirements.last year.


Investing Activities

     Net cash used in investing activities was $22.6 million in the thirty-nine weeks ended May 27, 2006 compared to $12.6 million in the thirty-nine weeks ended May 28, 2005 compared2005. This increase in cash used was primarily attributable to $22.6an increase in expenditures for property, plant and equipment related to improving operating efficiencies, primarily at our Dodge City and Liberal facilities in the current year.

      Financing Activities

     Net cash provided by financing activities was $3.7 million in the thirty-nine weeks ended May 29, 2004.  This decrease in cash used was primarily attributable to $9.9 million less in expenditures for property, plant and equipment in the current year.

Financing Activities

                Net cash used in financing activities was $10.8 million in the thirty-nine weeks ended May 28, 200527, 2006 compared to net cash used in financing activities of $4.0$12.5 million in the thirty-nine weeks ended May 29, 2004.28, 2005. The change was primarily attributed to a $22.9 million decrease in member and partnership cash distributions, a $5.9 million net increase in borrowings on the term note payable and other indebtedness and a $4.7 change in overdraft balances, offset by a $40.1$17.1 million difference in the thirty-nine week change of fiscal 2004year 2006 as compared to the thirty-nine week change in fiscal year 2005 in revolving credit borrowings.borrowings, offset by a $2.4 million decrease in the overdraft balance in the current year, combined with $1.7 million of financing costs paid in fiscal year 2005.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

NBP purchases cattle for use in its processing businesses. When appropriate, itNBP enters 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 NBP uses depends on a number of factors, including availability of appropriate derivative instruments.

NBP sells commodity beef products in its business. Commodity beef products are subject to price fluctuations that may create price risk. When appropriate, itNBP enters 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 itsNBP’s ability to participate in gains from commodity price fluctuations, it also tends to reduce the risk of loss from changes in commodity beef prices. NBP reflects commodity contract gains and losses as adjustments to the basis of underlying commodities sold; gains or losses are recognized in the Statementstatement of Operationsoperations as a component of net sales.

NBP 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, 133.Accounting for Derivative Instruments and Hedging Activities, as amended, NBP accounts for futures contracts and their related firm commitments at fair value. Most firm commitments for boxed beef sales are treated as "normal“normal purchases and sales"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 NBP management believes each of these instruments help mitigate various market risks, they are not designated and accounted for as hedges under SFAS No. 133 as a result of the extensive recordkeeping requirements of this statement. Accordingly, the gains and losses associated with the change in fair value of the instrument and the offsetting gains and losses associated with changes in the market value of certain of the firm commitments related to the futures contracts are recorded to income and expense in the period of change.

The following table describes     NBP uses a sensitivity analysis to evaluate the numbereffect that changes in the market value of futures positions andcommodities will have on these commodity derivative instruments. As of May 27, 2006, the potential change in fair value of those positions and related firm commitments at May 28,applicable commodity prices, assuming a hypothetical 10% decrease in the underlying commodity price, was $12.1 million. As of August 25, 2005, and August 28, 2004.  A positionthe potential change in live cattle consistsfair value of 40,000 pounds.  Firm commitments for purchase are for live cattle and firm commitments for sales are for boxed beef (dollarsapplicable commodity prices, assuming a hypothetical 10% decrease in thousands).the underlying commodity price, was negligible.

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Positions expiring

 

May 28, 2005

 

within 1 year

Fair Value

Live Cattle

     Futures long . . . . . . . . . . . . . . . . . . .

$            

-

     Futures short . . . . . . . . . . . . . . . . . . .

1,121

(166)

     Firm Commitments Purchase . . . . . .

177

     Firm Commitments Sale . . . . . . . . .

    -

August 28, 2004

Live Cattle

     Futures long . . . . . . . . . . . . . . . . . . .

$

-

     Futures short . . . . . . . . . . . . . . . . . . .

55

96

     Firm Commitments Purchase . . . . . .

(96)

     Firm Commitments Sale . . . . . . . . .

  -

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

We have short-term and long-term debt with variable interest rates. Short-term debt is primarily comprised of the current portion of long-term debt maturing twelve months from the balance sheet date. Our variable interest expense is sensitive to changes in the general level of interest rates.

The      Our exposure to interest rate exchange agreement, which effectively resulted in converting variable-rate debt into fixed-rate debt, on USPB's CoBank term loan, terminated on January 3,risk has not materially changed since August 27, 2005.  As a result, USPB is now exposed to fluctuations in interest rates.  The interest rate exchange agreement fixed the 90 day LIBOR index at 6.153%.  At May 28, 2005, the 90 day LIBOR index was 3.1%.

Item 4. 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 Principal FinancialChief Reporting and AccountingCompliance Officer. Based upon that evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Principal FinancialChief Reporting and AccountingCompliance 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 controls over financial reporting during the thirteen weeks ended May 28, 200527, 2006 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     For information regarding legal proceedings, see Note 6, "Contingencies"5.Contingencies to our Consolidated Financial Statements included in Part I-Item 1 of this Form 10-Q.


Item 1A. Risk Factors

     The risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended August 27, 2005 have not materially changed. Please refer to the Company’s report on Form 10-K for the fiscal year ended August 27, 2005 to consider those risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     None.

20For information regarding the issuance of units by the Company in connection with the acquisition of assets of Brawley Beef, seeManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments above. A total of 44,160 Class A Units and 44,160 Class B Units were issued to Brawley Beef at an agreed estimated valuation of $7.3 million. The units were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.




Item 3. Defaults Upon Senior Securities

      None.

Item 4. Submission of Matters to a Vote of Security Holders

      None.

Item 5. Other Information

     NBP may purchase a portion of its outstanding Senior Notes from time to time in accordance with the limits imposed under its senior credit facility.

Item 6. Exhibits

(A) Exhibits

(A)

2.1*

Exhibits

Contribution Agreement dated as of May 19, 2006 between Brawley Beef,
LLC, National Beef California, L.P. and National Beef Packing Company,
LLC.
 

3.1 (a)

2.2*

Contribution Agreement dated as of May 30, 2006 between U.S. Premium

Beef, LLC and Brawley Beef, LLC
2.3*Contribution Agreement dated as of May 30, 2006 between U.S. Premium
Beef, LLC and National Beef Packing Company, LLC
3.1(a)Limited Liability Company Agreement of National Beef Packing Company,
LLC, (NBP), as of August 6, 2003.  (incorporated by reference to Exhibit 3.1 (a) to NBP's Quarterly Report on Form 10-Q for the period ended May 28, 2005, filed with the Commission on July 11, 2005).

 

3.1 (b)

3.1(b)

Amendment to the Limited Liability Company Agreement of National Beef

Packing Company, LLC, (NBP) as of July 7, 2005.  (incorporated by reference to Exhibit 3.1 (b) to NBP's Quarterly Report on Form 10-Q for the period ended May 28, 2005, filed with the Commission on July 11, 2005.) .

 

10.1

3.1(c)

First AmendmentRevised Exhibit 3.1 to Fourththe Limited Liability Company Agreement of National

Beef Packing Company, LLC, effective as of May 30, 2006.
10.1(a)Fifth Amended and Restated Credit Agreement dated as of July 7, 2005,May 30, 2006 by
and among NBP,National Beef Packing Company, LLC and certain agents, lenders
and issuers.issuers (incorporated by reference to Exhibit 10.1 to NBP's Quarterlythe Company’s
Current Report on Form 10-Q for the period ended May 28, 2005,8-K filed with the Commission on July 11, 2005)June 22, 2006).


 

31.1

10.1(b)

Sixth Amendment to Credit Agreement, dated June 20, 2006, effective as of

May 30, 2006, by and among U.S. Premium Beef, LLC and CoBank, ACB, as
agent for the benefit of the syndication parties. (filed herewith)
31.1Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

 

31.2

31.2

Certification of the Principal Financial and Accounting Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

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.

of 2002.
 

32.2

32.2

Certification of the Principal Financial and Accounting Officer pursuant to 18

U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleySarbanes-
Oxley Act of 2002.

* 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.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

U.S. Premium Beef, LLC
 

By:

By:

/s/ Steven D. Hunt

Steven D. Hunt

Chief Executive Officer and Manager
(Principal Executive Officer)

 

By:

/s/ Danielle Imel

By:/s/ Scott J. Miller

Danielle Imel
Scott J. Miller

 Treasurer
Chief Reporting and Compliance Officer
(Principal Financial and Accounting Officer)

Date: July 11, 200510, 2006

 

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