UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FormFORM 10-Q

                   (Mark(Mark one)

Commission file number 333-115164

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

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.

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.

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

1

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

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

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

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.

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.

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.

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.

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.

     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.

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.

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.

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.